Goodbye OPEC, UAE Says Amid Energy Crisis

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

The situation in the Middle East has prompted a rethink of a membership in OPEC. The United Arab Emirates now has sights on oil production increases.

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It's a Policy Decision, UAE Says

The energy minister for the United Arab Emirates (UAE) said Tuesday that an examination of the current situation in the Middle East prompted a departure from the Organization of the Petroleum Exporting Countries.

According to Industrial Info Resources data, the UAE is home to more than 1,200 active capital Oil & Gas Production projects, with a total investment value of US$115.1 billion.

Suhail Mohamed al-Mazrouei, the energy minister for the UAE, told Reuters on Tuesday the country would leave the Organization of the Petroleum Exporting Countries (OPEC) by Friday amid the energy crisis triggered by the U.S.-led war in Iran. Millions of barrels of oil and natural gas are either trapped in the Persian Gulf or shut in because of the lack of free navigation through the Strait of Hormuz.

"This is a policy decision, it has been done after a careful look at current and future policies related to level of ⁠production," the energy minister said.

Order Breaks Down During Energy Crisis

Ole Hanson, the head of commodity strategy at Saxo Bank in Denmark, said in a Tuesday response to the decision that Emirati oil production averaged 2.2 million barrels per day last month, compared to an official target of 5 million bpd by 2027.

Leaving OPEC would allow the UAE to free itself from the group's production curtailment, but it limits OPEC's ability to adjust to market conditions. The departure also raises questions about the rules-based international system that's been eroded by the rise of nationalist policies.

"If other producers begin prioritizing market share over quota discipline, OPEC's ability to manage orderly markets through coordinated supply adjustments may increasingly be called into question," Hanson said.

By the Numbers

• 5 million: Barrels per day from the UAE by 2027
• 1.7 million: Barrels per day through the Emirati pipeline

The UAE's decision may please U.S. President Donald Trump, who at times has turned his ire toward OPEC for ostensibly keeping crude oil prices elevated. His decision, however, to join Israel in joint airstrikes on Iran in late February pushed Brent crude oil, the global benchmark, from around $70 per barrel to around $105 per barrel by Tuesday.

Apart from market pressures, the blockade of the Strait of Hormuz is creating pressure on the agricultural sector because of higher prices for fertilizer feedstock. Steel and aluminum are at a premium as well because of airstrikes on Iranian infrastructure.

The International Energy Agency had already warned the conflict could easily push the market to a deficit, erasing the supply overhang from last year. Options to get products out of the region, meanwhile, are limited.

"Only Saudi Arabia and the UAE have operational crude pipelines that could potentially reroute flows to bypass the Strait, with an estimated 3.5 million bpd to 5.5 million bpd of available capacity," the agency said in early March.

The UAE can avoid the Strait of Hormuz by redirecting crude oil through its Abu Dhabi Crude Oil Pipeline. That can carry around 1.7 million bpd, though that hardly covers the 600 million barrels or so trapped in the Persian Gulf, based on data from London oil broker PVM.

Crude oil prices remained elevated on Tuesday, even with the prospect of more barrels on the market. With fading prospects for a lasting cease-fire, the price for Brent crude oil, the global benchmark, is up more than 4% so far this week.

Key Takeaways

• OPEC unity dissolves amid war.
• Production discipline under review.

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