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🇮🇩 Indonesia /Economy & Trade

UAE's OPEC Exit Deals Blow to Saudi Arabia's Dominance

From Tempo · (6m ago) Indonesian

Translated from Indonesian, summarized and contextualized by DistantNews.

TLDR

  • The UAE is exiting OPEC and the OPEC+ alliance on May 1, ending years of disputes with Saudi Arabia over oil production quotas.
  • The UAE aims to expand its oil production capacity, believing it can sell more oil independently, especially as global demand rises.
  • The move weakens Saudi Arabia's ability to manage oil prices and enforce discipline within OPEC, potentially making price defense more costly and less effective.

From Jakarta, Indonesia, the departure of the United Arab Emirates from OPEC is viewed as a significant shift in the global oil market dynamics, particularly impacting Saudi Arabia's long-held dominance within the cartel.

The world needs more energy. The world needs more resources, and [the] UAE wanted to be unconstrained by any groups.

— Suhail Al MazroueiThe UAE Energy Minister explains the rationale behind the country's decision to leave OPEC.

The UAE's decision, driven by its ambition to expand oil production and market share, highlights a growing divergence of interests among member states. For years, the UAE has chafed under production quotas that it felt hindered its growth, especially as it invested heavily in its oil infrastructure. Energy Minister Suhail Al Mazrouei's statement about the world needing more energy and the UAE wanting to be unconstrained underscores this frustration.

Losing a member with 4.8 million barrels per day of capacity, and the ambition to produce more, takes a real tool out of the group's [OPEC] hands.

— Jorge LeonJorge Leon, head of geopolitical analysis at research consultancy Rystad Energy, comments on the impact of the UAE's exit.

Analysts suggest this move is a calculated risk by a producer ready to chart its own course. The UAE is betting on future demand, particularly after potential resolutions to the Iran war and the Strait of Hormuz crisis. This independent stance challenges the traditional OPEC model, where Saudi Arabia has often dictated production levels to stabilize prices.

With demand nearing a peak, the calculation for producers with low-cost barrels is changing fast, and waiting your turn inside a quota system starts to look like leaving money on the table.

— Jorge LeonLeon further elaborates on the economic considerations driving the UAE's decision.

The implications for Saudi Arabia are substantial. With the UAE, a member possessing significant spare capacity, gone, Riyadh will find it harder to share the burden of production cuts. This could lead to more expensive and less effective price defense strategies for the Kingdom, weakening its influence not only on global oil prices but also its ability to manage the broader OPEC group. The departure signals a potential loosening of the ties that bind OPEC members, as highlighted by experts who see it as 'the thin end of the wedge.'

the ties binding OPEC members together have loosened.

— David OxleyDavid Oxley, chief climate and commodities economist at Capital Economics, analyzes the broader implications for OPEC cohesion.
DistantNews Editorial

Originally published by Tempo in Indonesian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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