CNA Explains: Why the UAE is quitting OPEC – and what it means for oil markets | UNW

Why does it matter to the region?

Apart from wanting to ramp up production, regional politics were also likely at play in the UAE’s decision.

The UAE has had increasingly frosty relations with Saudi Arabia over economic issues and regional politics, even after both came under attack by fellow OPEC member Iran during the war.

“This exit of OPEC fits into the UAE need for flexibility with key energy consumers as well – including a future relationship with China and a more competitive relationship with Saudi Arabia,” Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy, told the Associated Press.

While Saudi Arabia and OPEC had no immediate reaction, Emirati Energy Minister Suhail al-Mazrouei insisted his country’s decision did not stem from any dispute with its Gulf neighbour.

All this could have consequences for Gulf unity, said Dr James M Dorsey, an Adjunct Senior Fellow at Nanyang Technological University’s S Rajaratnam School of International Studies.

This could include the return of Saudi-Emirati rivalry, said Dr Dorsey, adding that he also expects the UAE to partner with Israel and to tighten its partnership with the US.

How does it benefit the US?

The UAE’s exit could reshape geopolitical alignments.

Philip Cornell, a senior fellow at the Atlantic Council’s Global Energy Center, said that the move may bring Abu Dhabi closer to Washington, particularly after the conflict subsides.

Washington has historically been critical of OPEC, with both US President Donald Trump and former President Joe Biden pressuring the group to boost production.

Analysts said the US is likely to welcome any weakening of the cartel to potentially bring down oil prices.

“They would rather production increase in the US but the government is supportive of production gains wherever they are in the world, especially if it could weaken adversaries,” Ms Ziemba said.

When asked how the US might respond to the move, Dr Dorsey said that Trump “is going to love this”.

“Any weakening of the cartel is, in his mind, a strengthening of the United States,” he said.

What’s the impact on Asia?

For Asia, the benefits of the UAE’s exit will depend heavily on developments in the Strait of Hormuz.

The narrow waterway – through which roughly a fifth of global oil supply passes – remains a key chokepoint. As long as disruptions persist, analysts said any potential benefits from the UAE’s policy shift will be delayed.

Even after the waterway fully reopens, recovery could take months as production ramps up, tankers reposition and infrastructure is assessed for damage, said Ms Ziemba.

In the near term, Asian economies – many of which are heavily reliant on imported energy – are unlikely to see meaningful price relief.

Simon Henderson, director of Gulf and Energy Policy at The Washington Institute, said that countries like China and India depend on oil imports and are therefore price-takers. “They will have to live with whatever happens”, he said.

Countries such as China, India, Japan and South Korea remain exposed to elevated shipping costs, insurance premiums and supply uncertainty linked to tensions in the Gulf.

Analysts noted that even if the UAE increases production, its ability to export is currently constrained by regional instability.

As a result, oil prices in Asia will continue to be driven more by geopolitical risk than by changes within OPEC itself.

Over a longer horizon, however, increased UAE output could help reduce import costs for major buyers, said Ms Ziemba.

Analysts at Argus similarly said that the UAE’s exit from OPEC could benefit buyers in the longer term should the UAE move ahead with more aggressive production expansion plans.

Yet others said that despite these potential shifts, the mechanics of oil trade mean the impact may be less direct than it appears.

Dr Dorsey said the UAE’s exit from OPEC would not matter much to countries like China, as oil is not purchased from OPEC as a bloc, but through bilateral deals with individual producers or state-owned companies.

“OPEC sets pricing, sets production quotas, but the deals are cut bilaterally. China doesn’t buy from OPEC,” Dr Dorsey added.

Argus’ analysts noted that OPEC does not have a collective approach to sales. It abandoned attempts to control price directly in the mid-1980s, in favour of adjusting its output instead.