Faisal Islam: Why the UAE's exit from Opec is a big deal

It will have little effect on the current oil blockades, but it could change everything afterwards. Why the UAE's exit from Opec is a big deal Copyright current_year BBC. All rights reserved. The BBC is not responsible for the content of external sites. Read about our approach to external linking. Copyright current_year BBC. All rights reserved. The BBC is not responsible for the content of external sites. Read about our approach to external linking. A man wearing a long, white dishdasha walks past stacks of bright green barrels bearing "ENOC" branding, Faisal Islam: Why the UAE's exit from Opec is a big deal It is a very big deal that the United Arab Emirates (UAE) has announced its abrupt exit from Opec, the Organisation of Petroleum Exporting Countries. The Emiratis were members even before they became a nation state in 1971. It is a very big deal that the United Arab Emirates (UAE) has announced , the Organisation of Petroleum Exporting Countries. The Emiratis were members even before they became a nation state in 1971. Opec is the organisation of mainly Gulf oil exporters, which for many decades controlled the price of crude oil by decreasing or increasing production and allocating quotas across its membership. It had a vital role in 1970s oil crises, which in turn transformed global energy policy. While Opec production is dominated by Saudi Arabia, the UAE had the second highest spare production capacity. In other words, it was the second most important swing producer, capable of increasing production to help ease prices. Indeed it is precisely this that led to long-term reconsiderations of the UAE's position. Put simply, the UAE wanted to use the considerable capacity it has invested in. Opec quotas limited its production to 3-3.5 million barrels per day. Opec membership sacrifices, in terms of lost revenues, were being made disproportionately by the UAE. However, the timing of this move hints at consequences from the Iran war. The pressure cooker in the Gulf has impacted the UAE's relationship with Iran and may affect its already strained relationship with Saudi Arabia. As for Opec, this is a big blow at a time when significant questions are being asked about its long-term coherence. It's not just that the UAE, when it can get its oil fully back on the market by sea or pipeline, is likely to target 5 million barrels per day production. Saudi Arabia might respond with an oil price war that the UAE's more diversified economy could withstand, but other poorer Opec members might not. Leading Emirati officials talk of new pipelines from the UAE's oil fields in Abu Dhabi, bypassing the Strait of Hormuz, and heading to the underused port of Fujairah. There is already one pipeline in heavy use today, but more capacity will be needed to cope with increased production and a permanent change to the fluidity and cost of tanker traffic in the Gulf. For now, of course, during a double blockade of sea traffic in the Strait of Hormuz, this is not the main event in oil markets, affecting the prices of oil, gas, petrol, plastics and food. While the world understandably focuses on oil at $110 per barrel, this is, however, a reason not to discount the chance that it could be closer to $50 sometime next year - if the mess in the Strait is sorted, for example, in time for the US midterm elections later this year. Opec is less important to world oil markets than it was in the 1970s, with the 85% share of internationally traded oil it had then more like 50% today. Oil is also less critical to the world economy than it was in the 1970s. Opec has leverage now, but not a monopoly. It can't hold the world to ransom, as it were. Opec is less important to world oil markets , with the 85% share of internationally traded oil it had then more like 50% today. Oil is also less critical to the world economy than it was in the 1970s. Opec has leverage now, but not a monopoly. It can't hold the world to ransom, as it were. I recall being told by the Opec figurehead, former Saudi Oil Minister Sheikh Yamani: "The Stone Age did not end because the world ran out of stones. The Oil Age will not end because the world runs out of oil." This foretells of a world where hydrocarbons are substituted by other energy sources. One way to read the UAE's action is as a sign of this world of reduced oil reliance, and there have been some other clues in the current maelstrom: China's investments in electrification have helped cushion the economic blow from rising oil and gas prices. By some calculations, the electrification of China's cars, lorries, and trains has reduced oil demand in the world's second biggest economy by 1 million barrels a day. Global oil demand could plateau as this trend accelerates around the world. In this view, it makes sense to raise as much money from oil reserves as quickly as possible before demand craters. The UAE has financial firepower and a partly diversified economy, through financial services and tourism. Much will depend on what the new normal becomes if and when hostilities in the Gulf cease. The UAE's Opec exit could spark further dominoes falling here, and there will be considerable pressure now on Saudi Arabia. When the tankers flow through the Strait again, or if the UAE redoubles its attempts to build new pipelines, Emirati oil will flow like never before, unconstrained by Opec commitments. It will have little effect on the current blockades. It could change everything afterwards. Tankers are seen at the Khor Fakkan Container Terminal, the only natural deep-sea port in the region and one of the major container ports in the Sharjah Emirate, along the Strait of Hormuz, a waterway through which one-fifth of global oil output passes on June 23, 2025. United Arab Emirates to quit oil cartel Opec A petrol pump handle being held in front of a BP logo BP profits more than double as Iran war sends oil prices higher The UAE's decision, after nearly 60 years of membership, is seen as a potential death knell for the oil cartel. The president says he wants Opec and Saudi Arabia to bring down the price of oil which he says is fuelling the Russia-Ukraine war. It comes after Opec's decision to further slash oil production in 2024 to prop up volatile global prices. People can apply for a £150 grant if they are running out of heating oil, a council says. Several warning lights are flashing that have some wondering whether we are in the foothills of another financial crisis. The energy giant said it had seen an "exceptional" performance at its oil trading business. The levy was introduced in 2022 after soaring energy company profits and is due to run until 2030. President Trump said the US had cancelled plans to send a team to Pakistan for negotiations.