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United Arab Emirates to Leave Organization of Petroleum Exporting Countries

United Arab Emirates announces departure from the organization of petroleum exporting countries.

What Happened?

Officials from the United Arab Emirates (UAE) announced the country is planning to exit the Organization of Petroleum Exporting Countries, also known as OPEC. UAE’s energy minister said, ‘being a country with no obligation under the groups would provide more flexibility.’ The decision by the UAE to leave OPEC appeared to take effect immediately. 

OPEC was formed in 1960 by five countries, Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, and the group’s goal has been to coordinate production with other members to provide steady revenue. After the UAE’s departure, OPEC will have eleven members remaining. 

Why it Matters

UAE’s production capacity represents fifteen percent of OPEC’s total, but the departure likely has more political significance. Saul Kavonic, head of energy research at MST Financial, characterized the move by the UAE as ‘the beginning of the end of OPEC.’

The reason for the UAE’s departure appears to be a desire to increase oil production beyond what OPEC quotas allow. Iran’s membership was probably also a factor in the UAE’s decision to leave the group, since Iran has carried out attacks on UAE energy infrastructure.

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Since 1960, OPEC has helped bring stability to global energy markets. Prior to the creation of OPEC, transnational oil companies wielded considerably more influence over that market than they do today. If other OPEC members leave after the UAE or if OPEC is dissolved, international oil companies would likely stand to gain more influence over global energy markets. Dissolution of OPEC could also lead to a spike in oil production since countries that had been members would no longer be constrained by the group’s quotas.

The potential fracturing of OPEC could alter the geopolitical landscape of the Middle East. If the UAE can increase its production and profits beyond what other members earn, then the remaining members may feel pressured to follow suit and abandon OPEC. Even if the other members remain, the suspicion and distrust generated by the war with Iran will probably leave a lasting impact on the alliance. So far, none of the other OPEC members have called to expel Iran, but if the war resumes and attacks on oil infrastructure continue, that could change.

Though global oil production would likely increase if OPEC ceased to be, the volatility of energy markets would likely go up as well. The current volatility in the global energy market due to the war with Iran could become a lasting feature of the world’s economy. 

How it Affects You

The departure of the UAE from OPEC is one of the unintended consequences of the war with Iran. For the UAE, a go it alone approach to oil production offers the possibility of more revenue but the potential loss of standing politically among neighboring gulf states. A more volatile energy market would impact nearly every segment of the global economy, and few countries would be insulated from the consequences. 

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