The UAE has also been frustrated with Pakistan, partly because of its deepening ties with Saudi Arabia, but also because of what it considers Islamabad’s meek role as a mediator between the US and Iran.
Dubai: The United Arab Emirates’ decision to exit the Organisation of the Petroleum Exporting Countries (OPEC) after almost 60 years is as much a political as a business move — one that could not only deal a significant blow to the oil cartel and its de facto leader, Saudi Arabia, but also to Riyadh’s defence partner, Pakistan.
Tensions have been simmering between Abu Dhabi and Riyadh for a while, but were partially covered by their shared anger with Tehran over its attacks on the Gulf states since the start of the US-Israel war on Iran.
“The Emirates were not happy to have to constrain themselves, particularly when they wanted to pump more, and the Saudis wanted to pump less,” Firas Maksad, director of Middle East at Eurasia Group, told The Financial Times.
The UAE has also been frustrated with Pakistan, partly because of its deepening ties with Saudi Arabia, but also because of what it considers Islamabad’s meek role as a mediator between the US and Iran, and not holding Tehran accountable for attacks on the Gulf during the war.
Pakistan’s role as mediator annoyed the UAE, as it “sees things in kind of black and white at the moment”, Neil Quilliam, an associate fellow at Chatham House, told the UK-based financial daily.
“There’s no neutrality in this [from the UAE perspective], there’s no middle ground, and if you’re mediating, then you are in the middle ground,” he added.
How OPEC Exit Helps The UAE
The UAE, OPEC’s third-largest producer, joined the oil-producing cartel in 1967. But the cartel’s production quotas have long been controlled by its de facto leader, Saudi Arabia, preventing it from exporting greater quantities of oil. In the short term, the exit will give Abu Dhabi the freedom to respond quickly to a long-term prospect of constrained supplies and to maximise profit.
The defection also comes as a blow to Saudi Arabia’s prestige, as it weakens Riyadh’s ability to manage the oil prices. It also helps the UAE position itself closer to US President Donald Trump, a long-term critic of OPEC.
UAE’s Frustration With Gulf Neighbours
The UAE made the big announcement without any prior consultation while the six-member Gulf Cooperation Council (GCC) met for an emergency session in Jeddah, the first since the Iran attacks. The UAE, the Gulf state politically closest to Israel and most hostile to Tehran, was Iran’s biggest target in the region, fending off more than 2,200 drones and missiles, in part a function of its geographical proximity.
According to a report by The Guardian, Abu Dhabi has been privately pushing Saudi Arabia and Qatar to launch joint counterattacks against Iran. But despite reports claiming that Riyadh was urging the US to defeat Iran, “no public GCC consensus was formed to take a step that could be seen as highly risky, since it could be interpreted not only as self-defence but also as siding with Israel”, the report said.
Unable to receive any political solidarity for its cause, the UAE has abandoned the economic solidarity and decided to go it alone.
Blow To Saudi
According to the UAE’s state-run firm Adnoc, Abu Dhabi’s exit from OPEC is likely to boost crude production from 3.4 million barrels a day before the start of the Iran war to 5 million barrels by 2027.
Notably, since Iran closed the Strait of Hormuz, the country’s crude production slumped by 44 per cent to 1.9 million in March, and its capacity to increase production is contested. Overall, the war has wiped out 7.88 million barrels a day of OPEC’s production in March, resulting in a 27 per cent fall to 20.79 million barrels a day that month – the biggest supply collapse for the cartel in recent decades.
Dr Ebtesam Al-Ketbi, the president of the Dubai-based Emirates Policy Centre, told The Guardian that the move was cast as an act of self-interest.
“In effect, the UAE is redefining its role from a producer within a bloc to a balancing producer that contributes to market stability through its ability to act,” she said.
“While this move may gradually weaken Opec’s cohesion, it simultaneously strengthens the UAE’s position as an actor capable of directly influencing global supply dynamics.”
Moreover, the decision to quit OPEC may also make it Trump’s diplomatic favourite, a status that could have investment benefits for the Emirates. Trump has been a vocal critic of OPEC.
The Pakistan Factor
The UAE has already been wielding its influence even before it exited OPEC. Earlier this month, Abu Dhabi recalled $3.5 billion in deposits from Islamabad, a fifth of Pakistan’s foreign exchange reserves. The move was seen as an indication of the UAE’s displeasure with Pakistan’s neutrality over Iran, forcing Saudi Arabia– which signed a defence pact with Islamabad in September–– to step in to help its South Asian partner.
A rift has been simmering between the Gulf’s powerhouses for years, but it burst into the open in December and January over disputes in the civil war in Yemen, where they back rival factions.
Another reason for this rivalry, according to analysts, is that Riyadh is more closely aligned with Pakistan, Turkey and Egypt than its Gulf neighbour.
“The rift is still there, and Pakistan is one area it can play out, and the UAE is much more invested in India anyway,” Quilliam told the FT.
“They [UAE] see this growing alliance between the Saudis and the Pakistanis, and for the UAE, that constitutes a conflict of interests for Abu Dhabi.”
By leaving OPEC, the UAE not only hopes to guarantee US engagement but also break the Saudi-Pakistan nexus.
A Benefit For India
The UAE’s exit from OPEC is likely to benefit India as it translates into lower costs and improved supply access.
The UAE wants to maximise output free from OPEC quotas and monetise reserves while demand still holds. More supply, especially from a low-cost producer, will lower the ceiling on prices over time. For India, that means a smaller import bill and reduced inflation pressure.
“The exit of the United Arab Emirates from OPEC is likely to increase global oil supply flexibility in the medium term… which could soften crude prices. It is likely to be beneficial for India’s import bill and inflation in that sense,” Sourav Mitra, Partner – Oil and Gas, Grant Thornton Bharat, told Financial Express.
