The United Arab Emirates said it would leave OPEC, dealing a heavy blow to the oil cartel as the war in Iran scrambles alliances and investment priorities among the world’s top oil producers.
The sudden departure of OPEC’s third-biggest producer further weakens a bloc that despite producing up to four out of every 10 barrels of oil pumped worldwide has been hobbled by internal disunity and the rise of American oil output .
The war in Iran has piled on more pressure by exacerbating rifts among the Arab countries at the core of the group and by closing the Strait of Hormuz , through which the group’s biggest producers export most of their oil, making it impossible for the group to influence the market during its biggest supply shock.
The U.A.E. is in a relatively privileged position with the ability to circumvent the blockade in the strait by routing more than half of its oil exports across the country. Withdrawing from OPEC will give it more freedom to make investments to expand its output and adjust to the uncertain future of the waterway.
The U.A.E. in recent years has asked to produce more of its oil under OPEC’s output accords. It has grown less willing to compromise as its relations with OPEC heavyweight Saudi Arabia, a neighbor and sometimes military partner, have frayed amid competition for regional leadership. By withdrawing, the U.A.E. is diminishing its relationship with a longstanding Arab-led bloc and aligning itself more closely with the U.S.
“The decision to withdraw from OPEC is part of a broader decision by the U.A.E. to chart its own path when it comes to alliances,” said Eric Alter, the dean of the Anwar Gargash Diplomatic Academy in Abu Dhabi, which is close to the Emirati government.
The U.A.E. said it would also exit OPEC+, a group of major oil producers that includes Russia, and gradually increase production afterward, it added.
“Its departure therefore removes one of the core pillars underpinning OPEC’s ability to manage the market,” said Jorge Leon, head of geopolitical analysis at consulting firm Rystad Energy and a former energy demand analyst at OPEC. “Losing a member with 4.8 million barrels a day of capacity, and the ambition to produce more, takes a real tool out of the group’s hands.”
Gulf OPEC delegates have warned that the U.A.E.’s departure wouldn’t only reduce the organization’s ability to manage the market, but could spur more defections, as several members have chafed at Saudi Arabia’s dominance in the group.
The exit takes away 13% of OPEC’s production capacity, according to figures by the International Energy Agency, damaging the organization’s market management capabilities.
Alongside Saudi Arabia, the U.A.E. is one of the few members with meaningful spare capacity, or the ability through which the group exerts market influence and responds to supply shocks.
Brent crude, the international oil benchmark, was little moved after the announcement , with the most actively traded contract hovering just above $104 a barrel.
“While near-term volatility, including disruptions in the Arabian Gulf and the Strait of Hormuz, continues to affect supply dynamics, underlying trends point to sustained growth in global energy demand over the medium to long term,” the U.A.E. said.
After the debut of U.S. shale oil, OPEC’s power to sway markets appeared greatly diminished. It teamed up with Russia, adding market share and pricing power. In recent weeks, OPEC producers have privately complained that attacks by Iran in the Strait of Hormuz have stripped them of their position as the main influence over swings in the oil market.
The U.A.E. has taken the brunt of Iran’s retaliatory attacks during the war. Iran has fired more than 2,800 drones and missiles at the country, far more than it fired at any other in the Gulf or even Israel.
Prominent Emirati voices have complained loudly that while the U.S. and even Israel helped with its defense, Arab countries’ contributions were mixed.
The Iran war “is likely to have sharpened the view in Abu Dhabi that existing relationships may not have proven their value in a time of crisis,” Kristian Coates Ulrichsen, a Persian Gulf expert and fellow with Rice University’s Baker Institute.
The war has also rattled the U.A.E.’s economic model, which was built on its reputation as an oasis in a dangerous region. Tourism revenue has plunged during the war, which has disrupted flights and led many expatriates to flee the country, raising the importance of the earnings from its oil.
By breaking free from OPEC’s rigid quotas, the U.A.E. gains the flexibility to aggressively increase its oil production on its own terms. It is among the world’s lowest-cost oil producers, and its government can balance its budget at a lower oil price than most Gulf peers.
U.A.E.’s independence also allows the country to redirect capital toward securing its export routes—most notably by investing heavily in overland pipelines designed to bypass the Strait of Hormuz, ensuring its crude can reach global markets uninterrupted by maritime chokepoints or Iranian threats.
The U.A.E. has production capacity of 4.8 million barrels a day and is currently allowed around 3.4 million barrels a day under OPEC’s quota system. Once outside the group, it will have both the incentive and the ability to increase production.
The U.A.E. has invested heavily in expanding capacity through Abu Dhabi National Oil Co. over the years, and its oil is relatively cheap to produce, said Michael Haigh, head of commodities research at Société Générale.
While the war has accelerated the U.A.E.’s departure from the cartel, OPEC delegates said it had been drifting away for some time. Its exit marks the first time a top producer has quit the group. Until now, only smaller oil producers like Qatar, Angola or Ecuador have left.
“It’s the hardest blow ever,” said Homayoun Falakshahi, a senior oil analyst at commodities data company Kpler. “It raises the question about whether OPEC can survive.”
Write to Summer Said at summer.said@wsj.com , Georgi Kantchev at georgi.kantchev@wsj.com , Rebecca Feng at rebecca.feng@wsj.com and Benoit Faucon at benoit.faucon@wsj.com
