The United Arab Emirates is leaving OPEC and OPEC+, the world’s most powerful blocs of oil-exporting countries, six decades after joining it as the blockage of the Strait of Hormuz amid the Iran war continues to pressure oil prices across the world.
The kingdom took a “policy-driven” decision to leave the bloc, said the country’s energy minister Suhail bin Mohammed al-Mazrouei.
“The UAE’s decision to exit from OPEC reflects a policy-driven evolution aligned with long-term market fundamentals,” he said in a social media post.
“We thank OPEC and its member countries for decades of constructive cooperation. We remain committed to energy security, providing reliable, responsible, and lower-carbon supply while supporting stable global markets,” the statement added.
The kingdom will exit OPEC on Friday, May 1.
This reduces the membership of the Organization of the Petroleum Exporting Countries to 11. OPEC was founded in 1960, with the UAE joining in 1967. In 2016, a new bloc called OPEC+, which includes Russia, was created.
Canada, along with Egypt, Norway and Oman, is an observer state within the bloc.
Asked by reporters in Ottawa about the UAE’s decision, International Trade Minister Maninder Sidhu said the federal government was doing its part to try and lower fuel costs for Canadians, pointing to the fuel excise tax cut and last year’s cancellation of the consumer carbon price.
“We need to continue working with partners around the world, including the UAE,” he said.
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the group, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
Al-Mazrouei told Reuters the decision was taken after a careful look at the regional power’s energy strategies.
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Asked whether the UAE consulted with Saudi Arabia, he said the UAE did not raise the issue with any other country.
“This is a policy decision, it has been done after a careful look at current and future policies related to level of production,” said the energy minister.
“This will have long- term impacts,” said Behrouz Bakhtiari, a professor at McMaster University’s DeGroote School of Business.
While a major player like the UAE stepping outside the OPEC fold would mean the UAE wouldn’t have to abide by Saudi-led production controls, and that means lower prices in the long term, it also means more volatility.
OPEC was created to benefit the oil-exporting nations, bringing them from a competitive market to a coordinated one. While the group has been referred to as a cartel, it has also played a regulatory role in global oil markets, Bakhtiari said.
A weakened OPEC means oil-importers like the U.S. will be looking for new stabilizers.
“This is where Canada could come in as a stabilizer,” he said.
“Many of the U.S. refineries may rely or start looking more at Canada as a steadier, safer flow of oil regardless of what Saudi Arabia and OPEC or UAE are going to do,” he added.
The UAE is preparing for a future where the global demand for oil peaks and then eventually plummets, Bakhtiari said.
“At some point oil loses its value, or there is going to be a decline in the value of oil,” he said.
The UAE is looking to “monetize their assets to its fullest capacity before the world finds other sources of energy or other sources of energy became more widespread or widely used,” he said.
The current geopolitical climate is the perfect opportunity for the UAE to exit OPEC, he added.
“Right now, the world is in chaos. What’s a little more chaos added to it?” Bakhtiari said.
But the drop in oil prices is still a long ways away, with the world contending with the Iranian and American blockades of the Strait of Hormuz.
OPEC Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas normally passes, because of Iranian threats and attacks against vessels.
Mazrouei said the move would not have a huge impact on the market because of the situation in the strait.
But the UAE exit from OPEC represents a win for U.S. President Donald Trump, who has accused the organization of “ripping off the rest of the world” by inflating oil prices.
Trump has also linked U.S. military support for the Gulf with oil prices, saying that while the U.S. defends OPEC members they “exploit this by imposing high oil prices.”
The move came after the UAE, a regional business hub and one of Washington’s most important allies, criticized fellow Arab states for not doing enough to protect it from numerous Iranian attacks during the war.
Anwar Gargash, the diplomatic adviser for the UAE president, criticized the Arab and Gulf response to the Iranian attacks in a session at the Gulf Influencers Forum on Monday.
“The Gulf Cooperation Council countries supported each other logistically, but politically and militarily, I think their position has been the weakest historically,” Gargash said.
“I expect this weak stance from the Arab League and I am not surprised by it, but I haven’t expected it from the (Gulf) Cooperation Council and I am surprised by it,” he said.
The move from the UAE comes as global demand for oil continues to plummet. The International Energy Agency forecasts that the world’s demand for oil will contract further this year.
–with files from Reuters
@big pick-up: Cool. Spend through the nose. You do know that Big Oil is investing in wind tech eh?
Refine it here in canada. Oh wait, we dont have the capabilities. Guess that means go electric across Canada. Oh wait, we dont have the grid capabilities.
James S., I agree with you on “better get the oil out” but the rest of your comment, not sure. First of all us in Eastern Canada as a whole given the choice would rather import oil that give the Alberta any benefit. Secondly are you proposing that Quebec share their Hydro. and maple syrup proceeds, Ontario their federally supported and subsidsed Auto-Pact benefits and Sask. with their fertilizer, or are you good enough with just sticking it to Alberta?
Canada should have become self reliance decades ago. The boomers wanted to do it.’then the world became green….how is that working for all of your pocket books and food security,
We are a small population, and we should have always been to large degree, self reliant.
I can’t wait for winter when highway 11 is closed for hours and all the EV people are knocking on you window asking if they can come into the truck to warm up……hahaha
Hah!
Hope y’all can break horses and plant gardens.
BuT mY eLeCtRiC vEhIcLe!
hahahahah
yawn….my EV is working great.
Wind power.
All I can say is Canada better get the oil out and refine it now. Enough reliance on all the rest of the garbage. DO CANADA FIRST! Then sell to the freakin world!
Get rid of Smith. The oil in the ground is for ALL OF CANADA!! Not just her and her damned wannabe kingdom!