A wake-up call for others: hidden threats of the UAE's withdrawal from OPEC

Alexey Gromov, Principal Director on Energy studies at the Institute for Energy and Finance, commented to the Online47.ru internet portal on the UAE's withdrawal from OPEC and OPEC+:

"Firstly, the Emirates have been dissatisfied with the OPEC+ policy for several years, which is largely determined by Saudi Arabia. We are talking about production quotas — the Emirates wanted to produce more than they were allowed under the agreements," Alexey Gromov said. — Secondly, the UAE leadership is in a political conflict with Saudi Arabia. Mutual hostility, although not directly related to oil, affects the interaction of countries."

The third factor, the speaker added, is the current situation in the Strait of Hormuz, which has dramatically worsened the situation of the countries of the region. Against the background of this already 50-day crisis, the Emirates lost the opportunity to export more than half of the oil produced and reduced production by the same amount.

"Damage to the energy infrastructure was added to this the other day, so the UAE was forced to turn to the United States for financial assistance," Alexey Gromov said. — And, given Washington's attitude towards OPEC+, it is quite possible that the recommendation for support was withdrawal from these associations. For the United States, OPEC and OPEC+ have always been, in fact, an annoying factor."

Along with this, the expert drew attention to a broader effect, namely, that OPEC+ has actually lost market power today due to problems with exports through the Strait of Hormuz. Therefore, no matter what decisions are made to increase or reduce production, they do not affect the market, because due to the blocking of the oil spill, it is simply impossible to export oil.

But all this does not mean that there are no reasons for concern. At a minimum, the UAE's withdrawal from OPEC is a wake—up call for other participants. In the future, Gromov added, it could provoke a chain reaction, because there are other countries dissatisfied with the restrictions, including Iraq, Kuwait, and Kazakhstan.