The UAE is the second most influential member in OPEC after Saudi Arabia. According to Mr. Jorge León - Director of Geopolitical Analysis at Rystad Energy, the UAE is one of the few members, along with Saudi Arabia, to possess enough reserve capacity to impact oil prices and respond to supply shocks.
Reserve capacity is the part of oil production that has not been exploited but can be quickly put into operation when a major crisis occurs. Saudi Arabia and the UAE currently control most of the global total reserve capacity, at over 4 million barrels/day, making these countries particularly influential during periods of strong market volatility.
In a report on April 28, Mr. León said that the UAE's departure means OPEC loses one of the important pillars that helps this organization regulate the market. OPEC will therefore be "structured weaker".
The UAE's announcement of leaving OPEC announced on April 28 is also seen as a blow to Saudi Arabia because it reduces Riyadh's ability to run OPEC, according to David Goldwyn - who served as special envoy and coordinator on international energy issues of the US State Department from 2009-2011.
Mr. Goldwyn pointed out that Riyadh still has significant ability to regulate the market thanks to its own reserve capacity, but the country's power will be weaker when the UAE is no longer a member.
The UAE's decision to leave OPEC began on May 1 after weeks of being hit by missile and drone attacks from Iran - also an OPEC member. Tehran's attacks on maritime operations in the Strait of Hormuz have restricted UAE oil exports, threatening the country's economic foundation.
However, the UAE did not say the withdrawal was related to the Iran conflict. UAE Energy Minister Suhail Al Mazrouei informed on April 28 that the time to leave OPEC was chosen to minimize disruption for other oil producing countries in the group.
In fact, according to Mr. Goldwyn, the UAE's departure from OPEC is unlikely to affect the market in the next year as the Strait of Hormuz is still blockaded. Future oil prices also almost did not react after the announcement on April 28.
However, later, this development may be negative for oil prices, Mr. John Kilduff - founder of the consulting firm Again Capital - said. He believes that the UAE's decision weakens the necessary solidarity between producers to prevent oil prices from falling too deeply when the market is oversupplied.
Minister Al Mazrouei said that the UAE wants more autonomy in production decisions without being bound by OPEC, and aims to increase capacity to 5 million barrels/day by 2027.
Mr. Andy Lipow - Chairman of consulting firm Lipow Oil Associates - said that for many years, the UAE has been dissatisfied with production cuts led by Saudi Arabia to support oil prices. Meanwhile, Iraq and OPEC+ member Russia regularly exceed quotas.
When the conflict between the US and Iran ends and the Strait of Hormuz reopens, I believe the UAE will exploit as much oil as possible, using all the reserve capacity they are holding" - Mr. Lipow said.
