Inside the UAE’s Power Play Against OPEC.

Apr 28

Intro

On April 28, just as markets were opening, the UAE has officially confirmed that, effective from May 1 2026, they will leave OPEC (Oragization of the Petroleum Exporting Countries) and OPEC+, this does not only signifies an entire new stance for the entire oil sector, but it also might be another step closer toward eliminating the “Petrodollar”.

What are OPEC and OPEC+

The Organization of the Petroleum Exporting Countries was founded in Baghdad in 1960 and it includes the major Oil producers and exporters. The main purpose is to coordinate oil production policies and influence global markets.

The main focus of the organization is maintaining a stable global oil supply at a mostly stable price, it does so limiting oil production for specific countries and/or how much they can earn from it, it is important to note that the UAE and Saudi Arabia are two of, if not the two, most relevant members.

OPEC+ functions the same, however it includes more countries such as Russia and other sates, recently it has gained more importance but it also tends to have more differences and breaches due to the volatility of relations between members.

These organizations are major indirect players in markets as their decision on volumes and prices cause major shifts in both the commodities and corporations markets, for instance on April 2 2023 they announced a surprise cut in production rates of 1.16 million bpd (barrels per day), which, on top of the loss coming from Russian sanctions, caused a 6% increase the trading day.

The decision

The decision by the UAE can be explained through three main factors: investments into the industry being held back by external decision making, frictions with other members and crisis management being slowed down.

In previous years the UAE have invested billions into the infrastructure to dig, extract and refine Oil, catching up and later, surpassing other nations in the area and in the world. However, to steady the price and amount of oil, OPEC has limited the maximum amount the country was allowed to extract and sell to well below their capacity estimate.

Another key point is the relationship with other producers, especially Saudi Arabia. Recently, minister Suhail al-Mazrouei has confirmed that the issue of leaving OPEC was not discussed with other countries, significant statement considering Saudi Arabia is the de facto founder of the organization. A conflict between the two countries also arose when deciding 2027 production quota with the UAE pushing for 5 million bpd by 2027 and the Saudis pushing for a more conservative approach.

Overall this tension reflects a regional rivalry for the top spot in leadership and influence, also fueled by the dissatisfaction for the weak diplomatic response to the Iranian threat in the strait of Hormuz which has greatly hindered operations for the UAE.

The conflict has also led to a major decision regarding the last point: the country, given the last global events, feels the need to make swifter decisions to counter present and possible future conflicts to preserve the economic interests of the nation.

Consequences

This exit has a major outcome: the reduction of the price of petrol driven by the increase in supply coming out of the UAE, which is particularly damaging for neighbouring nations such as Qatar, Saudi Arabia Iraq etc., this countries are however neither obscure nor without representation, hence a strong reaction is expected.

This exit does not mean end between producers. Diplomatic talks are expected and markets shocks will be mitigated, this however does not rule out volatility, markets are in fact expected to be characterized by the latter at least in the immediate aftermath, the timing also plays an important role.

As the UAE will leave after May 1, there is time for the market to settle and correct themselves making the shift less impacting as, after all, maintaining equilibrium in the oil sector is in everybody’s interest, political and corporate.

An overlooked consequence of this news is the impact on neighbouring sectors: UAE real estate and business ventures have taken a hit due to the war, and this new positioning is set to bring more funds and opportunities to replenish the market.

Unlike other countries, Abu Dhabi National Oil Company is state owned, therefore the investing strategy is to be set on subsidiaries and joint ventures, which includes many listed on the Abu Dhabi Securities Exchange, the US market will also be crucial as many American Oil companies such as Chevron, ConocoPhillips and others are involved in joint ventures in the area, and the same can be said for Europe, as scepticism is still high towards Russian resources.

Another overlooked traded company is ADNOC Logistics & Services, and the other companies that operate the most out of UAE’s ports such as ExxonMobil, Total Energies, Eni, BP…

However this strategy still heavily relies on the ability to transport Oil out of the country, therefore it is important to assess what will the country be able to do with the newfound freedom of operating before structuring an investment plan.

Conclusion

In conclusion, the decision of UAE to leave OPEC is set to have major political and economical repercussions on global oil markets and supplies, however it is still too early to reliably predict the impact of these shifts.

Although companies such as Chevron and ADNOCLS have already shown a surge in stock prices, respectively 2.44% and 3.51% as of 7.30 hours from the announcement, the situation is predicted to settle in the following period in a case of early excitement, therefore the actual scope of the surge will be attested over time.

However the message is clear beyond the shadow of a doubt: when the financial stakes are this high the time for tolerance is over, major emerging players and markets are not willing to run on the established timing.

Giovanni Epifano

Partner, Financial Analyst, Political Analysis Specialist.

Mihail Gaydarov