The United Arab Emirates’ decision to exit OPEC+ at the beginning of May left much of the oil and gas industry asking the same question.
What happens next?
OPEC’s future and the outlook for world energy markets were already facing major uncertainties, including an oil production-capacity surplus, the ongoing U.S.-Iran conflict and restrictions on tanker passage through the Strait of Hormuz.
Losing one of its largest petroleum-producing members only adds to the smoke and confusion around OPEC’s long-term prospects. With so much uncertainty in so many areas, industry analysts aren’t quite sure how the situation will resolve itself.
Although, they have a pretty good idea what might happen when most of the smoke blows away.
Production and Prologue
“One of the key points is that losing the UAE as a member was a big loss,” said Abhi Rajendran, research director for Energy Intelligence and a non-resident fellow at the Baker Institute’s Center for Energy Studies in Houston.
UAE oil-production capacity basically means the capacity of Abu Dhabi National Oil Co. ADNOC has increased output capacity in recent years, with UAE/ADNOC oil potential growing to 4.85 million barrels/day by 2024, according to energy data and analytics company Wood Mackenzie.
That put the UAE’s capacity third in OPEC+, behind only Saudi Arabia and Russia, although Iraq actually produces more oil. Abu Dhabi has squabbled with Saudi Arabia over production quotas for years, wanting bigger allowances for its increased production potential.
The dispute reached a boiling point in 2021. OPEC had cut production quotas in response to sharply falling demand during the COVID pandemic. When Saudi Arabia suggested an extension of the curbs, the UAE rejected the proposal and asked for a higher quota. A compromised allowed the UAE to increase production.
At the time, UAE Energy Minister Suhail Al-Mazrouei said, “The UAE is committed to this group and will always work with it.”
The Hormuz Factor
Conflict in the Persian Gulf and the closing of the Strait of Hormuz caused the UAE to shut-in an estimated 2 million barrels/day of production. Even when the military action ends and the Strait presumably opens to tanker traffic, analysts project a return to pre-conflict production could take six months or more.
“The Gulf members (of OPEC) have a lot to sort out, given the current conflict. And the post-conflict situation has a lot of uncertainty tied to it,” Rajendran said.
One question involves the reaction of oil-consuming countries to the current situation. Oil buyers have scrambled to replace supply from the Middle East. Both ad hoc arrangements and extended contracts are already starting to shift the global supply picture.
“Do buyers get really freaked out this could happen again, and start looking to other places for future supply? The more damage there is to producing fields, the longer you keep things (producing wells) offline, the harder it is to bring them back,” Rajendran noted.
Also, future supply will be affected by how exporting countries respond to the U.S.-Iran conflict and its aftermath. Not all OPEC countries have suffered from the action. OPEC+ member Russia has gotten substantial benefits from tighter supply and higher prices.
“There are questions for one of the main beneficiaries of the conflict and that’s Russia. How does that play out?” Rajendran asked.
A New Wild Card
Abandoning OPEC makes the UAE another wild card. ADNOC has committed around $150 billion to increasing crude production capacity to 5 million barrels/day by 2027. Losing the UAE will diminish OPEC’s ability to protect oil prices, and it’s unclear how much the UAE will cooperate with the cartel going forward.
A change in OPEC’s makeup will have little immediate impact on oil prices or the oil markets, analysts agree, especially in light of the Iran conflict disrupting global supply. Priya Walia, vice president, commodity markets-oil for Rystad Energy, said effects will be longer term.
“The UAE’s exit does not materially alter near-term supply availability, but it reflects a longer-term strategic shift toward greater production flexibility as the country seeks to monetize its expanding capacity base,” she said.
“UAE’s departure from OPEC will have minimal impact on market fundamentals in 2026, even if the Strait of Hormuz reopens,” predicted Simon Flowers, Wood Mackenzie chairman and chief analyst.
“Gulf countries, including the UAE, will take months to return to pre-war production volumes. Beyond this year, losing the UAE will compound OPEC’s challenge to balance the market and increase the risk of oversupply weakening prices,” he said.
OPEC’s Revolving Roster
OPEC has lost, added and sometimes lost and re-added members before. The current roster is Algeria, Republic of the Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela. Together, they hold more than 75 percent of the world’s proven oil reserves – more than 1.2 trillion barrels.
Indonesia left OPEC in 2008 after it became a net importer of oil. It briefly rejoined the cartel eight years later. Ecuador quit its membership in 1992, then rejoined OPEC from 2007-2020.
More recently, Qatar left OPEC in 2019 as it became primarily a natural gas/LNG exporter. In 2023, Nigeria and Angola both rebelled against OPEC quota levels, and Angola quit the organization later that year.
Of the remaining members, Venezuela, Nigeria and Iraq are probably most often mentioned as possible defectors, and Kazakhstan is a candidate to move away from OPEC+. Venezuela could leave OPEC under pressure from the United States, while growing oil production might influence it to escape quota restrictions.
“They’re seeing an increase in production and they aren’t going to want to stop that,” Rajendran said.
But overall, he believes OPEC will continue to function, with the cartel offering enough price protection to keep its members cooperating.
“I think there’s still an incentive for the rest of the group to work together, especially core OPEC,” he said.
An end to the U.S.-Iran conflict and a return to normal tanker shipping will be followed by a period of recovery for world oil supply, according to a consensus of analysts and market experts.
At some point, oil production will rebound and return to the market.
More than 11 million barrels/day of Gulf crude and condensate production were curtailed as of late May, according to Wood Mackenzie. Oil prices will eventually decline as inventories refill.
If the UAE, having left OPEC, and other producers aggressively seek to capture market share through increased production, prices could drop steeply.
“We’re going to have to rebuild those inventories that we’ve had to draw down,” Rajendran observed.
“At some point, it’s likely to flip to an oversupplied market with lower prices. And that’s fine, because of the need to rebuild inventory and supply,” he said.