Key points about OPEC: What is this oil cartel and why is the UAE distancing itself?

The war in Iran, which in just two months has shaken the global energy supply chain, is now opening a crack in one of the pillars of oil diplomacy of the last five decades. In the midst of the Persian Gulf blockade, the United Arab Emirates announced on Tuesday its withdrawal from the Organization of the Petroleum Exporting Countries (OPEC), the cartel that has set the course for the crude oil market since the energy crisis of the 1970s. This organization has lost influence with the rise of other producers such as the United States, Canada and Brazil, which has increased the economic and political cost of influencing oil prices through production increases or cuts.

The UAE’s decision, which will be formalized this Friday, is one of the biggest blows in the history of OPEC, comprised mostly of Arab countries, in addition to Iran itself. Small but with significant production capacity and reserves, the UAE was, until the closure of the Strait of Hormuz, the world’s fifth-largest oil exporter, with 2.7 million barrels of crude oil per day, according to OPEC’s latest annual report from 2024.

What is OPEC?

This organization is a cartel in the strictest sense: a group of producing countries that coordinates supply with the aim of setting prices for a product, in this case, oil. Its purpose is to keep prices high enough to maximize revenue, but not so high as to damage economies and reduce demand, and it achieves this by establishing production quotas for each country.

OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela as a reaction to the market domination by the large multinational oil companies, the so-called Seven Sisters, a group of American and British oil companies that controlled production and set prices low in producing countries.

The cartel gained strength in the 1970s, when its members—by then including the United Arab Emirates—cut crude oil supplies as leverage during the Middle East wars between Arab countries and Israel. The cartel then controlled half of global oil exports, compared to 44% today, and its cuts quadrupled prices in 1974 and 1979, triggering a period of global inflation and recession. An energy catastrophe in a world even more dependent on oil than it is today.

How much does OPEC produce?

Over the years, the organization has lost ground to the surge in production in countries like Brazil, Russia, Canada and the U.S., now the world’s largest producer. Nevertheless, OPEC maintains a key role in the international oil supply: it accounts for nearly 40% of crude oil exports, according to the organization’s own data.

Its 12 members remain among the world’s largest producers, according to OPEC’s own data as of 2024. Saudi Arabia is the leading crude oil exporter, with approximately six million barrels per day. Iraq, with 3.3 million, is the world’s fourth-largest exporter. The United Arab Emirates follows with 2.7 million barrels per day, in fifth place. Other significant members include Iran, which, despite U.S. sanctions, exported around 1.5 million barrels per day until now, and Kuwait, with approximately 1.1 million.

In the area of ​​refined petroleum products, OPEC’s influence is much smaller: the cartel controls barely 15% of global exports, compared to powerhouses like the U.S. and the Netherlands. The Americans alone export more refined products than all OPEC members combined, and the Dutch sell to other countries about half of what the cartel puts on the market.

What is the reason for the Emirates’ decision?

The UAE government has defended its withdrawal from OPEC as a way to escape the cartel’s production limits, giving it more leeway to increase its output in the long term. The country is already preparing to significantly boost production once Gulf traffic returns to normal.

“It is a political decision, taken after a thorough analysis of current and future measures related to production levels,” Emirati Energy Minister Suhail Mohamed al-Mazrouei stated on Tuesday. The move also has a geopolitical component, as international alliances and rivalries have eroded OPEC’s cohesion in recent years.

The UAE is a strong ally of the United States, a country that opposes the cartel, and at the same time a rivals of Saudi Arabia, the de facto leader of OPEC and the one that effectively sets production quotas, often at the expense of its partners. This internal tension, coupled with repeated failure to meet quotas by several members, has weighed down prices for years: the price of a barrel remained around $60—the lowest of this decade—for the last three years until the price war, which has driven it above $110.

The UAE’s decision is not without precedent. In 2019, Qatar withdrew from the cartel using very similar arguments. While less significant in the oil market, it is the world’s largest exporter of liquefied natural gas and responsible for approximately 20% of global supply. In its decision, the Qatari government argued that it was seeking greater autonomy.

What is OPEC+?

In 2016, Saudi Arabia spearheaded an OPEC alliance with 10 other major producers, including Russia, to regain influence over crude oil prices without jeopardizing its leadership within the group. This agreement, with more flexible commitments, is known as OPEC+.

This alliance exists on paper, but not so much in practice. Just four years after its formation, Russia clashed with Saudi Arabia over production levels amidst plummeting demand due to the outbreak of the Covid-19 pandemic. The result was rampant production that drove the price of oil down to $20 a barrel, its lowest level in two decades. The move backfired spectacularly, and OPEC members paid the price.

Time has shown that the inherent contradictions of any cartel—divergent interests, breaches of contract, and internal rivalries—ultimately erode it. The UAE’s departure is the most recent example of this and the most significant in the organization’s history. For now.

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