The United Arab Emirates, the Persian Gulf country in which Dubai is also located, has announced its exit from OPEC, the oil producers’ cartel that revolves around Saudi Arabia. The Emirates will also leave OPEC+, the alliance close to the cartel which also includes Russia.
The Emirates have been at odds with Saudi Arabia on an economic and political level for years and OPEC had become a battleground between the two countries. Abu Dhabi took the opportunity of the blockade of the Strait of Hormuz to distance itself from Riyadh, paving the way for an increase in oil production at a time when prices have soared.
Why the Emirates will leave OPEC
There are several reasons that pushed the Emirates to leave OPEC and OPEC+. There is the official one, summarized in the words with which Energy Minister Suhail al Mazroui announced the decision:
We must think about our interests and commitments to contribute more effectively and meet the needs of the market.
The Emirates have a strong position compared to other oil-producing Gulf countries: they have an outlet on the Gulf of Oman, which goes beyond the Strait of Hormuz. Thanks to an oil pipeline that leads to the port city of Fujairah, the country can export a lot of oil without having to pass through the Iranian blockade.
Abu Dhabi feared that OPEC might agree to pay Iranian tolls once the strait was reopened. The decision to leave the cartel, however, is not only linked to a contingent occasion such as the war in Iran.
How OPEC works
OPEC is a cartel that decides the price at which member countries sell their oil. To do this it does not impose price ceilings, but production quotas. Each country can produce a certain amount of barrels per day. The more barrels increase, the more the price of oil drops. On the contrary, the more production decreases, the more the price increases.
Saudi Arabia is the most powerful country in OPEC. It produces around 10 million barrels a day and in recent years, when the price had fallen significantly, it was interested in reducing OPEC production, to keep prices higher. The Emirates produce 3.6 million barrels per day, 12% of the cartel’s overall production, but they have the potential to produce much more.
For years the Emirates have been putting pressure on OPEC to increase their production quotas, without obtaining results. This has led to growing tensions with Saudi Arabia, which also had military implications. The two countries support opposing sides in the civil wars in Yemen and Sudan.
What changes for Italy
The Emirates’ current maximum production capacity is estimated at 4.8 million barrels per day, with the possibility of reaching 5 million by next year. Free from OPEC quotas, the Emirates could begin to maximize their production, exporting through the port of Fujairah.
This could lead to a reduction in oil prices in the medium term. For Italy, it could mean a drop in fuel prices. For the moment, however, the announcement has not caused any particular changes on the energy markets. In fact, oil remains above 110 dollars a barrel.
