Oil markets face renewed instability following the United Arab Emirates’ formal exit from the Organisation of the Petroleum Exporting Countries (OPEC) and its wider alliance (OPEC+), announced on Tuesday and taking effect on Friday.
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The move, which ends decades of membership, comes as the global economy continues to reel from the ongoing war with Iran and the blockade of the Strait of Hormuz remains in place.
Investors are currently weighing the potential for higher future output from the UAE against the immediate and acute risks posed to global supply routes, as well as the increased chances that more countries drop out of OPEC and OPEC+.
Following the announcement, markets reacted swiftly as the potential for oversupply from the UAE was priced in. Oil prices fell by between 2% and 3%, particularly in futures contracts a couple of months ahead.
However, the move was just as quickly offset by the risk premium associated with the Middle East conflict and the current halt to US-Iran negotiations.
At the time of writing, US benchmark crude, WTI, is trading above $105 a barrel, while Brent crude, the international standard, is over $112. Both prices are around 4% higher on Wednesday from the UAE announcement low.
The UAE’s decision follows years of simmering tension between Abu Dhabi and Riyadh over production quotas. The UAE has invested over $150 billion (€128bn) in the state-owned Abu Dhabi National Oil Company (ADNOC) to expand its capacity to five million barrels per day.
However, under OPEC’s restrictive framework, much of this capacity remained underutilised, now prompting the government to prioritise its national interest.
The departure of the group’s third-largest producer is a significant blow to the cohesion of the 60-year-old organisation. Maurizio Carulli, global energy analyst at Quilter Cheviot, noted the limitations this exit places on the remaining members.
“Until tanker traffic through the Strait of Hormuz is safe again, OPEC’s ability to stabilise prices is sharply constrained, while US producers have gained outsized influence,” Carulli explained.
While the UAE has pledged to bring additional production to the market in a “gradual and measured” manner, the sudden lack of coordination within OPEC has introduced a new layer of uncertainty.
For the UAE, the blockade served as a final catalyst for its exit. With its primary export route under threat, Abu Dhabi has sought the diplomatic flexibility to forge independent security and trade partnerships outside the traditional cartel structure.
Despite the geopolitical turmoil, energy equities have remained resilient.
According to Carulli, “integrated majors such as BP, Shell, TotalEnergies, ENI, Chevron and ExxonMobil are benefitting from a price uplift that could add 5-10% to operating cash flow for every $10 increase in oil prices.”
Standoff over the Strait of Hormuz
In a separate but related development, the security situation in the Middle East remains precarious despite a fragile ceasefire. Iran has recently offered a ten-point proposal to reopen the Strait of Hormuz.
In exchange for restoring maritime traffic, Tehran is demanding a full withdrawal of the US naval blockade and an end to the current hostilities.
US President Donald Trump, who recently extended the two-week ceasefire mediated by Pakistan, described the latest Iranian offer as “much better” than previous iterations but still did not accept the terms.
Shortly after, Trump posted on social media claiming that Iran is in a dire and desperate condition with no leverage to negotiate.
Washington continues to insist on a permanent settlement regarding Iran’s nuclear programme and an “unconditional” reopening of the waterway before sanctions are lifted.
The impact of this blockade on global energy security cannot be overstated.
“The prolonged closure of the Strait of Hormuz has removed roughly 12% of global oil supply from the market, according to the IEA, a bigger disruption than the Yom Kippur war, the Iran‑Iraq conflict, the invasion of Kuwait or even the fallout from Ukraine,” Carulli highlighted.