Energy Musings - April 30, 2026
The announcement of the U.A.E.'s exit from OPEC and OPEC+ has sent oil prices higher and heightened turmoil in global oil markets. Can OPEC survive? Will this lead to an oil price crash?
OPEC Fracture Creates Another Oil Crisis
The flag of the United Arab Emirates.
Never a dull moment in the oil market. The energy market turmoil created by the Iran/US-Israel war and the closure of the Strait of Hormuz just had another hand grenade thrown into the mix. An announcement, confirmed by the state news agency and the Energy Ministry, states that the United Arab Emirates (U.A.E.) will leave the Organization of Petroleum Exporting Countries (OPEC) effective this Friday, May 1. A breakup of OPEC under current market conditions, and the scenario of what happens when Hormuz reopens, has analysts wondering if the oil market is looking at a collapse in prices next year, if not before, as OPEC loses its power to balance the global oil market.
While exiting OPEC, the U.A.E. also said it will no longer be a member of the expanded OPEC+ group, which includes the 12 OPEC members (soon to become 11), Russia, and 10 other oil-exporting nations. This group has been the governing structure keeping oil markets in balance and thereby steadying global oil prices since the oil price collapse of late 2014. It was the fallout from this market share battle between Saudi Arabia and Russia that led to the creation of OPEC+ at the end of 2016.
According to U.A.E. Energy Minister Suhail Mohamed al-Mazrouei, the decision was reached after a “comprehensive review of production policy” to better meet market needs. After May 1, the U.A.E. plans for a “gradual ramp-up” of production because OPEC quotas will no longer constrain it. The U.A.E. is throwing off the yoke of OPEC quotas.
In the near term, this move by the U.A.E. will have little impact on oil prices, as the Hormuz closure largely shuts down oil exports from the Persian Gulf. Saudi Arabia and the U.A.E. have been able to funnel some of their output to the global market. There has also been leakage as a few ships have been able to exit the Strait and deliver oil cargoes to Asian and Indian customers.
Saudi Arabia uses its East-West pipeline across the nation to the Red Sea to export some of its output. At the same time, the U.A.E.’s export line to Fujairah on the Gulf of Oman outside the Persian Gulf has provided an outlet for about half of its oil production. Between the two pipelines, roughly 7-9 million barrels per day (Mmbd) of oil have been finding their way out of the Persian Gulf, reducing the global supply shortfall to about 9-10 Mmbd.
When OPEC was formed in 1960, it consisted of just five members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. At that time, while relatively large non-U.S. producers, these nations were powerless to influence global oil prices. These producing countries were presented with a take-it-or-leave-it price for their oil. However, the leaders who founded OPEC realized that, at some point, the supply situation would swing in favor of nations with large, untapped oil reserves, giving these nations increased power over oil pricing dynamics.
The 1950s and 1960s were a heyday for the Seven Sisters, the handful of major international oil companies with roots in the founding of the oil industry in various regions of the United States and various international locations such as the Middle East and Russia. The leaders of this group of oil companies determined how they would manage their relationships with these Middle Eastern producers. They remained in control of output as long as the royal families received healthy cash flows.
As we entered the 1970s, U.S. oil production ceased growing. Suddenly, pricing power shifted to the major Middle Eastern oil-producing countries, as they had correctly anticipated. This shift occurred at the same time as Middle East geopolitical issues erupted in wars between Israel and its neighbors. The shift empowered key Middle East oil producers to boycott select Western powers over their support for Israel. This 1973 boycott sparked massive changes across the global oil industry, setting in motion dynamics that still reverberate today.
Oil was discovered in Abu Dhabi in 1962. Other discoveries followed. The U.A.E. was formed from the seven emirates along the coast of the Persian Gulf. When we began as an oil analyst, we needed to be familiar with the emirates and other Middle Eastern oil-producing countries, many of which had colorful royal families. The seven U.A.E. emirates include Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain. The three most populous emirates are Abu Dhabi, Dubai, and Sharjah.
The Emirates entered OPEC in 1967 under the banner of Dubai. It wasn’t until four years later that the U.A.E. was created as a Federated state. In December 1971, six emirates agreed to the Federal Government of the United Arab Emirates. The seventh emirate, Ras Al Khaimah, joined in February 1972. Each emirate retains its sovereignty over its territory and functions, but complies with the Federal government’s rules.
The Emirates that make up the U.A.E.
The U.A.E. is the third-largest oil producer in OPEC. However, the U.A.E. has been adding productive capacity but has not been able to capitalize on its investments due to OPEC-imposed quotas. Of the 12 OPEC members, only Saudi Arabia and the U.A.E. possess surplus productive capacity. It is estimated that the U.A.E. could produce 1-1.5 Mmbd above its current output of 3.4 Mmbd. Reportedly, it is moving to increase the export capacity of its pipeline to Fujairah’s port on the Gulf of Oman, thereby increasing its ability to deliver more output.
Oil production by OPEC+ nations.
The U.A.E.’s frustration with being a “little brother” to its OPEC neighbor, Saudi Arabia, extends beyond the oil quota issue. The economic development plan of Prince Mohammed bin Salman, the de facto ruler of the Kingdom of Saudi Arabia, is creating friction with the U.A.E.’s leaders. MBS, as he is known, wants to modernize his country’s economy and create more jobs for the nation’s youth. He has moved to create a tourism industry. Additionally, he wants a vibrant financial and business community, including high-tech businesses. He has even gone so far as to pressure international companies to locate their regional headquarters in Riyadh, especially high-tech companies. All of these moves will pressure Dubai and Abu Dhabi, which have been the leading financial and business centers in the Middle East.
We are sure that President Donald Trump’s choice of the Middle East for his first foreign trip in each term was not lost on the region’s leaders. It reflected how important Trump considered the Middle East in his foreign policy. However, for the U.A.E., Trump’s first visit to Riyadh on each trip was not lost on its standing. The U.A.E. was a stop on Trump’s second Middle East trip in 2025, which may reflect a subtle shift in U.S. policy toward the region.
The U.A.E. has taken the brunt of Iran’s attacks on its Persian Gulf neighbors for their support of the U.S. and Israel in the war. The attacks have hurt the U.A.E.’s economy as tourism has dropped, and expats in the Emirates have departed for safety. This puts greater pressure on the earnings from the U.A.E.’s oil exports to support government revenues. These pressures certainly played a role in the U.A.E.’s thinking.
What everyone wants to know is whether the U.A.E.’s exit spells the end of OPEC’s power over the oil market? The exit will remove 13% of OPEC’s production, and marks the first departure of a major producing country from the organization. Previous departures involved Qatar (2019), Ecuador (2020), and Angola (2024). All were small producers operating at maximum output, which could be subject to reduced quotas if oil market conditions required across-the-board reductions to balance the global oil market.
OPEC’s share of global oil output is now at 28%, down from 50% at its most powerful point in the 1970s. Non-OPEC production accounts for 45% of global production and is growing. In the near term, this will not be a problem, as once the Strait of Hormuz reopens, nations will be clamoring to rebuild their depleted oil and refined product stocks. There will be pressure on OPEC to boost output to accommodate such a demanding market and to reduce global oil prices, but will Saudi Arabia be willing to accommodate them? The U.A.E. will be able to meet some of that demand without the constraint of OPEC quotas, which assures it of greater revenues in the future.
The biggest impact of the U.A.E.’s departure is that it will leave Saudi Arabia and Russia to do the yeomen’s work of balancing the global oil market. That may become more problematic given the growing non-OPEC oil from the U.S., Brazil, Guyana, and others, where the industry is hoping to add production. This could increase oil price volatility and the risk of periods like 2015 and 2020, when oil prices crashed due to oversupply. This is a risk that should not be dismissed, but it also might be managed adroitly.
In the long term, the U.A.E.’s policy of maximizing production will pull it closer to the U.S. That means more supply to cap oil prices on the upside. The policy expects oil prices to moderate and for global oil supply to remain sufficient to sustain economic growth and oil demand. Two risks to this scenario are that the Hormuz closure has spurred countries to diversify their oil supply sources, especially favoring those removed from oil transportation chokepoints like the Persian Gulf, and to reduce their dependence on oil and gas. These dynamics must be watched by nations serving the global oil market for their potential impact on prices.
U.S. oil shale producers will have to watch for an oversupply that drives down oil prices, jeopardizing high-cost shale oil operations. We have seen that before, in 2015 and 2020. But we have also seen the industry apply new technologies to reduce breakeven production costs, remain financially profitable, and increase output.
What makes predicting the end of OPEC challenging is that its demise has been predicted before, and after periods of adjustment, OPEC continues to operate. At times, OPEC seemed not only ineffective but also an afterthought for oil producers. However, market dynamics – production, demand, and prices – restored OPEC’s control.
A complicating factor is that all oil is not the same. The quality of crude oil produced globally varies greatly, and its volumes and longevity have prompted refiners to configure their operations to maximize output from specific mixes of available grades. Reconfiguring refineries is not a project undertaken lightly, as it is costly and time-consuming. For example, the U.S. oil shale output is largely very light sweet crude oil, which cannot be used in large quantities in U.S. refineries. That is why so much of it is exported. The recent announcement of the construction of the first U.S. refinery in decades near Brownsville, Texas, will be designed to use the light oil from shale wells.
The global oil market will remain volatile and unsettled for quite a while. All players will need to assess these risks and trends in determining how the market functions, while staying nimble. Increased national self-interest and competition from agile non-OPEC producers will influence industry dynamics. For the international oil industry, a key question will be whether we have in the next generation of managers leaders with the experience to navigate this evolving market. Missteps by executives can exacerbate market volatility and destroy company fortunes.