On April 29, ATFX noted that while the UAE was not a founding member of OPEC, which was established in 1960, Abu Dhabi joined the organization in 1967. Following the formation of the United Arab Emirates in 1971, the country maintained its membership, making it one of the earliest members of OPEC.
In March, due to the complete blockade of the Strait of Hormuz resulting from conflict between the United States and Iran, OPEC's average daily oil production fell sharply to 20.79 million barrels. This represented a significant drop of 7.88 million barrels per day compared to February, a decline of nearly 30 percent. Even without the impact of the Strait of Hormuz blockade, OPEC has been implementing production cuts, a situation that the UAE, which relies heavily on crude oil exports, is unwilling to accept.
Around 8:20 PM yesterday, the UAE's official news agency reported that the country has decided to withdraw from OPEC and OPEC+ effective May 1, and will gradually increase its oil production. The stated reason for the exit is to enhance flexibility in responding to market dynamics.
International oil prices reacted immediately upon the release of the news. Within one minute of the announcement, WTI crude oil fell from a high of $98.46 to a low of $96.11, a drop of $2.35. However, over the next five minutes, WTI quickly rebounded, erasing all the losses incurred immediately after the news broke. As of 4:48 PM Beijing time today, WTI reached an intraday high of $101.14, marking a fresh high since April 8.
In February, the UAE's average daily production was 3.419 million barrels. By March, this had fallen to 1.892 million barrels per day, a near halving of output due to the US-Iran conflict. The flexibility mentioned by the UAE most likely refers to increasing crude oil production. While Iran has blockaded the Strait of Hormuz and the US has blockaded the Gulf of Oman, severing a key Middle Eastern oil route to Asia, the UAE's geographical location offers advantages for oil shipment, even though it cannot control the Strait of Hormuz. For instance, reports indicate that a UAE-based oil company has already notified its customers that cargo can be lifted via ship-to-ship transfer at the Port of Fujairah, located outside the Persian Gulf, starting in May.
The location of the Port of Fujairah is particularly unique. Situated on the east coast of the UAE, it belongs to the Emirate of Fujairah and borders the Gulf of Oman. Unlike countries such as Kuwait, Iraq, and Bahrain, whose oil exports are hampered by the blockade of the Strait of Hormuz, the UAE is in a different position entirely, possessing ports that allow it to bypass the Strait completely.
Thanks to its exceptional geographical advantage, the UAE has the potential to significantly increase production following its exit from OPEC. However, most other OPEC member countries do not possess a similar geographical advantage that would allow them to circumvent Iran's blockade of the Strait of Hormuz. Therefore, it is unlikely they will follow the UAE's lead and exit the organization. In reality, for many OPEC members, even if they were to leave the group, they would be unable to substantially increase their total export volumes due to the difficulties in transporting oil past the Strait of Hormuz.
Comments