Analysts from J.P. Morgan, UBS, and Bloomberg share a core consensus: Brent crude is unlikely to experience significant volatility in the near term, as the blockade of the Strait of Hormuz remains the primary bottleneck restricting energy exports from the Gulf. Medium-term oil prices face downside risks, potentially declining once the Middle East situation normalizes. Bloomberg analysis suggests that while the last price war in 2020 was between Saudi Arabia and Russia, the next one might occur between Saudi Arabia and the UAE.
Within hours of the UAE announcing its formal withdrawal from OPEC effective May 1st, Wall Street began assessing the potential impact on energy markets over the coming weeks and months.
The immediate price reaction to the news on Tuesday was minimal, with prices retreating only 1% from intraday highs and still closing the day up 3% overall.
However, the medium-term outlook for Brent is becoming clouded. Should a US-Iran peace agreement be reached and shipping through the Strait of Hormuz return to normal, the UAE would be free to ramp up production outside the OPEC quota system. This would introduce a new wave of supply to the global crude market, further weakening the oil cartel's ability to prop up prices and increasing the downside risk for Brent once Gulf exports normalize.
The historic split between the UAE and OPEC aligns with the UAE's long-term strategy and economic planning. The move reflects the evolution of the nation's energy policy—maintaining its commitment to market stability in a responsible manner while gaining increased flexibility to respond to market dynamics. This member, who joined the cartel nearly six decades ago and is now OPEC's third-largest producer, will officially leave on May 1st and may initiate crude production increases in the subsequent months.
J.P. Morgan analyst Ian Mitchell told clients that the UAE has announced its withdrawal from OPEC. Short-term oil price movements will still be dominated by the situation in the Strait of Hormuz, but this exit likely implies medium-term oil prices will be lower than previously forecast, although the influencing factors are complex. Regarding taking profits on long positions in European oil and gas stocks, it's better to be early than late.
Mitchell referenced a key statement from UAE Energy Minister Suhail Mohamed al-Mazrouei last year: "If the market requires it, we can go to 6 million barrels per day." However, the official target of reaching 5 million barrels per day by 2027 remains unchanged.
The immediate impact on oil prices is limited—as long as the Strait of Hormuz remains blocked, the UAE cannot expand exports, making production increases moot. In the medium term, oil prices could fall after Middle East normalization because the UAE will no longer be bound by OPEC quotas and can freely increase production. The ultimate magnitude of the impact depends on several factors: first, the UAE's current actual production level; second, how quickly the gap between current (post-normalization) production and actual maximum capacity can be closed—the UAE's Tuesday statement committed to "continuing to responsibly and gradually increase market supply based on demand and market conditions"; third, the reaction of other OPEC members to the UAE's production expansion, although Saudi Arabia and other members are unlikely to be willing to cut their own production further to make room for the UAE's increase.
Prior to the outbreak of US-Iran conflict, the UAE's production in February was 3.4 million barrels per day. J.P. Morgan's pre-conflict forecast estimated the UAE's average production this year at approximately 3.9 million barrels per day, with total OPEC-12 production at 28.9 million barrels per day and broader OPEC+ production at 37.7 million barrels per day.
UBS analyst Henri Patricot's initial assessment of the UAE's OPEC exit reached conclusions identical to J.P. Morgan's: limited short-term oil price impact while the critical chokepoint of the Strait of Hormuz remains blocked; but once Gulf exports normalize and Abu Dhabi can freely expand production outside the quota system, the medium-term picture turns significantly bearish.
Patricot told clients that the short-term impact is limited, but medium-term oil prices face downside risks. Given that the timing and pace of the Strait of Hormuz's reopening remain the primary drivers, this announcement is unlikely to have a material impact on near-term oil prices. UAE exports are already at their maximum possible level; production increases cannot be realized until the Hormuz route is clear again. Looking further ahead, this announcement is likely bearish for oil prices.
Before the conflict, UAE crude production was 3.6 million barrels per day, leaving a gap of nearly 1 million barrels per day to its estimated capacity ceiling of 4.5 million barrels per day. Several new projects are due to come online, expected to raise the country's capacity to 5 million barrels per day by 2029. Abu Dhabi National Oil Company has stated that current capacity has already reached 4.85 million barrels per day, targeting 5 million barrels per day by 2027. The UAE has never before sustained crude production exceeding 3.7 million barrels per day, but it is believed the country is fully capable of ramping up production quickly if desired once the Strait reopens.
The UAE's statement suggests its production increases may not immediately surge to maximum capacity. Furthermore, increased geopolitical risks stemming from weakened cohesion within the Gulf Cooperation Council could partially offset the downward price pressure from higher production.
The UAE is not the first member to leave OPEC—Qatar and Angola have departed in recent years. However, the UAE's exit presents a significant challenge for OPEC. The UAE is a founding member, having joined soon after OPEC's establishment in 1967 under the name of the Emirate of Abu Dhabi. As the third-largest producer with the second-largest spare capacity among members, accounting for about 25% of OPEC's total spare capacity, the UAE's departure is likely to weaken OPEC's future ability to manage oil market supply and demand balance, thereby increasing long-term oil price volatility. The risk of other OPEC members following suit and leaving will also rise. Aside from Saudi Arabia, no other member possesses spare capacity comparable to the UAE's, but countries like Iraq have plans to expand their capacity in the coming years.
Regarding long-term economic impact, in a more extreme scenario considered unlikely—if the UAE rapidly increases production to 5 million barrels per day by the end of 2027—its oil GDP could surge by over 20%.
Bloomberg's senior energy columnist Javier Blas concurred with J.P. Morgan and UBS, judging the short-term oil price impact to be limited but the medium-term trend turning bearish. The global oil market is currently experiencing extreme supply tightness. But in a matter of weeks or months, it could face a flood: the Strait of Hormuz reopens, and a new price war begins. The last price war in 2020 was between Saudi Arabia and Russia. The next one might be between neighbors—Riyadh and Abu Dhabi on either side.
The financial blog Zerohedge stated that it is certain that once Middle East peace is restored and Hormuz shipping normalizes, the UAE will be free to expand crude production outside the OPEC quota system. This would create medium-term supply surplus pressure, potentially driving down Brent and WTI crude prices and pushing energy markets into a "prolonged low oil price" environment. The next question is whether Venezuela and other OPEC members will follow the UAE's lead.
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