Within hours of the United Arab Emirates announcing its formal withdrawal from OPEC effective May 1st, Wall Street began assessing the potential impacts on the energy market for the coming weeks and months.
Analysts from J.P. Morgan, UBS, and Bloomberg share a core consensus: Brent crude is unlikely to experience significant volatility in the short term, as the blockade of the Strait of Hormuz remains the primary bottleneck restricting energy exports from the Gulf. The spot price reaction to the news on Tuesday was minimal, receding only 1% from the day's high and still closing with a 3% gain.
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 price-supporting ability of the oil cartel and increasing the downside risks 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. This move reflects the evolution of the nation's energy policy—maintaining market stability responsibly while enhancing flexibility to respond to market dynamics. A member for nearly sixty years and currently OPEC's third-largest producer, the UAE will officially depart on May 1st and could initiate crude production increases in the subsequent months.
J.P. Morgan analyst Ian Mitchell advised clients that the UAE's announced exit means short-term oil price movements will still be dominated by the Strait of Hormuz situation. However, the exit likely implies medium-term prices will be lower than previously anticipated, although the influencing factors are complex. He suggested that for European oil and gas equity longs, it is better to take profits early rather than late. Mitchell referenced a key statement from UAE Energy Minister Suhail Mohamed al-Mazrouei last year: "If the market needs it, we can go to 6 million barrels a day." However, the official target for increasing production to 5 million barrels per day by 2027 remains unchanged.
The impact on oil prices is seen as limited in the short term but facing greater downward pressure in the medium term due to potential UAE production increases. The immediate impact of the announcement is limited because, as long as the Strait of Hormuz remains blocked, the UAE cannot expand exports, making production increases irrelevant. In the medium term, oil prices could trend lower if the Middle East situation normalizes, freeing the UAE from OPEC quotas. The ultimate magnitude of the impact depends on several factors: the UAE's current actual production level; how quickly the gap between normalized production and maximum practical capacity can be closed—the UAE's Tuesday statement committed to continuing "to bring on new production responsibly and in a manner commensurate with demand and market conditions"; and the reaction of remaining OPEC members to UAE expansion, although Saudi Arabia and others are unlikely to further cut their own production to make room for UAE increases.
Prior to the conflict, the UAE's production in February was 3.4 million barrels per day. J.P. Morgan's pre-conflict forecast estimated UAE production at approximately 3.9 million barrels per day for the year, with OPEC-12 total production at 28.9 million bpd and the broader OPEC+ group at 37.7 million bpd.
UBS analyst Henri Patricot's initial assessment of the UAE's OPEC exit reached conclusions identical to J.P. Morgan's: limited short-term price impact while the critical Strait of Hormuz chokepoint remains blocked, but a significantly more bearish medium-term outlook once Gulf exports normalize and Abu Dhabi can freely increase production outside the quota system. 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's reopening remain the primary drivers, the announcement is unlikely to substantially affect near-term prices. Currently, UAE exports are at their maximum possible level; production increases cannot be realized until the Hormuz route is clear. Looking further ahead, the announcement is likely bearish for oil prices.
Pre-conflict, UAE crude production was 3.6 million bpd, leaving a gap of nearly 1 million bpd to its estimated capacity limit of 4.5 million bpd. Several new projects are due to come online, expected to raise capacity to 5 million bpd by 2029. Abu Dhabi National Oil Company has stated current capacity is already 4.85 million bpd, targeting 5 million bpd by 2027. The UAE has never previously sustained crude production above 3.7 million bpd, but it is believed the country could ramp up production quickly if desired once the Strait reopens. The UAE's statement suggests increases might not immediately jump to full capacity. Furthermore, rising geopolitical risks from weakened cohesion within the Gulf Cooperation Council could partially offset the downward price pressure from increased production.
The UAE is not the first member to leave OPEC—Qatar and Angola departed in recent years. However, the UAE's exit presents a significant challenge for the cartel. A founding member, joining shortly after OPEC's 1967 establishment as the Emirate of Abu Dhabi, it is the third-largest producer and holds the second-largest spare capacity among members, accounting for roughly 25% of OPEC's total spare capacity. The UAE's departure will likely weaken OPEC's future ability to manage oil market supply and demand balance, thereby increasing long-term oil price volatility. The risk of other members following suit also rises. Aside from Saudi Arabia, no other member possesses spare capacity comparable to the UAE's, but countries like Iraq have plans to expand capacity in the coming years.
Regarding long-term economic impact, under a more extreme scenario considered unlikely—if the UAE rapidly increases production to 5 million bpd by end-2027—its oil GDP could surge by over 20%.
Bloomberg senior energy columnist Javier Blas concurred with J.P. Morgan and UBS, judging the short-term price impact as limited but the medium-term trend turning bearish. The global oil market is currently experiencing extreme supply tightness. But in weeks or months, it could face a flood: the Strait of Hormuz reopens concurrently with the launch of a new price war. 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 noted 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 OPEC quotas. This would create medium-term supply overhang pressure, potentially driving Brent and WTI prices lower and pushing the energy market into a "prolonged low oil price" structure. The next question is whether Venezuela and other OPEC members will follow the UAE's lead.
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