Is OPEC’s Future Under Threat
On the 28th April this year, the United Arab Emirates officially announced they were leaving OPEC and OPEC+, and formally walked away three days later on 1st May, ending a 59 year membership that began in 1967. A number of reasons for leaving OPEC include a frustration with OPEC+ production caps limiting the UAE’s output to circa 3.4 million bpd (barrels per day), leaving just under 30% of overall production offline. As a result, the UAE wanted independence from OPEC in order to maximise revenue before global oil demand begins a permanent decline. Another problem was sitting at the same table with representatives from Iran, who due to the Middle East crisis, had persistently attacked the Emirate with drones and missiles, threatening their economy.
*OPEC – Short for the Organisation of the Petroleum Exporting Nations and is a coalition of 23 oil producing countries of which the full members are: Algeria, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Republic of the Congo, Saudi Arabia, United Arab Emirates and Venezuela.
**OPEC+ – There are a further 10 non-OPEC partner countries that form the OPEC+ and make up the DoC (Declaration of Cooperation), consisting of: Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan. The whole group’s modus operandi is to cooperate to influence the global oil market and stabilise prices.
The UAE is not the first member to resign as Indonesia left in 2016, Qatar in 2019, Ecuador in 2020 followed by Angola in 2023. At the time, experts, analysts, and oil commentators all sounded the death knell for OPEC—but it never happened. OPEC simply carried on as if nothing had occurred. However, the UAE is a different matter, being OPEC’s third largest producer and second highest spare production capacity. Indeed, OPEC lost circa 15% of its total capacity severely weakening its position and ability to adjust and set global prices. Furthermore, in late July this year, it was reported that Venezuela was considering resigning its membership from OPEC, however a final decision has yet to be made.
Coming quickly on the heels of the UAE’s decision to resign from OPEC, alongside rumblings of discontent from Iraq, this announcement leaves experts questioning whether OPEC and OPEC+, led by Saudi Arabia, can continue to hold together oil prices. A former senior oil marketing official from Oman’s Energy Ministry noted, “The critical question is whether this marks the beginning of a broader wave of withdrawals, the very cohesion and credibility of OPEC could be at stake”. Further erosion in recent years of OPEC dominance can be seen by rivals outside of OPEC and OPEC +, such as Brazil and Guayana and shale drillers in the United States.
In volume terms, Venezuela resigning from OPEC would have little short-term impact. However, the country possesses massive oil reserves that, alongside US supermajors, could be unleashed onto the market over coming decades, with analysts noting high-level US-Venezuela discussions over 100-year leases on several oilfields. Losing Venezuela would deal a major blow to OPEC’s prestige. As a founding member back in 1960, its departure carries immense symbolic weight, with a former OPEC secretariat analyst observing, “This would be a big hit to OPEC.”
