What happened. The United Arab Emirates announced its withdrawal from the “Organization of the Petroleum Exporting Countries” (OPEC) and OPEC+ . Starting May 1, the UAE will be able to decide on its own how much oil to produce and sell without regard to the quotas set by the organization.
How this could affect markets. In the short term, the UAE’s exit from OPEC+ will have almost no impact on the global market, Tatyana Mitrova, an expert at Columbia University’s Center on Global Energy Policy, told “Novaya-Europe”.
According to her, the Emirates are currently constrained in oil exports: the Strait of Hormuz is blocked, while the alternative pipeline is fully loaded and transports about 1.8 million barrels of oil per day. Before the conflict, the country exported 2.7 million barrels per day and produced 3.4 million.
Analysts at “Promsvyazbank” note that the current oil deficit amid the blockade of the Strait of Hormuz is keeping prices high. However, the UAE’s decision marks the dismantling of the previous price-regulation system. Once the conflict ends, the market may face an oil surplus, which usually leads to lower prices.
At the same time, Sergei Vakulenko, a senior fellow at the Carnegie Berlin Center, notes that oil prices may remain high for about another year even despite the UAE’s exit from OPEC+. In his view, countries will have to replenish reserves that have been depleted since February
How this could affect Russia’s budget. Mitrova says that if one of the most ambitious producers leaves the quota regime, the ability to manage the market becomes weaker. That, in turn, will put downward pressure on oil prices.
This risk is also highlighted by Freedom Finance Global lead analyst Natalya Milchakova. In her words, what is dangerous for Russia is not the UAE’s exit from OPEC+ itself, but a possible collapse of the alliance, which could be followed by a prolonged period of declining oil prices.
At the same time, Milchakova notes that after leaving OPEC, the UAE may still remain a partner of Russia and participate in voluntary oil production cuts.