Abu Dhabi’s OPEC exit signals a structural shift in the Gulf

The impact of the ongoing Iran, US and Israel war has led to several moves of restraint, recalibration, reconsideration, realignment and restructuring of priorities and strategies of regional majors in West Asia. It will not be business as usual as the math of the aftermath would dictate. Tehran might have lost its credibility and fragile trust with its Gulf neighbours, having violated their sovereignty and territorial integrity repeatedly through consistent attacks and damages to retaliate against US and Israeli assets, and hence will find it difficult to regain them going forward.

The fact remains that the Gulf, especially Arab unity, is also no longer intact as countries explore the range of options from forced or pragmatic modus vivendi to moving on to another end of the spectrum. Qatar and Oman, and to some extent Kuwait and Saudi Arabia, are trying to work with Iranians in the interim, but the UAE has decided to pursue its own national interests as it deems appropriate.

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As such, the UAE has tried to become a leader in diversification from energy to innovation to religious tenets to geopolitics. Inclusivity with the rest of the world has also become its trademark, while its joint projects with Israel and the USA and positions in Yemen, Sudan, Somaliland and Ethiopia have caused a split with the Saudis. This has been evident for quite some time. Hence, even when all of them became the targets of Iranian drones and missiles, a unity and united response and approach could have been expected, but exactly the opposite seems to be happening.

As the GCC countries were meeting to discuss the security uncertainty due to the ongoing war, Abu Dhabi decided to pull out of the oil producers’ cartel, the OPEC+, effective May 1. OPEC, since 1960, has provided a certain leverage to regulate the energy markets and security for the oil producers. The UAE had joined in 1967 and has been expanding its energy production and capacities and exit routes while also diverting its energy mix in an aggressive manner to wean itself away from the dependencies on the hydrocarbons. Hitherto, it felt being constricted and constrained by the cartel due to cuts in production quotas, which it considered unfair as distance with Riyadh kept on increasing. While it has a capacity of about 4.8 mbpd, it is only permitted to produce and supply 2.7 mbpd.

ADNOC, the UAE oil company, plans to enhance its production capacity to over 5 mbpd as soon as possible. It has also built its own pipelines to avoid the Hormuz-like crisis and is also keen on developing ports in Somaliland and Yemen in the Horn to exercise autonomy in navigation and control of important waterways. Thanks to ports on both the Gulf and the Arabian Sea, apart from its own, the UAE hopes to bypass Iran’s chokehold. Its key asset is Fujairah Port on the Arabian Sea, home to the world’s largest energy storage facility.

Before the war, only half of UAE oil exports went through Fujairah via the 1.8 million bpd Habshan pipeline; the rest sailed through Hormuz. A new 1.5 million bpd pipeline from Jabal Dhanna to Fujairah, already planned pre-war, will let the UAE export its full 3.3 million bpd OPEC quota without touching the strait.

Oil is an instrument and a weapon gifted by nature but has often proved to be a curse for many. Gulf countries, on the other hand, have judiciously deployed it through a joint, even if unwilling, option. But as Mahesh Jethmalani refers to it as not only the OPEC but is also OPAQUE.

President Trump welcomed the UAE’s exit from OPEC: “I think that’s great. I know Muhammed very well—he is very smart. He probably wants to go his own way. It is a good thing for getting the price of gas down, getting everything down.” He is under tremendous pressure due to the double blockade of the Strait of Hormuz and rising prices of oil and gas in the US as the war and the fragile ceasefire drag on with the real danger of fierce escalation, either by design or a false flag operation.

Meanwhile, the UAE also acquired prominence in the petrodollar vs petroyuan debate as it reached out to the US Treasury, stating that if its dollar liquidity is tightened, it will be forced to shift to yuan, and the US quickly provided an emergency dollar swap lines facility. US dollar dominance is a prerequisite for Trumpian financial architecture and primacy. The UAE, in any case, has special arrangements with the Chinese, who are the major buyers of its oil and are strategic BRI partners. Saudis are already branching and diversifying their currency exposure.

But the US–Iran war has exposed the regional vulnerabilities when the UAE became the most attacked country after the major combatants. And the UAE's exit from OPEC+ would expedite the shift towards a new order in West Asia. The die has been cast with opposing stances between Saudi Arabia and the UAE and their cohorts in the region, especially on the African landscape, including Sudan, Somalia and Ethiopia.

Despite the maximum attacks by Iran, the UAE took pride in neutralising most of them and even claimed that they no longer need the US's security umbrella but are capable of defending themselves. But the help of Israel and deployment of its Iron Dome and military technical assistance and soldiers have been acknowledged. The UAE, in any case, was one of the first countries to normalise relations with Israel and signed the Abraham Accords.

The bilateral relations have continued to grow from strength to strength, and their approaches, despite the stinker in Palestine, continue to align more closely from India, Israel, the UAE, and the US (I2U2) to Somaliland to the India-Middle East-Europe Economic Corridor (IMEC). This has also become a point of contention with some Arab countries, especially Saudi Arabia, which has made the establishment of a Palestinian state a precondition to normalisation of diplomatic relations with the Jewish state.

It is hardly coincidental that hardliner Israeli Finance Minister Bezalel Smotrich, a day after the UAE exit, claimed, "The greatest achievement of the war has been our geopolitical space, which is much stronger and has strengthened our position. Now, as a regional power, we will develop a lot, both security- and economy-wise. I don’t know where Saudi Arabia will be, but their Vision 2030 plan is basically at a dead end.”

It is not the first time that the OPEC has witnessed the exit of its members since September 1960, when it was established in Baghdad by Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. Angola, Ecuador, Qatar, Indonesia and Gabon all left the organisation for various individual reasons or limitations—relative influence and consequent constraint being one major reason. The membership increased to 12 countries, including the UAE, with the sole purpose of acquiring and accruing the key economic heft through coordination of petroleum policies to stabilise the global oil prices and crude market with fair return on investments and capital and ensuring reliable supplies for consumer countries. Quotas are fixed in concert with its 10 partner countries, like Russia, to deal with the market shocks and geopolitical churn, the like of which is currently being witnessed with the Iran–USA–Israel war. Hence, the exit of the UAE at this critical juncture also adds to the geopolitical complexity of the region and beyond.

It has been predicted by almost all analysts that the dynamic in the West Asian region and its relationships with the outside world will be significantly altered, whatever the resultant outcome of the war may be. If sanctions are lifted over Iran and more countries are added to OPEC, the impact of the exit could be dented, and OPEC could still manipulate oil supply chains and stay relevant. It remains to be seen as to what gaming response, if at all, the OPEC leaders like Saudi Arabia will deploy to counter the psychological and financial impact of the UAE exit, since it is an affront to regional unity in the Gulf Cooperation Council (GCC).

India, meanwhile, fighting its dehyphenated policy and tremendous storm of crude and gas supplies for its energy security, could smartly navigate since the UAE and Saudi Arabia are its third and fourth largest strategic trading partners. Hence, New Delhi could even import the total UAE production, as it requires at least 5 mbpd for its 23 refineries and stable global supplies. Indian ministers and the National Security Adviser have been regularly visiting and are in touch, with Prime Minister Narendra Modi leading them. The PM's own quick visit to the UAE, reciprocating Sheikh Zayed’s Delhi visit, might have sealed the long-term steady supply arrangement, among other critical initiatives, while taking into account the intra-regional binaries that continue to complicate the negotiating horizon.

(Anil Trigunayat is a former Indian ambassador to Jordan, Libya and Malta and a distinguished fellow and head of the West Asia Experts Group at the prestigious Vivekananda International Foundation. He is also a Distinguished Fellow at the oldest Indian think tank, the United Services Institute of India. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)