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The United Arab Emirates’ shocking decision to leave OPEC has reverberated through global energy markets, exposing rifts in the powerful oil cartel as production quota risks prompt other member states to follow suit.
The country’s decision follows weeks of missile and drone attacks by fellow OPEC member Iran, which has shut down the Strait of Hormuz, disrupting exports and straining the backbone of the economy.
Andy Lipow, president of Lipow Oil Associates, said: “The exit from the UAE is a new chapter in the transformation of our group’s membership.” “If countries that adhere to their quotas grow tired of those that don’t, we could see more withdrawals and ultimately OPEC becoming irrelevant as a cartel,” he told CNBC in an email.
Countries such as Qatar, Ecuador and Angola have left the group in the past few years, citing dissatisfaction with quotas or changing national priorities. Angola will leave in 2024, and Qatar ended its membership in 2019.
The cartel has long grappled with unequal compliance, with some member states, including Iraq and Kazakhstan, historically exceeding production quotas.
“The UAE has left OPEC, but they are not the first and may not be the last,” Lipow added.
Countries that are tired of seeing other OPEC and OPEC+ countries constantly cheating on their production quotas are candidates to leave these groups.
Andy Lipau
Lipow Oil Associates
At the heart of the UAE’s decision is a well-known tension. Member countries, which have invested heavily in increasing production capacity, are increasingly unwilling to be constrained by quotas to support prices.
The country pumped about 2.37 million barrels per day in March, according to the IEA’s latest data, while its sustainable production capacity was about 4.3 million barrels per day.
“Airplane risks”
Analysts pointed to several potential “flight risk” countries that may be dissatisfied with OPEC+ regulations and consider abandoning membership.
Matt Smith, chief oil analyst at Kpler, cited Kazakhstan as a prime candidate, citing the country’s persistent overproduction. “Kazakhstan significantly overproduced last year, so they may also be looking at this as a potential exit from the group,” Smith said, adding that Nigeria could also be a country to watch.
Nigeria, Africa’s largest oil producer, is prioritizing domestic refining, particularly through its Dangote refinery, which could reduce its dependence on export markets and reduce its incentive to remain tied to quotas.
Mr Smith explained that the expansion of the Dangote refinery means that more oil can be processed domestically and a higher value fuel margin can be captured. This will reduce reliance on OPEC’s strategy of supporting oil prices through supply constraints and instead focus on maximizing production and downstream profits.
“Nigeria is in a similar position in that it doesn’t want to be held back. It’s becoming more self-sufficient, so this is a potential flight risk,” Smith said. “By redirecting domestic crude oil production to the Dangote refinery, Nigeria will reduce its dependence on global market dynamics.”
Venezuela is also a likely candidate, market sources said. Caracas may seek more flexibility as production recovers more quickly than expected, potentially creating a more pro-U.S. political environment.
“Venezuela’s leadership shift to a more pro-U.S. position could cause it to fall next in the rankings,” said Saul Cavonic, an energy analyst at MST Marquee.
Kepler’s Smith also said Venezuela is a potential candidate because it is expanding production and exports at a faster pace than expected. Venezuela’s crude oil exports exceeded 1 million barrels per day in March for the first time since September.
The energy ministries of Kazakhstan, Nigeria and Venezuela did not immediately respond to CNBC’s requests for comment.
OPEC+ has implemented core production quotas, reportedly cutting production by around 2 million barrels per day until the end of 2026.
The eight major OPEC+ producers, including Saudi Arabia and Russia, agreed on April 5 to begin cautiously easing their voluntary production cuts, phasing around 206,000 barrels per day back onto the market in May, from a broader cut of 1.65 million barrels per day first introduced in 2023, according to an official OPEC statement.
Fragmentary but important?
The UAE’s withdrawal comes as OPEC grapples with fragmentation. Several member states, including Iran, Libya and Venezuela, have been exempted from quotas due to sanctions or conflict, complicating efforts to maintain unity.
Lipow said dissatisfaction with uneven compliance could prompt further withdrawals. “Countries that are tired of seeing OPEC and OPEC+ countries constantly cheating on their production quotas are candidates to leave these groups.”
A decline in cohesion could lead to instability in the oil market. Rapidan Energy Group President Bob McNally said any loss of OPEC+ discipline would likely lead to further price volatility. “The main impact will be increased volatility in oil prices,” he said.
Still, some argue that OPEC’s core function of stabilizing markets remains intact even with fewer members.
Rystad Energy senior vice president Claudio Galimberti said the group’s performance, especially during crises such as the coronavirus pandemic, suggested resilience.
“Over the past 10 years, this group has managed to balance the market in an incredible way,” he said. “If OPEC+ did not exist during COVID-19, there would have been a lot of market volatility.”
