Experts warn that the UAE's announcement to withdraw from OPEC could prompt other member countries to follow, possibly leading to the collapse of this world's largest oil producers' association.
The United Arab Emirates' (UAE) exit from OPEC will cause a severe shock to the world's largest oil producers' association and could even lead to the group's breakup if OPEC does not make significant adjustments to prevent other members from distancing themselves.
One consequence of the UAE's withdrawal is that OPEC will lose substantial revenue. According to data from the U.S. Energy Information Administration (EIA), last year OPEC's total oil sales reached $455 billion, of which the UAE accounted for $77 billion or nearly 17%.
Furthermore, losing the group's second-largest producer could trigger a domino effect, with other countries considering following suit. The group's internal relations were already unstable, and regional unrest from war, along with attacks on infrastructure by Iran—also an OPEC member—could accelerate the group's disintegration.
The main reason for the UAE's decision to leave OPEC is frustration over production quotas. The UAE wants to increase its oil output to boost revenue, which conflicts with OPEC's policy of production cuts. The UAE also seeks to pursue its energy policies independently without aligning with Saudi Arabia and the group's decisions.
"If there's ever a time to leave, it's now," Robin Mills, CEO of Qamar Energy, a consultancy in Dubai, told Becky Anderson of CNN. "We might also see Kazakhstan leave since it is another major producer seeking to expand output."
David Oxley, chief climate and commodities economist at Capital Economics, said, "The bonds holding OPEC members together are beginning to loosen."
He assessed that leaving the group allows the UAE to increase production as desired after being constrained for a long time. However, there will be no immediate impact because oil demand has plummeted in recent weeks while prices surged, combined with storage tanks reaching capacity due to the closure of the Strait of Hormuz.
In the long term, the UAE has the capacity to increase oil production by up to 1 million barrels per day, which is about 1% of global demand. This production increase could encourage other countries to consider leaving as well.
Oxley also predicted that if OPEC eventually dissolves, the consequences could be twofold: global oil prices might fall due to a lack of production control, but prices would also become more volatile without a central body coordinating production adjustments to reflect global conditions.
Follow international news:https://www.thairath.co.th/news/foreign
Source:cnn