The United Arab Emirates’ exit from OPEC this week will weaken the influence of the cartel and its leader Saudi Arabia on the oil market, a development that could prove bearish for prices over the long term.
The UAE was the most influential member of OPEC behind Saudi Arabia. It was one of the few members, along with Saudi Arabia, that had meaningful spare production capacity to influence prices and respond to supply shocks, said Jorge León, head of geopolitical analysis at Rystad Energy.
Spare capacity is the idle production that can be brought online quickly to address major crises. Saudi Arabia and the UAE together control a majority of the world’s total spare capacity of more than 4 million barrels per day, making them particularly influential during periods of distress.
The UAE’s “departure therefore removes one of the core pillars underpinning OPEC’s ability to manage the market,” León said in a note Tuesday. OPEC will become “structurally weaker” as a consequence, he said.
It is also a blow to the Saudis because it undermines their ability to manage OPEC as an organization, said David Goldwyn, who served as the State Department’s special envoy and coordinator for international energy affairs from 2009 to 2011.
