IMPLICATIONS OF UNITED ARAB EMIRATES (UAEs) EXIT FROM OPEC .

OPEC AND OPEC +

The Organisation of Petroleum Exporting Countries (OPEC) an intergovernmental Organisation  established on  14th September 1960 in Bhagdhad with initial 5 members  namely Iran, Iraq, Kuwait, Saudi Arabia and Venezuela were instrumental in making wide range  of global impacts in later years  due to heavy dependence of other country's on imports from OPEC members- petroleum products for energy consumption. At present with 11 member nations OPEC is estimated  to control 79.5% of the world's proven oil reserves that are located within OPEC members wherein Middle East alone accounts for 67.2 % of OPEC s total reserves. It may be recalled here that first time forging of oi weapon and exercising of OPEC's cartel's monopoly power were exercised in October 1973 when oil prices were shot up several fold.Obviously non oil developing countries were worst affected.On the other hand advanced economies could neutralized the negative impact  by enhancing the prices of manufacturers exported to oil exporting  countries. Consequentlly the large inflows of petro dollars to Middle East nations prompted  them to embark  on various infrastructure development projects which in turn attracted manpower imports from Asian countries including India.Gradually along with the Indian diaspora across,India emerged as the largest recipient of inward remittances across the world.Gradually apart from 12 OPEC members ,OPEC + members comprising of Azerbaijan, Bahrain, Brunei ,Kazakhstan, Russia, Malaysia, South Sudan, Sudan and Oman also joined the organization to work together on adjusting crude oil production to bring stability to the global oil market. 

 UAE's development experience been from small fishing hamlets  to major oil exporter and further top global hub of tourism, logistics, and finance largely  driven by strategic investments of oil revenues. During the last 50 years GDP has witnessed 247 times increase with non oil sectors dominating especially due to diversification of  technology  renewable energy, tourism,manufacturing and services. Large scale investment in infrastructure airports, ports,roads and digital networks has also transformed UAE into a global logistics hub, creating a high income competitive economy.Simlarly policies like 100% Foreign Investment, zero tax and liberal immigration policies led to growth dynamism in UAE economy .Currently  for the first time UAE as  one  major member of OPEC organization decided to exit.As per 2023 data UAE is the largest economy in the Middle East after Turkey, Saudi Arabia and Israel .UAE  has decided to quit the Organisation with effect from May 1st 2026 impinging cartel 's  cohesion and market strategy. It has been observed that immediate market impacts are muted because of the ongoing disruptions in the Strait of Hormuz .Already OPEC's influence started declining while countries outside OPEC cartel particularly the US increased oil production. Eventually the share of OPEC's oil production reduced to  a quarter of the world's oil last year compared to half of global share at the peak leve.l

According to UBS analyst though UAE's departure from OPEC is  unlikely to make any visible impact in the short period, it has the potential to raise oil  output.Even after UAE's departure,  OPEC + account for 40% of global oil output.Russia has observed that UAE's exit is likely to lead to a fall in oil prices but it has confirmed it's intension to continue within OPEC + alliance.Th UAE's exit is likely to weaken OPEC + ability to manage supply, put pressure on Saudi Arabia's  price management strategy, and encourage compliance drift among remaining members.It has been observed even Russia which became an OPEC + member since 2016 got the the relationship strained primarily due to reluctance to abide by output cuts.

IMPACT OF UAE's EXIT FROM OPEC +

UAE 's exit from OPEC after nearly six decades can impinge and  rupture  the strategic cartel in the global economy ,weakening the model of coordinated oil market control and further impact geopolitics, voltatility and energy transition.UAE's oil and gas reserves are estimated at 113 billion barrels accounting for world's sixth largest  position and within UAE Abhudabi emirate alone has an investment plan for the period 2023-27to raise  oil  production capacity to five million barrels per day from its present OPEC's allowed production quota of 3.45 mbpd leaving unutilised spare capacity of nearly 1.5 mbpd.However Emirati strategists believe that global oil demand is approaching a '  peak level' after which crude requirement and unit value would decline. Accordingly they wish to sell as much oil as possible during the peak demand.Unsustainable surge in oil prices may destroy oil demand and accelerate the shift towards alternative sources of energy. In any case UAE's move to exit  is likely to widen the rift between Saudi Arabia and UAE and may even please US for weakening the OPEC cartel.With UAE's exit OPEC is losing one of it's most important member and this comes during the worst global energy crisis period.UAE's decision is based on national interest.Some observe that UAE's pricing  strategy may even lead to some  check in the rise of oil prices. 

CONCLUSION 

 As far as India is concerned UAE's action presents a strategic opening since India is the world's third largest oil importer.UAE's move is  bound to increase oil  supply and reduce prices..UAE's plan is to raise output to 5 million barrels per day by 2027.Without OPEC's production Quota constraints UAE can currently boost output (subject to shipping/transportation constraints) which is expected to lower India's import bill and support rupee denominated energy trading which will further  strengthen India UAE economic ties. Moreover compared to  distant sources like USA,Venezuela or Brazil Short distance to UAE  is more beneficial to India .