Dear Friends,

There was a shocking news that we have come across yesterday.

The United Arab Emirates (UAE) announced that they are withdrawing from OPEC (Organization of Petroleum Exporting Countries), the body responsible for regulating the international crude oil markets.

What will be the consequences of this?

And what exactly is OPEC?

From the moment crude oil was first discovered in the Gulf nations, its production, pricing and global marketing were controlled by just seven entities.
Comprising Standard Oil (now ExxonMobil), Royal Dutch Shell (now Shell), Anglo-Persian Oil Company (now BP—British Petroleum), Standard Oil of New York, Standard Oil of California, Gulf Oil and Texaco. These seven companies effectively dictated the laws of the crude oil market. Collectively, these seven firms were known as the "Seven Sisters also.

Gradually, a sentiment had began to take root across the Gulf region.

"This is our land; how can the outsiders with absolutely no connection to us, can control the crude oil extracted from our very own soil?"

Responding to this sentiment, and under the leadership of Saudi Arabia, the nations across the Gulf region including Iran, Iraq, Kuwait, and Venezuela convened to establish OPEC in the 1960s.

They declared that henceforth all the decisions regarding crude oil would be made exclusively by this organisation alone.

By recognizing that crude oil was the "guardian angel" to uplift their nations in every respects, the Gulf states brought every aspect of the industry under the purview of their newly formed organization- OPEC. This included everything from setting  up daily production quotas (determining exactly how many barrels could be produced per day) to establish the pricing structures. All the member nations unanimously consented to this kind of arrangement.

They summarily regulated the market to ensure a perfect equilibrium between demand and supply of crude oil globally.

They remained so vigilant to ensure that not a single barrel of crude oil beyond what was required by the demand that enters into the market.

Through these rigorous measures, they successfully safeguarded the global market value and prestige of the crude oil produced by the Gulf nations.

Over time, the African nations rich in crude oil resources and the countries like Russia later joined the OPEC network, This expanded alliance was was termed and designated as "OPEC+.

Until now, it was this very OPEC organization that controlled global crude oil production levels and the pricing.

The United Arab Emirates (UAE) has now withdrawn from this network.

What will be the consequences of this?

As a result of this decision, which will come into effect from May 1, 2026, unrestricted production of Crude oil by UAE.

The "production quotas" previously imposed by OPEC will no longer apply to the UAE.

By fully leveraging its oil reserves, the nation aims to achieve a daily production target of 5 million barrels.

A power struggle regarding regional hegemony may emerge among the Gulf nations. The UAE's withdrawal from OPEC is widely perceived as a direct challenge to Saudi Arabia's leadership. Economic rivalry among the Gulf states is now poised to happen openly. The UAE will henceforth determine the pricing for the crude oil it produces entirely by its own.

With the anticipated increase in crude oil production, there is a possibility that the oil prices in the international market may decline. This outcome would prove advantageous for oil-importing nations such as India, China, Japan etc., 

In the stock markets, this decision by the UAE could trigger shifts in the prices of crude oil commodities and gold as well.

This happens at a time when the entire world is gradually transitioning toward the non-conventional energy sector, specifically electric vehicles (EVs), the UAE is formulating a strategy to fully monetize its existing crude oil reserves before the era of fossil fuels draws to a close. Thereby UAE is propelling its nation toward advanced technological innovation.

The UAE has arrived at the conclusion that operating independently is more advantageous than acting collectively.

This decision taken by the United Arab Emirates can be described as the dawn of a new era in the crude oil politics as well.