The United Arab Emirates (UAE) has declared its decision to withdraw from the Organization of the Petroleum Exporting Countries after being a member for nearly sixty years.
OPEC, established in 1960, is a grouping of 12 major oil-exporting nations such as Algeria, Congo, Iran, Iraq, Kuwait, Libya, Nigeria, and Venezuela. Its primary objective has been to coordinate petroleum policies and regulate oil supply to influence global prices.
This development, occurring amid the blockade of the Strait of Hormuz and intensifying tensions between the UAE and Saudi Arabia, has significant implications for global oil dynamics, regional geopolitics in the Gulf, and India’s energy as well as foreign policy strategy.
Why the UAE Left OPEC
- Divergence in Production Philosophy with Saudi Arabia
The central reason behind the UAE’s exit lies in its disagreement with Saudi Arabia’s oil production approach.
Saudi Arabia has traditionally supported limiting oil supply in global markets to maintain higher prices. This strategy is rooted in both economic considerations and historical political positioning since the 1970s against Western dominance in oil markets.
OPEC enforces this approach through a quota system, which sets production ceilings for member countries and uses spare capacity collectively to influence oil prices.
In contrast, the UAE prefers to expand production. With among the lowest extraction costs globally, it is less affected by falling prices and therefore sees little benefit in restricting output. Its strategy is focused on maximizing production and market share rather than sustaining high prices.
- Regional Conflicts as a Trigger
Beyond economic disagreements, geopolitical tensions have played a crucial role.
Differences between Saudi Arabia and the UAE over conflicts in regions such as Sudan and Yemen have strained their bilateral relationship. Additionally, the UAE’s increasing strategic alignment with the United States and Israel has introduced friction within the Gulf Cooperation Council (GCC).
Impact on Global Oil Markets
- Short-Term vs Long-Term Effects
Short Term:
The immediate impact of the UAE’s withdrawal is limited due to the ongoing disruption caused by the blockade of the Strait of Hormuz, which already constrains oil supply flows.
Medium to Long Term:
The UAE contributes approximately 4–5% of the output within the OPEC+ grouping (which includes OPEC members plus additional producers like Russia, formed in 2016).
Once freed from OPEC’s quota restrictions, the UAE may significantly increase production. This could weaken OPEC’s ability to control prices and lead to downward pressure on global oil prices.
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Structural Weakness within OPEC
Prior to the UAE’s exit, OPEC+ accounted for nearly half of global oil production. The departure of a major producer like the UAE undermines the cartel’s internal discipline and cohesion.
Although countries such as Indonesia and Qatar have exited OPEC in the past, the UAE’s scale and production capacity make this withdrawal far more impactful.
Geopolitical Fault Lines – Is the GCC Fragmenting?
The UAE’s decision raises a broader question: is this simply an economic move, or part of a larger geopolitical shift?
Since the end of the Second World War, Gulf unity has been based on three core pillars:
- Collective control over nationalized oil and gas resources, reducing reliance on Western multinational corporations.
- A shared regional identity rooted in Gulf cooperation.
- Security collaboration through the GCC to preserve stability among monarchies.
If the UAE’s divergence extends beyond oil policy, it could challenge the cohesion of the GCC. Its improving ties with the United States and Israel are already viewed with concern by some regional partners, potentially deepening internal divisions.
Implications for India
- Risks to Diaspora and Remittances
The Gulf region hosts over 9 million Indian migrants, many of whom are employed in low-wage sectors. The UAE and Saudi Arabia remain the two largest destinations for Indian workers.
Rising tensions between these countries could threaten the safety, employment, and welfare of Indian workers.
India receives over $50 billion annually in remittances from the GCC region, and any geopolitical instability could make these inflows uncertain and volatile.
- Impact on Sovereign Wealth Fund Investments
Sovereign wealth funds from Gulf countries have already paused several overseas investments due to ongoing conflicts.
In the future, reconstruction efforts within the region may redirect capital inward, reducing the scale of investments flowing into India compared to the previous decade.
- Potential Benefit through Lower Oil Prices
India is one of the largest importers of UAE crude oil. If the UAE increases production after exiting OPEC, global oil prices may decline.
At a time when India is facing challenges such as LPG shortages, rising fuel costs, and geopolitical risk premiums, lower oil prices could provide significant economic relief.
India’s Strategic Dilemma – Fence-Sitting is Not Sustainable
India currently holds associate membership in the International Energy Agency (IEA), which was created in the 1970s as a response to OPEC’s dominance.
The IEA enables primarily Western countries to coordinate the release of oil from Strategic Petroleum Reserves (SPR) during crises. While India benefits from such releases through lower prices, it does not have decision-making authority as an associate member.
Simultaneously, India maintains strong diplomatic and economic ties with OPEC countries, regularly engages in India-OPEC dialogues, and is expected to remain one of the world’s largest oil importers.
In this evolving scenario, India must move beyond a passive approach and define a clear strategic direction in energy and foreign policy.
Way Forward for India
- Leverage: Utilize diplomatic ties with both the UAE and Saudi Arabia to safeguard Indian workers and ensure stable remittance flows.
- Diversify: Expand energy sourcing beyond the Gulf region to reduce dependency and vulnerability.
- Seek: Pursue full membership in the IEA to gain a voice in global energy decision-making.
- Engage: Actively participate in India-OPEC dialogues while also strengthening relations with non-OPEC producers.
- Develop: Invest in domestic alternatives such as renewable energy and green hydrogen to reduce long-term dependence on crude oil.
Conclusion
The UAE’s withdrawal from OPEC is not merely a disagreement over production levels; it signals deeper geopolitical shifts within the Gulf region.
This development highlights the possibility that long-standing regional unity may be weakening. For India, it underscores the urgency of moving beyond strategic ambiguity and clearly articulating its energy security and foreign policy priorities in a rapidly changing global landscape.
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