Why Has the UAE Left OPEC?

By Kevin D. Williamson

Friday, May 01, 2026

 

Why has the United Arab Emirates abandoned OPEC? I can think of 50 billion to 70 billion reasons—a year.

 

As the Baker Institute runs the numbers, membership in the Organization of Petroleum Exporting Countries—the cartel that has for decades tried to manage global oil prices—costs the UAE at least $50 billion a year in forgone revenue—and maybe as much as $70 billion.

 

There are only about 1.44 million UAE citizens, so that lost revenue is far from trivial on a per capita basis: just under $50,000 per Emirati at the high end of the Baker Institute estimate. As one of the more efficient producers in a cartel that limits production to keep prices up, the UAE’s membership in OPEC represented a net economic loss.

 

There was a time when OPEC seemed to have the world by the short and curlies. OPEC members produced the majority of the world’s crude oil in 1973, when Saudi Arabia’s King Faisal organized the infamous Arab oil embargo to punish the United States and its allies for backing Israel in the Yom Kippur War, a conflict launched by the Arab powers in a sneak attack on the Jewish holy day. Owing to its commanding position in the world petroleum market, OPEC had real clout, and Faisal’s “oil weapon” went off like a geoeconomic bomb: Oil prices nearly quadrupled, practically overnight. The oil shock is estimated to have reduced U.S. GDP by 2.5 percent, simultaneously driving up both unemployment and inflation and contributing to a recession that did not abate until 1975. Americans were subjected to gasoline rationing, with the long lines of cars at gas stations sometimes stretching for blocks.

 

But the 1973 embargo also sent a signal to markets. The United States, Canada, and the United Kingdom all had vast petroleum reserves that were not being fully exploited, with the powers that be in the rich countries all too happy to leave the dirty work of pulling crude out of the ground to faraway workers under the bootheel of sundry Arab despots. (To this day, a great part of U.S. refining capacity is optimized for relatively “sour” imported oil rather than the “sweet” stuff produced domestically.) The high prices created by the embargo put some money into the pockets of Western producers—and created powerful incentives to invest that money in production outside of OPEC’s control. Hydraulic fracturing took off in the North Sea off the U.K. coast in the late 1970s, and by the 1980s legendary American oilman George P. Mitchell had just about perfected the combination of hydraulic fracturing with horizontal drilling in shale deposits to produce “fracking” in its modern form. In 1981, Sandia Laboratory in Albuquerque introduced its first commercially available digital micro-seismic monitoring equipment, beginning the transformation of the world of wildcatters and roughnecks into the high-tech industry it is today. These things do not happen overnight, but the 1973 crisis helped to awaken the sleeping American energy giant.

 

One result of that is that the OPEC cartel from which the UAE has just divorced itself no longer produces the majority of the world’s oil—it produced only about 36 percent of the commodity in 2025, a number that presumably will be a bit lower this year with the UAE’s exit. OPEC has tried to bolster its position over the years with arrangements such as “OPEC Plus,” meaning an alliance of the cartel with Russia and other oil-producing countries, but OPEC’s ability to set the world’s petroleum agenda is much diminished.

 

The UAE’s exit was driven in part by political factors, including the fact that it is no longer as aligned with Saudi Arabia as it once was, and by one big economic factor: The UAE can produce oil much more cheaply than Saudi Arabia and many other OPEC members.

 

The UAE simply doesn’t need high oil prices the way Saudi Arabia does. One of the metrics oil-dependent countries consider is the “fiscal break-even price,” meaning the oil price at which exports will allow the government to cover all its spending without a deficit. UAE’s fiscal break-even price for oil in 2025 was less than $50 a barrel; Saudi Arabia needs it to be more like $90 or more for Riyadh to balance the budget. The UAE has a more diversified economy than Saudi Arabia, with oil accounting for only about 23 percent of GDP, according to UAE data, compared to about 40 percent for Saudi Arabia. The UAE has an advantage in relatively low-cost and low-carbon production—and the country now expects to add more than 1 million barrels of production per day, liberated from OPEC constraints.

 

Cartels face two great problems, one internal and one external. The internal problem is that it is difficult, at times impossible, to ensure that all cartel members have well-aligned interests. The external problem is that by creating artificially high profits (which is, after all, the point of most cartels), a cartel also creates incentives for innovative non-cartel players to enter the market, where they can pursue business strategies that are free from cartel constraints.

 

OPEC, which once looked invincible, is now a little smaller. Even though it may take a while, basic economics usually wins out in the end.