OPEC Signals Unity After U.A.E. Exit With Pledge to Boost Oil Output
Agreement is seen as symbolic because of effective closure of Strait of Hormuz
- OPEC+ agreed to raise oil output by 188,000 barrels a day in June, days after the United Arab Emirates departed the cartel.
- The U.A.E.’s departure, as OPEC’s third-largest producer, weakens the cartel amid internal disunity and the Iran war.
- Analysts see Iraq as a potential flight risk and say OPEC’s unity could face another test when the Iran war ends.
OPEC sought to project a united front Sunday, agreeing to a symbolic increase in oil output just days after the bombshell departure of the United Arab Emirates. But the pledge masks fault lines that could soon resurface.
The Organization of the Petroleum Exporting Countries and its allies agreed to raise production by about 188,000 barrels a day in June, a third consecutive monthly increase and a signal to markets that the cartel’s policies remain unaffected by the rupture.
In a statement following a virtual meeting Sunday, a group of seven countries belonging to the broader OPEC+ didn’t even reference the U.A.E.’s exit. The seven members are Saudi Arabia—the group’s de-facto leader—along with Russia, Iraq, Kuwait, Algeria, Kazakhstan and Oman.
“OPEC+ is playing it cool. By sticking to the same production path—just minus the U.A.E.—it’s acting as if nothing has happened, deliberately downplaying internal fractures and projecting stability,” said Jorge León, head of geopolitical analysis at Rystad Energy.
With the effective closure of the Strait of Hormuz, the production increase is largely viewed by analysts as a statement of intent rather than a market-moving event. Kuwait, for instance, didn’t export any barrels of crude in April, for the first time since the 1990 Gulf war, according to the ship-monitoring company TankerTrackers.
The sudden departure of the U.A.E. dealt a heavy blow to OPEC at a time when the Iran war is scrambling alliances and investment priorities among the world’s top oil producers. The move further weakens the cartel, which was already under pressure amid internal disunity and the rise of American oil output.
The U.A.E. was OPEC’s third-largest producer and has in recent years wanted to boost its output beyond levels allowed by the cartel’s quota system.
On Sunday, as OPEC+ met virtually to vote on its output decision, the U.A.E.’s state-run Abu Dhabi National Oil Company announced plans to spend $55 billion on new projects over the next two years.
The U.A.E.’s departure illustrates how the Persian Gulf state has grown less willing to compromise as its relations with OPEC heavyweight Saudi Arabia—a neighbor and sometimes military partner—have frayed amid competition for regional leadership.
The big question now facing both OPEC and wider oil markets is whether other nations decide to leave the group.
Saudi Arabia was blindsided by the U.A.E.’s exit, according to Gulf officials familiar with the matter. The move led to concerns not only that the split would reduce OPEC’s ability to manage oil markets but also that it could spur further defections, they added.
The kingdom in recent days has raced to contact other members to ensure OPEC’s unity remains intact and to project support for the group, the officials said.
Saudi officials also consulted members on the output decision days in advance of Sunday’s meeting, a departure from the usual practice of only informing smaller members of the group just before, according to Gulf OPEC officials.
Some OPEC members have publicly insisted that the U.A.E.’s departure is a unique event.
Algerian President Abdelmadjid Tebboune on Saturday described the U.A.E.’s withdrawal as a “non-event.” The core pillar of the organization remains Saudi Arabia, he said, according to Algeria’s news agency APS.
Iraq and Kazakhstan—which have previously protested Saudi dominance of OPEC in private—have both recently affirmed their commitment to the alliance.
However, OPEC delegates warn that while the risk of further departures is contained because of the Iran war, disquiet remains.
Some members haven’t always adhered to the group’s quotas, and have at times been critical of Saudi Arabia’s approach to market management—whereby it adjusts production to influence oil prices.
Analysts see Iraq, the cartel’s second-largest member, as a potential flight risk. That’s partly because the country has frequently produced above its allocations to rebuild its war-damaged economy.
Iraqi oil officials told The Wall Street Journal that the country has no plans to leave the organization.
When the Iran war ends, OPEC’s unity could well face another test, analysts say, particularly if Saudi seeks to curtail output. When oil flows freely once again, it will be much harder to ask members to hold off boosting production, they say.
Differences that have existed between Saudi Arabia and other countries could then resurface.