Cracks In The Oil Crown
Kanchan Basu
On April 29, 2026, the ‘United Arab Emirates’ (UAE) announced it would leave the ‘Organization of the Petroleum Exporting Countries’ (OPEC), ending nearly six decades of membership. The decision, effective May 1, 2026, removes one of the group’s largest producers.
‘OPEC’ traces its origins to September 1960, when representatives from Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela gathered in Baghdad. At the time, the global oil industry was controlled largely by a consortium of Western companies known as the ‘Seven Sisters’. Producing countries had a limited say over how much oil was extracted, or at what price it was sold and revenues depended on decisions made elsewhere.
The founding members sought to change this. ‘OPEC’ was conceived as a platform for coordination among producers. Here, producers could exert greater control over supply and pricing, and secure a larger share of the value of their resources. In its early years, however, OPEC’s influence was modest. The global oil system was still shaped by multinational firms, and ‘non-OPEC’ production remained significant. The organisation existed, but it did not yet define the market.
That changed in the 1970s. During the 1973 ‘Arab-Israeli War’, also known as the Yom Kippur War, Arab ‘OPEC’ members imposed production cuts and an embargo on the U.S. and the Netherlands. Oil prices quadrupled. The episode demonstrated OPEC’s ability to use oil as a geopolitical tool and established the group as a major force in the global economy.
A second shock followed in 1979 with the Iranian Revolution. For a period, ‘OPEC’ controlled around 75% of global oil exports and accumulated significant petrodollars that funded infrastructure and reshaped international finance.
By the 1980s, ‘OPEC’ introduced formal production quotas, with Saudi Arabia often acting as the swing producer. In 1986, after a period of market flooding, prices collapsed. The following decades brought repeated cycles of cuts, recoveries, and new pressures from the ‘Gulf War’ and ‘Asian Financial Crisis’ to China’s demand surge in the 2000s.
The U.S. shale revolution, which accelerated in the 2010s, represented a structural change. Starting around 2012, American producers, using hydraulic fracturing and horizontal drilling, began unlocking vast reserves of tight oil in Texas, North Dakota and elsewhere. Shale production was faster, more flexible, and highly responsive to price. When prices rose, output followed within months.
Uneasy Coordination
In 2014, ‘OPEC’ made its most decisive attempt to tackle the challenge. Rather than cut output to defend prices, it kept pumping, hoping to push prices low enough to force higher-cost shale producers out of the market.
Prices duly fell below $30 a barrel. In 2016, the group formed the broader OPEC+ alliance with Russia, Kazakhstan, Azerbaijan and other non-OPEC producers to coordinate output more effectively. Even then, the combined group accounted for roughly 40% of global supply, which was far from the dominance of earlier decades.
What followed was a period of uneasy coordination. The first major test came in 2020. As the ‘COVID-19’ pandemic led to the collapse of global demand, oil consumption fell at a pace not seen before. OPEC+ responded with unprecedented production cuts, removing millions of barrels per day from the market.
In the years that followed, the alliance settled into a pattern of tailored corrections. Output was gradually restored as demand recovered, but disagreements persisted. Some members, facing fiscal strain, pushed for higher production. Others, led by Saudi Arabia, prioritised price stability.
By late 2025, prices had dipped below $60 a barrel as the group began unwinding production cuts. Saudi Arabia and Russia were pushing to restore output, while others wanted to hold the cuts in place. The internal arguments that had always plagued the group-between those who needed high prices to balance their budgets and those who wanted to maximise market share – were intensifying.
Then came the war
On February 28, 2026 the U.S. and Israel launched attacks on Iran leading to death of Iran’s Supreme Leader Ali Khamenei. Iran retaliated with missile and drone attacks across the ‘Persian Gulf’ and blockaded the ‘Strait of Hormuz’. Global oil supply plummeted by more than 10 million barrels a day in March alone. The crisis exposed OPEC’s deepest structural contradiction. Iran, one of its founding members, attacked other members in the region in response to the U.S.-Israeli strikes.
For the UAE, the crisis sharpened an existing tension. A member since 1967, it has spent years expanding its production capacity, with the aim of reaching close to 5 million barrels per day.
Under recent OPEC+ agreements, however, its output was capped lower, around 3.2-3.4 million bpd. But by leaving, the UAE gains flexibility to increase production once shipping routes stabilise and to pursue bilateral arrangements. The move also exposes the UAE’s growing differences with Saudi Arabia, the cartel’s de facto leader, on issues ranging from quotas to regional policy.
The ‘UAE’ is not the first country to leave ‘OPEC’. ‘Qatar’ departed in 2019, redirecting its energy identity toward liquefied natural gas. ‘Ecuador’, ‘Gabon’, ‘Angola’, and ‘Indonesia’ have all come and gone at various points. But the UAE’s departure is different in scale. It was OPEC’s third-largest producer. It was one of only two members, Saudi Arabia being the other, with the ability to rapidly increase or decrease output to stabilise markets. Without the UAE, OPEC’s capacity to respond to supply shocks is materially diminished.
OPEC’s ability to move prices depends heavily on whether its remaining members, many of them economically fragile, politically unstable, or at war with each other, can maintain unity. It also depends on whether Russia continues to coordinate through the ‘OPEC’ framework. And it depends on whether the shale producers, the renewables build-out, and the broader energy transition continue to erode the structural centrality of Gulf oil.
Long-Term Benefits
For large importers such as India, which depends on imports for nearly 90% of its roughly 5.8 million barrels per day consumption, the change could bring longer-term benefits. Analysts say greater UAE production outside quotas may support additional supply, enable direct bilateral deals, and reduce freight costs due to proximity. This could help moderate import bills and support energy security efforts amid ongoing global uncertainty.
In the short term, however, the ‘Strait of Hormuz’ disruptions continue to dominate price movements. Any additional supply from the UAE will only fully materialise once safer shipping conditions return. Until then, the exit’s primary effect is symbolic rather than immediate.
‘OPEC’ now retains substantial reserves and influence through its core members, particularly Saudi Arabia. The organisation now operates in a more complex environment. Renewables continue to gain ground, energy efficiency improvements persist, and major consumers are actively diversifying sources. At the same time, geopolitical risks add layers of uncertainty.
For 65 years, ‘OPEC’ held the world over a barrel. The barrel is now cracked, and the oil is running in directions no cartel can follow.
