When the Cartel Loses Its Grip

The UAE’s exit from the OPEC signals not just a rupture in oil diplomacy, but a shift toward a more buyer-friendly energy order.

For much of the modern economic age, oil has been less a commodity than a lever of power. Industrial growth, geopolitical alignments and even wars have turned on access to crude. For decades, that lever was held firmly in Western hands by the clutch of companies famously dubbed the ‘Seven Sisters’ that dominated the global oil trade from the 1920s to the 1960s, exercising near-total control over production, pricing and distribution. Through vertical integration, collusive pricing and tight control over concessions, they managed to command roughly 85 percent of the world’s oil reserves while keeping prices conveniently profitable for them.

The emergence of the Organization of the Petroleum Exporting Countries (OPEC) in 1960 marked a rare and consequential revolt against this order. Founded in Baghdad by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, the cartel sought to reclaim sovereignty over natural resources and wrest pricing power from Western oil majors. By coordinating production levels, OPEC aimed to stabilise markets and secure predictable revenues for its members. Its headquarters in Vienna became the unlikely nerve centre of global energy politics.

Weaponizing Oil

The oil shocks of the 1970s demonstrated OPEC’s ability to weaponize supply, sending prices soaring and forcing consuming nations to rethink their dependence. Yet success bred its own complications. Over time, internal disagreements, the rise of alternative producers and technological innovations and most notably America’s shale revolution began to erode OPEC’s dominance. The creation of the broader OPEC+ alliance in 2016, incorporating non-members such as Russia, was an acknowledgment that the cartel could no longer steer markets alone.

Now, that uneasy coalition faces a more fundamental test. The decision by the United Arab Emirates to exit OPEC, effective from May 1, marks the most significant rupture in the organisation’s six-decade history. It reflects a deeper recalibration of national interest in a world where the incentives for collective discipline are weakening.

The UAE’s departure has been long in the making. Frustrations over production quotas, particularly with Saudi Arabia, OPEC’s de facto leader, have simmered for years. As Abu Dhabi invested heavily in expanding its oil capacity, it found itself constrained by limits that no longer aligned with its ambitions. Freed from these restrictions, the country now plans to boost output from around 3.4 mn barrels per day to 5 mn by 2027. In doing so, it signals a willingness to prioritise market share over cartel cohesion.

The implications are immediate and far-reaching. OPEC’s collective share of global oil supply could fall from roughly 30 percent to 26 percent, weakening its ability to influence prices. More damaging is the blow to Saudi Arabia’s authority. The kingdom has long played the role of swing producer, adjusting output to balance markets. But its leadership depends on compliance from others. If a wealthy and strategically significant member like the UAE can walk away, others may be tempted to follow.

Significant Breach

The risk of further fragmentation looms large. OPEC has always been a coalition of unequal partners with divergent fiscal needs and political priorities. Lower-income members often favour higher prices to shore up revenues, while wealthier states can afford to prioritise long-term market positioning. As these differences sharpen, the logic of collective restraint weakens. The cartel risks becoming less a unified bloc than a loose forum for negotiation.

For oil markets, this could herald a period of greater volatility. In the short term, increased supply from the UAE may exert downward pressure on prices. Analysts already anticipate that a surge in output could soften benchmarks, offering relief to import-dependent economies. Yet the longer-term picture is less clear. Without a cohesive mechanism to manage supply, markets may swing more sharply in response to geopolitical shocks or demand fluctuations.

Such uncertainty carries both risks and opportunities. For consuming nations, particularly in Asia, the prospect of cheaper oil is enticing. India, which imports nearly 90% of its crude requirements, stands to benefit significantly. The UAE’s geographic proximity reduces shipping times and freight costs, while its expanded production capacity could provide a reliable alternative to more distant suppliers.

Infrastructure adds another layer of advantage. The Abu Dhabi Crude Oil Pipeline, linking onshore fields to the Fujairah terminal on the Indian Ocean, allows exports to bypass the Strait of Hormuz. For India, increased access to such routes enhances energy security by diversifying supply lines. Swift bilateral agreements could lock in these gains, insulating the country from disruptions elsewhere.

Yet cheaper oil is not an unalloyed good. Persistently low prices can discourage investment in new production, setting the stage for future supply crunches. They may also slow the transition to cleaner energy sources by reducing the economic incentive to shift away from fossil fuels. The weakening of OPEC could complicate not just energy markets but climate policy as well.

More broadly, the UAE’s exit underscores a shift in the global energy order. The era of tightly controlled cartels is giving way to a more fragmented landscape, where national strategies increasingly trump collective discipline. Producers are recalibrating their roles in response to technological change, shifting demand patterns and the growing importance of energy security in foreign policy.

As the historian Daniel Yergin has observed, oil and gas have always been political commodities. That remains true today, albeit in a more complex and multipolar context. The fracturing of OPEC does not signal the end of coordination, but it does suggest that the mechanisms of control are becoming more diffuse.

The old certainties are fading. In their place is emerging a system that is less predictable, more competitive and, for consumers at least, potentially more forgiving. Whether this new equilibrium proves stable will depend on how deftly nations manage the delicate interplay between cooperation and self-interest in the years ahead.

(The author is a retired naval aviation officer and a defence and geopolitical analyst. Views personal.)