What the UAE Move Means for OPEC

OPEC just lost a cornerstone member at the worst possible time. The United Arab Emirates' decision to walk away from the producers' group strips OPEC of about 13% of its capacity and one of its few members able to quickly pump more oil—right as war in Iran has shut the Strait of Hormuz and scrambled Middle East alliances, reports the Wall Street Journal. "It's the hardest blow ever," Homayoun Falakshahi, a senior oil analyst at commodities data company Kpler tells the newspaper. "It raises the question about whether OPEC can survive." The sentiment is widespread:

• It's "the beginning of the end" for the alliance, Saul Kavonic of MST Financial tells the BBC. The UAE is OPEC's fourth-largest producer behind Saudi Arabia, Iraq, and Iran, accounting for about 3.6 million barrels a day, or 3% of the global supply, per the New York Times.
• The effect on prices will be minimal in the short term because of the war, but the longer-term effect is harder to gauge. Greater volatility is one likelihood, per the Times. "But beyond the oil market implications, a deeper fault line is at play," per Semafor. "The UAE's move is the latest sign that it is no longer willing to go along with historic alliances it views as unnecessary purely for the sake of harmony."
• The nation has been signaling a break with OPEC for a while as its ties with Saudi Arabia in particular have frayed, per Reuters. The UAE no longer wants to be constrained by OPEC quotas, and it "would have both the incentive and the ability to increase production, raising broader questions about the sustainability of Saudi Arabia's role as the market's central stabilizer," analyst Jorge Leon of Rystad tells the outlet.
• One other common refrain is that the move is seen as a win for President Trump, who has previously complained that OPEC was "ripping off the rest of the world" with inflated prices, per Reuters. The BBC sees the move as opening the door to closer ties between the US and the UAE.
• The break leaves 11 core members at OPEC, notes the Washington Post: Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and Venezuela.