Could the UAE's exit from Opec lead to its split-up as an oil cartel? The odds seem against it

What inspired the poet is contested, but his words are as relevant today as they were a century ago.

The senseless Iran war is taking the core of global certainties apart, with much of the globally accepted compact coming unstuck.

A decision by the United Arab Emirates (UAE) to quit Opec—or Organization of the Petroleum Exporting Countries—is among the unforeseen outcomes of this war.

Opec is a 66-year-old plurilateral economic club that’s seen to operate like an oil cartel. With its outsized geopolitical influence, it has managed to survive multiple wars and internal squabbles; and, yet, it just took Iran’s extended Hormuz clamp to crack the plaster that held it together.

If it comes apart, it would have profound consequences for geopolitics, petro-dynamics and the global economy, India’s included.

The UAE, which was pumping 3.6 million barrels of oil daily before the war, with only 1.8 million able to bypass Hormuz via a pipeline, is among the cartel’s big four.

How critical Opec is to the global economy was made clear by its 1973 oil embargo against the US in response to its support for Israel during the Yom Kippur war against Egypt and Syria.

Saudi Arabia, Opec’s unstated chief, and other Gulf nations had weaponized oil sales. It soon turned into a cartel, complete with output quotas, as it began to tighten and loosen supply to get a grip on global crude prices. It made the Gulf states wealthy. The UAE’s wealth of over $2 trillion, held in assets by its sovereign funds, stands out as a visible sign of surplus transfers from importers. As with Saudi Arabia, alignment with the US was part of the package.

Yet, the two neighbours have been at odds lately. The UAE argued for a stiffer response to Iran’s aggression, but Riyadh seemed cautious. Earlier, a rift was observed not just in the UAE acting freely of Riyadh in signing an accord with Israel, but also over civil wars in Sudan and Yemen.

The Emirati oil industry, which has often defied Saudi authority over its quota, is eyeing crude-oil capacity expansion from 4.2 to 5 million daily barrels. By exiting Opec, it could boost its post-war oil revenue, perhaps even get closer to the US. When gas-producer Qatar left Opec in 2019, few noticed. But this rupture is a notable blow for the cartel.

Global crude prices dipped on the Opec news, but the decline was limited in the absence of clarity over when choked sealanes will be freed for trade. Utterances from the White House on America’s own blockade sent oil up again.

While US shale oil has weakened Opec’s pricing heft over the past decade or so, the club’s future will impact the market. Prices freed of a central supply knob for almost half the world’s output—with Russia and others counted as Opec plus—would serve high-volume oil importers like India well.

But nobody can count on an Opec crack-up. Warring countries have been part of it (Iraq-Iran). Gulf ties are fraying, but new ones may emerge once some stability returns to reveal shifts in power equations.

So long as the economic interests of Opec members converge, it could prove resilient. New Delhi must play its cards with strategic care.