The war on Iran and its blockade of the Strait of Hormuz is shaking up the geopolitical dynamics of the oil supply at another level.

In a move that might signal the beginning of the end of the oil cartel, the UAE, a key member, said on April 28 that it was quitting the Organization of the Petroleum Exporting Countries (Opec) grouping of major oil producing nations from May 1. The Emiratis are also quitting Opec+.

The UAE has been a member of Opec, formed in 1960, even before it became independent in 1971. It would be a heavy knock to Opec, which exerts major influence on the global economy by controlling the price of oil through production regulation — and whose influence became all the more pronounced after its oil embargoes of the 1970s.

Though the UAE is the 12-nation group’s fourth largest exporter, behind Saudi Arabia, Iraq and Iran, the Emiratis were the largest swing producer after the Saudis, which meant that they maintained the second highest spare capacity to ramp up production if the cartel wanted to do so.

Though it produces roughly 40% of the world’s oil, Opec’s share of global output has eroded significantly in recent years because the shale oil boom has transformed the United States as the world’s largest producer — and from a nation dependent on oil imports to an exporter.

The UAE’s exit from Opec would be a victory by US President Donald Trump, who had railed against the oil cartel for “ripping off the rest of the world”. It has opened up a chance for the US to finally break the cartel.

For quite some time, tension has been building between the UAE and Saudi Arabia on Opec’s oil output quotas and regional economic supremacy. Despite outward signs of bonhomie among the autocratic sheikhdom and kingdom, differences have only sharpened after the ascendance of Crown Prince Mohammad bin Salman as the de facto leader of Saudi Arabia. In recent years, Saudi Arabia has used its primacy in Opec as a tool to put the Emiratis in place whenever they flouted the quotas and has gone all out to challenge the UAE as the preeminent regional business and commercial hub.

The UAE said in the announcement that when it leaves Opec, it plans to carry on with its long-held goal of increasing crude production “in a gradual and measured manner, aligned with demand and market conditions”.

This is a clear indication of its unhappiness over the output quotas the Opec imposes and the Saudis tried to enforce on members to keep prices within the desired range. The UAE obviously wants unconstrained use of the increased capacity for which it has invested considerably in terms of exploration and production infrastructure.

Whenever the Iran war ends and the Strait is fully reopened for shipping, likely to happen sooner than later, the UAE can pump as much oil as it wants as it is free of production quotas, and that would help temper oil price in the US before the midterm elections in November, another boon for Trump.

Drill, baby, drill in the UAE would definitely be cheered on by the US President, and he could go the whole hog to help disband the oil cartel that he often critiqued.

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