In a surprise announcement, the UAE announced today that it has decided to exit OPEC effective 1 May 2026 (link). The country had in previous years considered leaving the group over disagreements around its production targets. There had not been no such report in recent months as OPEC+ agreed on higher production, but that was before the US-Iran conflict broke out. The UAE Energy Minister said the decision has been taken after careful strategic considerations and at a time when it would not impact the oil market because of the constraints around the Strait of Hormuz. He said this would give the country greater flexibility while the statement references “bringing additional production in a gradual and measured manner”.
Limited impact near-term; downside risk for oil prices medium-term
We do not see the announcement as likely to have a material impact on near-term oil prices as the timing and pace of re-opening of the Strait of Hormuz remains the main driver. We note the UAE is already exporting as much as it can and will not be able to raise production until it can ship via Hormuz again. Looking further out, the announcement is likely to be negative for oil prices in our view. The UAE was producing 3.6Mb/d of crude pre-conflict, nearly 1Mb/d below its production capacity of 4.5Mb/d (UBSe). New projects are due on stream and we expected them to bring the country’s capacity to 5Mb/d by 2029. ADNOC has said capacity is already at 4.85Mb/d and aimed to be at 5Mb/d by 2027. The UAE has not produced above 3.7Mb/d crude previously but should be able to raise production quickly if it wants to in our view, once the Strait re-opens. The country’s statement suggests it may not ramp up production immediately all the way to maximum capacity. Increased geopolitical risk in the region on weaker GCC unity could also partially offset downside risk from higher production.
A challenge for OPEC
The UAE is not the first country to leave OPEC – Qatar and Angola left in recent years – but the UAE’s departure poses a major challenge for OPEC in our view. The UAE is a long-standing member which joined OPEC a few years after its creation in 1967, then as the Emirate of Abu Dhabi. It was the third largest producer and held the second-largest spare capacity, at ~25% of the total. The country’s departure is likely to complicate the group’s ability to manage oil market balances in the future, thus driving up volatility in the long-term. The risk also increases that other OPEC members decide to leave as well. No one apart from Saudi Arabia has as much spare capacity as the UAE but some such as Iraq had plans to raise capacity over the next few years.
Potential upside to UAE GDP growth limited in near-term, larger post-conflict
From an economic point of view, oil GDP makes up about a quarter of total UAE GDP. We currently forecast UAE oil GDP to fall slightly in 2026, following 5.1% expansion in 2025, and the ongoing closure of the Strait of Hormuz means the risks to our forecast is to the downside. We currently pencil in a 6% rebound in oil GDP growth in 2027, assuming UAE crude production recovers to 3.65Mb/d by Q4’26, slightly above pre-crisis levels. Today’s announcement says the UAE will gradually increase production in a “measured manner, aligned with demand and market conditions”. This suggests limited upside to oil GDP growth. In a more extreme production scenario (which we do not think is very likely), if the UAE rapidly brought output to 5Mb/d by end of 2027, it could be looking at a jump in oil GDP of over 20%.
