UAE walks out of OPEC; report signals looser supply discipline, softer long-term prices

The United Arab Emirates’ decision to walk out of the Organization of the Petroleum Exporting Countries (OPEC) is being seen as a pivotal shift in the global oil order, with potential ripple effects on supply strategies and price trends, according to an ICICI Securities report.

The move comes at a time when global energy markets are already dealing with supply disruptions, particularly around key transit routes like the Strait of Hormuz. While immediate changes may be muted, the development signals a deeper churn in how oil producers may approach production and pricing in the years ahead.

Advertisement

What ICICI Securities report says on UAE exit

Calling it a “major shift”, the ICICI Securities report said the UAE’s formal exit brings an end to a 65-year-old production alignment within the OPEC framework. “The UAE’s announcement of its formal exit from OPEC… breaks a 65-year-old system of the OPEC cartel,” the report noted, adding that this could dilute the group’s ability to coordinate supply decisions effectively.

The brokerage highlighted that the UAE has already built substantial spare production capacity. Once logistical challenges ease, especially those linked to shipping constraints, this capacity could be released into global markets, potentially altering supply balances.

Oil prices: Near-term pressure, long-term easing?

According to the report, crude oil prices are likely to remain firm in the near term, supported by supply bottlenecks. “Crude prices likely persisting at USD 85/bbl levels over the next 9-12 months,” it said.

However, the longer-term outlook appears more balanced. “We believe this move may help soften prices in the longer term, although volatility in the markets may spike owing to lower cohesive supply management from OPEC,” the report added.

Could other OPEC members follow?

The exit could also trigger introspection within the cartel. ICICI Securities pointed out that other member countries may begin reassessing the value of staying within OPEC, especially in the face of falling revenues and ongoing geopolitical uncertainties.

A looser grip within the group could mean countries start taking their own calls on production, making oil markets more unpredictable than before.

What it means for India

For India, the picture isn’t straightforward. In the near term, firm crude prices could keep import costs under pressure. At the same time, any moderation in prices over the longer horizon would offer relief to downstream oil marketing companies.

The report noted that softer prices in the future would be a positive for downstream players, particularly the three oil marketing companies, even as near-term volatility remains a concern.

The report concludes that the UAE’s exit may mark a broader shift in how global oil supply is managed. With the cartel no longer as tightly held together, the tug-of-war between controlled production and open market forces could shift, potentially rewriting how prices behave and how stable the market feels in the coming years.