[Jung Inkyu's Trade-Off] The Post-Oil Era: The Dawn of the Oil Cartel's Demise

Background and Implications of the UAE's Withdrawal from OPEC

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From P

On May 1, the United Arab Emirates (UAE) officially withdrew from the Organization of the Petroleum Exporting Countries (OPEC). Since OPEC's founding in 1960, the voluntary and strategic exit of a core oil-producing nation is an unprecedented "megaton shock" in the history of the cartel, which has dominated the global energy market for decades.

The decision by this oil powerhouse—which holds the world’s seventh-largest oil reserves and has a daily production capacity of 3.5 million barrels—cannot be dismissed as a mere diplomatic dispute or a temporary rift between oil-producing countries. Rather, it represents a desperate survival strategy for a nation preparing for the coming "Post-Oil" era and marks the beginning of the collapse of the global energy paradigm that has prevailed for more than half a century.

Underlying the UAE’s bold decision to leave OPEC are the harsh geopolitical realities and severe security threats facing the Middle East. Situated on the front line of geopolitical risks, the UAE faces Iran across the narrow Strait of Hormuz. The 2019 tanker attacks and the 2022 drone strike on downtown Abu Dhabi by Yemen’s Houthi rebels, backed by Iran, left painful lessons for the UAE’s leadership. Especially notable was the incident in which Iran, viewing Abu Dhabi's Al Dhafra Air Base as a U.S. outpost, launched as many as 3,000 missiles and drones amid U.S.-Iran proxy tensions, compelling a fundamental shift in the UAE’s security landscape.

OPEC headquarters located in Vienna, Austria. Photo by AFP Yonhap News

Confronted with such existential threats, the UAE found it unavoidable to make enormous defense expenditures, such as acquiring F-35 fighter jets, fostering an independent defense industry, and deploying Israel’s "Iron Dome" air defense system. As the "security umbrella" previously provided by Saudi Arabia revealed its limits amid the quagmire of the Yemen war, the UAE urgently needed massive resources for so-called “self-reliant defense.” Yet, OPEC’s outdated quota system—designed to support oil prices through production cuts—became a shackle for the UAE, which needed substantial cash. The contradiction reached a breaking point: the nation faced mounting security costs, but, despite its enormous oil production facilities, was unable to sell crude due to cartel-imposed restrictions.

An even more fundamental reason lies in the UAE’s national strategy to transition to a "Post-Oil economy." Since its founding as a federation of seven emirates in 1971, the UAE has grown on the strength of oil wealth concentrated in Abu Dhabi (accounting for 96% of total reserves). However, the country has moved more rapidly than any other in the Middle East to prepare for the post-oil era. As of 2024, the non-oil sector already accounts for 75.5% of the nation’s GDP, demonstrating the success of its economic diversification. By nurturing industries such as tourism, finance, aviation, logistics, high technology, and renewable energy, the UAE has established itself as the "New York and Singapore of the Middle East."

In the past, the specter of war in the Middle East would drive up oil prices, allowing oil producers to benefit. However, for today’s highly developed UAE economy, crises in the region now translate into higher logistics costs, soaring insurance premiums, and outflows of global investment capital—all of which directly threaten the non-oil sectors that the country has worked so hard to build. Moreover, in the global shift toward carbon neutrality and renewable energy, there is a cold calculation that the value of underground oil will soon converge to "zero."

Thus, the UAE’s core national strategy is clear: before the oil age ends, it will maximize market share and sell as much oil as possible—even at the expense of lower oil prices—and reinvest the resulting massive cash reserves into advanced industries and security assets critical for future survival.

The UAE’s decision is already shaking the power map of the global crude oil market. Formed under Saudi leadership in 1960, OPEC expanded in 2016 to the "OPEC+" format by bringing in non-OPEC countries such as Russia, but its internal cohesion had already begun to show cracks. With each country needing different oil prices to balance its budget, financially robust nations like Saudi Arabia led production cuts as a last resort, while countries with fiscal crises—such as Iran, Venezuela, and Nigeria—often secretly violated their quotas, tempted by the prospect of increasing output.

The departure of the highly competitive and capable UAE from this "cartel of conflicting interests" indicates that OPEC+’s price control power is now entering a phase of collapse. Amid the U.S. shale revolution and increased supply from non-OPEC countries, Saudi Arabia’s ability to manage the market is already not what it once was. Upcoming OPEC meetings, set to take place immediately after the UAE’s withdrawal, will be a test of Saudi Arabia’s control, forcing the kingdom into a dilemma between aggressively defending prices and protecting market share. U.S. President Donald Trump’s immediate praise of the UAE’s decision—calling it "a win for consumers and a victory for market liberalization"—reflects his recognition that a weakened cartel would positively impact U.S. interests and the global economy.

On April 30, international oil prices are displayed in the dealing room of the Hana Bank headquarters in Jung-gu, Seoul. Photo by Yonhap News Agency

In conclusion, the UAE’s withdrawal from OPEC is a historic turning point that signals not just short-term market turmoil, but also structural changes in the world economy. In the immediate term, heightened tensions around the Strait of Hormuz, geopolitical risks, and the calculations of oil producers seeking to defend market share may increase short-term oil price volatility. While the UAE has declared itself a "responsible supplier" and will refrain from sudden production increases for now, its plans to raise capacity to 5 million barrels per day could ultimately trigger a chain reaction of "market share wars" among other oil-producing countries.

In the medium to long term, this will exert strong downward pressure on global oil prices. The era of a handful of countries manipulating supply behind closed doors to extract wealth from consumers worldwide is coming to an end. Oil producers will be forced into fierce competition for survival, which will be a long-term boon for the global economy—especially for energy-importing countries like South Korea that have struggled with high inflation and energy costs.

The UAE’s choice is clear: to escape the sinking OPEC ship first and row toward a new post-oil destination using the lifeboat it has secured—its vast cash reserves. As the age of fossil fuels draws to a close, a great awakening among Middle Eastern nations for survival has begun. We are now witnessing the end of the oil cartel and a momentous chapter in history, as global energy leadership shifts from producers to consumers and the marketplace.

Jung Inkyo, Professor of International Trade, Inha University (Former Chief Negotiator for Trade)

This content was produced with the assistance of AI translation services.