The decision by the United Arab Emirates to leave the OPEC oil cartel shook up the 65-year-old alliance that produces some 40% of the world’s crude oil and exerts major influence over the price of energy around the globe.
The UAE said in the announcement that when it leaves OPEC this Friday, 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.”
Right now, that’s academic as far as oil prices go, since Iran is still blocking the Strait of Hormuz, which means much of the oil from Persian Gulf producers such as the UAE cannot be exported. But the departure could have long-term effects on oil prices.
Here’s what to know about the UAE’s decision to leave OPEC:
The Organisation of the Petroleum Exporting Countries was formed in Baghdad in September 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It has 12 members — counting the UAE — that hold more than 80% of the world’s proven oil reserves. Other members are Algeria, Equatorial Guinea, Gabon, Libya, Nigeria and the Republic of the Congo.
The group, headquartered in Vienna, aims to regulate oil prices by coordinating increases or decreases in production.
The goal has been to keep prices high enough so member governments can balance their budgets and reap the benefits of their natural resources — but not so high as to cause a recession in consuming countries or to halt energy-consuming activity, a phenomenon known as demand destruction.
That approach has sometimes drawn pushback from leaders in the US, where the price of gasoline is highly political. President Donald Trump at one point accused OPEC of “ripping off the rest of the world,” and his predecessor Joe Biden also badgered OPEC to produce more oil.
OPEC says its objective is “to coordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry.”
The creation of OPEC signaled a change from a world in which Western companies dominated the oil market to one where the countries with the reserves took more control over their resources and profits.
At times, OPEC’s production moves have had large effects on the global economy. In 1973, its Arab members imposed an oil embargo on the US and other countries that supported Israel during the Yom Kippur War. Oil prices quadrupled, and long lines appeared at American gas stations.
In 2016, OPEC joined with another 10 oil-producing countries, the largest of which is Russia, to form an alliance known as OPEC+.
