Faisal Islam: Why the UAE's exit from Opec is a big deal

It is a very big deal that the United Arab Emirates (UAE) has announced its abrupt exit from Opec, the Organisation of Petroleum Exporting Countries. The Emiratis were members even before they became a nation state in 1971.Opec is the organisation of mainly Gulf oil exporters, which for many decades controlled the price of crude oil by decreasing or increasing production and allocating quotas across its membership. It had a vital role in 1970s oil crises, which in turn transformed global energy policy.While Opec production is dominated by Saudi Arabia, the UAE had the second highest spare production capacity. In other words, it was the second most important swing producer, capable of increasing production to help ease prices.Indeed it is precisely this that led to long-term reconsiderations of the UAE's position. Put simply, the UAE wanted to use the considerable capacity it has invested in.Opec quotas limited its production to 3-3.5 million barrels per day. Opec membership sacrifices, in terms of lost revenues, were being made disproportionately by the UAE.However, the timing of this move hints at consequences from the Iran war. The pressure cooker in the Gulf has impacted the UAE's relationship with Iran and may affect its already strained relationship with Saudi Arabia.As for Opec, this is a big blow at a time when significant questions are being asked about its long-term coherence. It's not just that the UAE, when it can get its oil fully back on the market by sea or pipeline, is likely to target 5 million barrels per day production. Saudi Arabia might respond with an oil price war that the UAE's more diversified economy could withstand, but other poorer Opec members might not.