The United Arab Emirates (UAE) has announced it is leaving OPEC on 1 May, in a move that could have implications for African members’ relations with the oil cartel.
The UAE’s announcement comes after growing tensions with OPEC’s de facto leader, Saudi Arabia, the organisation’s largest oil producer. The UAE seeks higher production quotas to drive lower prices; by contrast, Saudi Arabia favours lower production quotas as a way to keep oil prices at around $100 a barrel in order to balance its budget.
OPEC, which controls around 80% of the world’s proven oil reserves, currently has six African members: Algeria, Congo, Equatorial Guinea, Gabon, Libya, and Nigeria.
Rolake Akinkugbe-Filani, CEO of EnergyInc Advisors in Lagos, writes on LinkedIn that the UAE’s exit could cause challenges for Africa’s oil exporters.
“The competitive pressure on African crude intensifies when the UAE operates freely, unconstrained by quota agreements, plus UAE barrels are cheaper to produce and cleaner to refine,” she wrote on LinkedIn.
The current OPEC quote is 3-3.5 million barrels per day, but Abu Dhabi has long had the target of expanding oil production to 5m barrels per day by 2027.
Akinkugbe-Filani notes that, in light of the UAE’s exit, “African OPEC members should no longer [be] anchored to quota politics that were never fully designed around African fiscal realities anyway. Nigeria needs somewhere in the range of $75 a barrel to balance its books.”
Sympathy for the UAE
While there has yet to be an official reaction from African energy ministers, some have previously had a fraught relationship with OPEC over what they considered to be restrictive quotas.
At the start of 2024, Angola quit the organisation after its production quotas for the year were slashed. Nigeria and the Republic of Congo also expressed displeasure at what they perceived to be Saudi-led efforts to lower their quotas.
“The quota architecture was never built for that math. It was built around Gulf fiscal breakevens and Gulf geopolitical priorities,” Akinkugbe-Filani writes.
“African producers have largely been passengers in that system…the bigger the African producer, the more painful the OPEC relationship. And now the UAE, which in my view has had infinitely more clout than any African member ever had, has essentially reached the same conclusion Angola did, but in a much more heightened and more tense geopolitical climate.”
Akinkugbe-Filani suggests that the UAE’s withdrawal could be a catalyst for OPEC reform and an opportunity for African countries to look after their own interests.
“This is the moment for African energy ministers, national oil companies and the deal community to have a sharper, more honest conversation about how we price, market and monetise our resources going forward.”
Lower prices in the long term?
Global oil prices remained stable following the UAE’s announcement, with crude oil continuing to trade around $100 a barrel. Short-term price movements are mainly driven by the ongoing situation in Iran and the Strait of Hormuz, which have disrupted global commodity supply chains and sent oil prices soaring.
Longer-term, however, many analysts expect the UAE’s decision to contribute to lower oil prices. Joe Adamski, managing director of supply chain consultancy ProcureAbility, has argued that the move could ultimately lower oil prices by up to $10 a barrel.
This would be seen as a positive by the continent’s major oil importers, such as Egypt and Ethiopia, which are currently facing the prospect of higher inflation as a result of the rise in crude prices.