Chief Economist on UAE OPEC Exit and Oil Market Implications (with Haidi Stroud-Watts, Shery Ahn)

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Asks Claudio Galimberti about the UAE's decision to leave OPEC and what it tells us about their desire for flexibility.

Haidi Stroud-Watts

Claudio Galimberti

The UAE exit is one of the biggest news in oil markets ever. It was not entirely surprising due to diplomatic spats with Saudi Arabia over the past 7 years, but still shocking. There will be many implications.

The UAE was a founding member of OPEC in the 1960s. OPEC has had a long, successful calibration for the past 20 years.

Asks whether this affects OPEC's credibility and ability to control market pricing.

Haidi Stroud-Watts

Claudio Galimberti

OPEC has been a force to decrease volatility, not necessarily control pricing. Without the UAE (25% of spare capacity), the stabilization force is much harder to carry out. The incentive for other OPEC members to cooperate decreases, leading to potential competitive behavior and market share pursuit.

During the pandemic, OPEC+ successfully rebalanced the market. Without them, the market would have seen much higher volatility between 2021 and 2024.

Asks what happens after the Iran conflict ends, given the UAE can add volumes at will and the market was oversupplied before the crisis.

Shery Ahn

Claudio Galimberti

It depends on how we exit the crisis. Before the crisis (Feb 28), the market was oversupplied by 2-3 million barrels/day. If we exit with similar production levels, the UAE's unconstrained pursuit of market share could be good. But we don't know if production will be significantly less. Also, refilling inventory will create extra oil demand.

The market's muted reaction to the UAE news (no price blip) shows the dominant force is the Strait of Hormuz closure. All spare capacity sits west of Hormuz and is currently not utilizable.

Asks about the broader GCC economies and whether the war has fundamentally changed their calculus for reforms and diversification.

Shery Ahn

Claudio Galimberti

It's too early to say. The crisis is only 57-58 days old. The closest comparison is the 1970s crisis, which lasted from 1974 to 1982-83 and had fundamental structural impacts. We don't have enough evidence yet to conclude structural changes.

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