Why did the United Arab Emirates pull away from OPEC? I can name roughly fifty to seventy billion dollars in annual justification.
According to Baker Institute figures, remaining in the Organization of Petroleum Exporting Countries—the cartel that for decades aimed to steer world oil prices—costs the UAE no less than $50 billion annually in foregone revenue, potentially up to $70 billion.
With roughly 1.44 million citizens, that foregone income is far from negligible on a per-person basis: just under $50,000 for each Emirati at the upper edge of Baker’s estimate. As a comparatively efficient producer within a cartel that restricts output to sustain higher prices, the UAE’s OPEC membership resulted in a net economic drawback.
There was a period when OPEC appeared to hold the world in its grip. In 1973, OPEC members supplied the bulk of the globe’s crude as Saudi Arabia’s King Faisal led the famous Arab oil embargo to punish the United States and its allies for backing Israel during the Yom Kippur War—a conflict unleashed by Arab powers on the Jewish holy day. With its commanding position in the world petroleum market, OPEC wielded genuine clout, and Faisal’s “oil weapon” detonated like a geoeconomic bomb: crude prices nearly quadrupled, almost overnight. The oil shock is estimated to have shaved about 2.5 percent off U.S. GDP, while driving up unemployment and inflation and contributing to a recession that did not ease until 1975. Americans faced gasoline rationing, with long lines at gas stations sometimes stretching for blocks.
But the 1973 embargo also sent a market signal. The United States, Canada, and the United Kingdom all had vast petroleum reserves that were not being fully exploited, with the powers that be in the rich countries all too happy to leave the dirty work of pulling crude out of the ground to faraway workers under the bootheel of sundry Arab despots. (To this day, a great part of U.S. refining capacity is optimized for relatively “sour” imported oil rather than the “sweet” stuff produced domestically.) The high prices created by the embargo put some money into the pockets of Western producers—and created powerful incentives to invest that money in production outside of OPEC’s control. Hydraulic fracturing took off in the North Sea off the U.K. coast in the late 1970s, and by the 1980s legendary American oilman George P. Mitchell had just about perfected the combination of hydraulic fracturing with horizontal drilling in shale deposits to produce “fracking” in its modern form. In 1981, Sandia Laboratory in Albuquerque introduced its first commercially available digital micro-seismic monitoring equipment, beginning the transformation of the world of wildcatters and roughnecks into the high-tech industry it is today. These things do not happen overnight, but the 1973 crisis helped to awaken the sleeping American energy giant.
One result of that is that the OPEC cartel from which the UAE has just divorced itself no longer produces the majority of the world’s oil—it produced only about 36 percent of the commodity in 2025, a number that presumably will be a bit lower this year with the UAE’s exit. OPEC has tried to bolster its position over the years with arrangements such as “OPEC Plus,” meaning an alliance of the cartel with Russia and other oil-producing countries, but OPEC’s ability to set the world’s petroleum agenda is much diminished.
The UAE’s exit was driven in part by political factors, including the fact that it is no longer as aligned with Saudi Arabia as it once was, and by one big economic factor: The UAE can produce oil much more cheaply than Saudi Arabia and many other OPEC members.
The UAE simply does not need high oil prices to the same extent as Saudi Arabia. One common yardstick is the fiscal break-even price—the oil price at which exports will allow the government to cover all its spending without a deficit. For 2025, the UAE’s break-even price sits under $50 per barrel, while Saudi Arabia would need around $90 or more for a balanced budget. The UAE maintains a more diversified economy, with oil comprising roughly 23 percent of GDP, versus about 40 percent in Saudi Arabia. It benefits from comparatively low-cost, lower-emission production and now anticipates adding more than one million barrels per day, freed from OPEC restraints.
Cartels confront two major challenges, one internal and one external. Internally, aligning the interests of all members is often difficult or even impossible. Externally, by engineering inflated profits—the intended aim of most cartels—a cartel invites capable non-cartel players to join the field, pursuing strategies unconstrained by cartel rules.
OPEC, once perceived as invincible, has shrunk in size. Though the process may endure, the basic logic of economics tends to prevail in the end.
