UAE Exit from OPEC: UAE’s decision to withdraw from OPEC has increased the turmoil in the global oil market. Know what OPEC is, how member countries benefit from it and what impact the UAE’s exit will have on oil prices and the world economy.
Why UAE Exit from OPEC: In the world economy, oil is not only a fuel but also a major weapon of politics, diplomacy and power. In such a situation, when the news of the separation of a big oil producing country like the United Arab Emirates (UAE) from OPEC comes out, its impact is not limited only to the Gulf countries, but the eyes are fixed on the economy of the entire world. This decision of UAE is raising many questions amid Iran-America tension, production crisis in the Gulf region and pressure on exports. Will this move strengthen its economy or create new instability in the global oil market? Before this, it is important to understand what OPEC is, how it works and why it is so important for oil selling countries.
What is OPEC?
OPEC i.e. Organization of the Petroleum Exporting Countries is a powerful group of the world’s major oil producing countries. The main objective of this organization is to keep the supply and prices of crude oil balanced in the international market, so that the income of the member countries remains stable and there is no excessive fluctuation in the global market. Whenever there is a sharp fall or rise in oil prices, OPEC member countries come together to make a strategy and decide to increase or decrease production.
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What benefits do member countries get from OPEC?
The biggest advantage of joining OPEC is that member countries can collectively influence oil prices. If oil prices fall in the international market, OPEC countries reduce production. Due to this the supply decreases and prices start increasing again. When prices rise too much, the market is balanced by increasing production. The second major advantage is that small and medium oil producing countries also gain a stronger position at the global level. Living in a group increases the power of their conversation. The third benefit is technical cooperation, investment and policy coordination, which makes oil production more effective and profitable.
When and how was OPEC formed?
OPEC was established on 14 September 1960. Its first meeting was held in Baghdad, the capital of Iraq. This organization was started by five countries together, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. At that time, the influence of western companies on the oil industry was very high and oil producing countries were not getting proper benefits of their resources. For this reason, these countries together created an organization so that they can control their oil resources and get better economic benefits.
Who are the member countries of OPEC?
With time many countries joined OPEC and some also left. Currently, countries like Saudi Arabia, Iran, Iraq, Kuwait, UAE, Venezuela, Nigeria, Algeria, Libya, Angola, Gabon, Equatorial Guinea and Congo are included in this organization. However, the number of member countries changes from time to time, as some countries leave the organization and some new ones join.
Why did UAE decide to withdraw from OPEC?
The UAE has been an important member of OPEC and has vast oil reserves. But amid changing global circumstances, regional tensions and economic pressures, the UAE now wants more independent control over its oil policy. If it separates from OPEC, it will get complete freedom to increase or decrease oil production as per its need and strategy. This may have the potential to increase his income, especially if he can take decisions faster as per market demand.
More benefit or loss?
For UAE, being out of OPEC is both an opportunity and a risk. The advantage is that it will be free from OPEC’s limitations regarding production. He will get freedom to take decisions according to his economy. But the disadvantage is that its collective global strength may be reduced if it is out of OPEC. Now he will have to face the ups and downs of the market alone. Additionally, OPEC’s collective security, strategic support and cooperation may also weaken.
What will be the impact on the global market?
If big oil producing countries like UAE distance themselves from OPEC, it will definitely affect the global oil market. If other countries also follow the same path, OPEC’s power may weaken and instability in the international market may increase. A sudden rise or fall in oil prices has a direct impact on petrol-diesel, inflation, transportation and the entire global economy. This is the reason why the role of OPEC is considered very important even today.
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