After decades as one of the largest producers belonging to the OPEC oil cartel, the United Arab Emirates says it is quitting the group on May 1.
The UAE also said it would leave OPEC+, an alliance that includes OPEC countries and 10 non-members that include Russia.
But despite concerns that the UAE’s exit will weaken the groups, the Vienna-based oil cartel should remain relevant, according to an economist.
“OPEC is still going to have an important role in the world in terms of what oil gets to the international markets and how that affects the market price,” Colin Mang, an economics professor at McMaster University in Hamilton, Ont., told CTV News Channel on Tuesday.
Still, he said other countries may walk away as well.
Angola, Ecuador and Qatar also left OPEC in recent years, while Indonesia suspended its membership in 2016.
“This has always been a challenge within OPEC,” Mang explained. “It tries to limit the production of its members to manage global prices, but when global prices get higher, its members want to produce more to take advantage of those prices and OPEC tells them not to.
“But over time you are going to see countries want to increase their production to take advantage of higher oil prices.”
The Organization of the Petroleum Exporting Countries (OPEC) says it co-ordinates its members’ petroleum policies to ensure efficient, regular supply to consumers, and manages oil prices by imposing production quotas to benefit members and investors. OPEC+ says it slashes and boosts oil output to balance the markets.
At the same time, the Iran war has also resulted in higher oil prices. The latest inflation data from Statistics Canada shows that gas prices surged by just over 21 per cent in March compared to the month prior, which is the largest month-over-month increase on record.
The war’s effect on oil prices has also influenced the UAE’s decision, Mang said.
“They want to see lower oil prices, not higher, and they need to produce more in order for that to happen,” he said, noting that higher prices hurt global economic activity.
The UAE’s decision comes as the country has pushed back against OPEC production quotas in recent years and developed frostier relations with Saudi Arabia, the group’s de facto leader, The Associated Press reported. The UAE believed the quotas were too low, which prevented it from selling more of its oil to the world.
With files from The Associated Press and Reuters
Watch the video above to see the full interview.
