The United States is getting sucked into a conflict in the Middle East, central banks are desperately trying to keep inflation under control and the world is facing an energy shock that may cripple the global economy. There are lots of ways the world looks very similar to the early 1970s. And yet, it is now clear that there is also one significant difference between now and then. Whereas half a century ago, the oil cartel OPEC was rising in power, with Tuesday’s shock decision by the United Arab Emirates to quit the group, it is clear that it is falling apart. In reality, the US is taking back control of the fossil fuel industry – and that is of huge geopolitical significance.
On social media, the smarter commentators are already referring to it as “UAExit.” The collection of Gulf statelets that include Dubai and Abu Dhabi today announced that it was leaving the cartel that has long dominated the supply of oil. After 60 years the UAE will take back control of its own production. It is not hard to work out why. For years the UAE has been unhappy with the quotas the cartel imposes on its members, which have held back production, and stopped them from maximizing their revenues from their huge reserves of oil and gas. Even more seriously, they desperately need the money. In the wake of the war with Iran, the tourist industry has collapsed, leaving hotels and planes half full; the expats who did all the main jobs have started going home; and, given that no one really wants an apartment that might be hit by an Iranian drone at any time, property prices are in freefall. The economic model that has turned the Gulf into one of the richest places in the world has suddenly collapsed. They will need to sell as much oil and gas as possible just to stay afloat, never mind start expanding again. “They need to have greater autonomy over oil production,” argued Amena Bakr, an analyst at Energy Intelligence on X. “The country wants to increase output capacity and actually use it, rather than keep production capped, especially after the war ends.”
The departure of the UAE may well prove a terminal blow to the cartel. The UAE accounted for close to 10 percent of OPEC’s total production, making it the third largest producer after Iran on 14 percent, and Saudi Arabia on 37 percent. It was producing around 3 million barrels a day under its quota, but it has the capacity to increase that to 5 million barrels a day very quickly once it is outside the system, according to the energy economist Daniel Lacalle. As soon as the tankers can start getting through to its main markets in Europe and Asia, it will start ramping up its production dramatically. After all, what would be the point of leaving otherwise?
It is not just the UAE that will soon be flooding the world with cheap oil. Venezuela, with the largest oil reserves in the world, is still a member. Its oil industry was destroyed under the inept corrupt rule of Hugo Chávez and Nicolás Maduro. But following the American raid that deposed Maduro, the country is effectively moving into the American camp. As it starts to rebuild its oil industry, it is not likely to stay a member for much longer. Indeed, the US may well have been instrumental in “persuading” the UAE to leave OPEC. Last week, Treasury Secretary Scott Bessent confirmed that the UAE had been given a “swap line” with the Federal Reserve, effectively a form of soft loan, to tide it over the collapse in revenues. There is already plenty of speculation that leaving OPEC was the quid pro quo for that arrangement, and it is hard to see why the US would agree to it otherwise? Behind the scenes, America is taking OPEC apart piece by piece.
If so, it is doing so very effectively. There is no point in trying to operate a cartel unless you control the bulk of the world’s supply. For OPEC, that is no longer even remotely true. With the boom in fracking, the US has already turned itself into both the world’s largest oil producer and exporter, and with the Trump administration relaxing licensing rules that dominance will only increase. The second largest producer, Russia, is not a member either, and neither are the fourth and sixth largest, respectively Canada and China. Within a few years, Venezuela will join the top three, given the scale of its reserves, leaving OPEC, minus the UAE, representing only four of the top ten oil producers. As a percentage of global oil production OPEC was already down to 36 percent, and with the UAE leaving that will fall to close to 30 percent. The Saudis or the Iraqis won’t be able to hold the world to ransom anymore. They can turn off production if they want to, but there will be plenty of production elsewhere.
Add it all up, and one point is clear. The global fossil fuel industry is now under total American control in a way that has not been true since the mid-1960s, and arguably never before. The White House can now effectively control the price of oil, decide who gets supplied and who doesn’t – and determine whether the lights stay turned on and the factories keep running for almost any country it chooses. Anyone can debate the rights and wrongs of that, and whether it is the right strategic choice, given that in the medium-term fossil fuels are likely to be replaced by wind, solar and nuclear power. For the time being, however, there is no denying a simple point. OPEC’s 50-year reign is over, for better or worse. No one will be interested in what its members are doing anymore, and America has transformed itself into the world’s energy superpower – and nothing is going to change that now.
