Oil churn: How the UAE's exit from Opec may benefit New Delhi

The exit comes at a time when the Organization of Petroleum Exporting Countries (Opec) has been trying to cap production amid a global oil crisis. The UAE decision may weaken Opec's control over oil prices and result in more energy purchases by India, experts said.

"This decision aligns with the UAE’s long-term strategic and economic vision and the evolution of its energy sector, including accelerating investment in domestic energy production, while reinforcing its commitment to its role as a responsible and reliable producer looking to the future of global energy markets," the Emirates' energy ministry wrote on X. The decision takes effect on 1 May.

For long, India has been demanding an increase in production by Opec countries to achieve energy security and affordability. While Opec accounts for around 40% of India's oil needs, UAE accounts for around a tenth of India's overall oil imports. India is a net energy import with 90% of its oil requirement being imported.

Sourav Mitra, partner, oil and gas, Grant Thornton Bharat said the UAE's exit is likely to increase global oil supply flexibility in the medium term as the Emirates would be free from Opec mandates which could soften crude prices. "It is likely to be beneficial for India’s import bill and inflation in that sense.” However, in the short term, such events typically lead to market volatility and geopolitical uncertainty, requiring India to strengthen supply diversification and bilateral energy ties, he said.

Deepak Mahurkar, partner, oil and gas at PwC India said the UAE move may be seen as an "opportunity" for India. "Opec has been trying to control prices and restrict production hikes. The move may increase supplies from the UAE, and its always good for a major consumer like India to have more supplies."

Founded in 1960, Opec coordinates petroleum policies to stabilize global oil prices and ensure a steady return for its members. Opec+ has 10 additional members, including Russia. The UAE joined Opec in 1967 through the Emirate of Abu Dhabi.

The UAE said its decision follows a thorough review of the UAE production policy and its current and future capabilities, and in light of what its national interest requires and the state’s commitment to contributing effectively to meeting the market’s pressing needs, while geopolitical fluctuations continue in the near term through disruptions in the Arabian or Persian Gulf and the Strait of Hormuz, which affect supply dynamics, as fundamental trends point to continued growth in global energy demand over the medium and long term.

"The stability of the global energy system relies on the availability of flexible, reliable supplies at reasonable prices, and the UAE has invested to meet demand changes efficiently and responsibly, prioritising supply stability, cost, and sustainability," it said, while adding that following its withdrawal from Opec, the UAE will continue its responsible role through a gradual and measured increase in production, in line with demand and market conditions.

Prashant Vasisht, senior vice president and co-group head, corporate ratings, Icra Ltd said: "The UAE's oil production has been 4 million barrels per day, accounting for about 4% of the global oil production. The move impacts the ability to influence prices for Opec+ going ahead. The UAE has also been a compliant member Opec in terms of production cut roadmap, unlike other countries like Kazakhstan.”

The development comes amid volatility in the global energy market due to the blockade of the Strait of Hormuz. The benefits of exit in terms of higher supplies are contingent on the resolution of the ongoing conflict. The result of the exit and higher supplies may, therefore, be expected after the blockade of the Strait by Iran and the blockade of Iranian ports by the US are lifted.

India and UAE are key energy partners. During the recent India visit of UAE's president Sheikh Mohamed bin Zayed Al Nahyan, both the president and Indian prime minister Narendra Modi expressed satisfaction with the strength of the bilateral energy partnership and underscored the UAE’s contribution to India’s energy security.

The two sides also agreed to explore a partnership in advanced nuclear technologies, including the development and deployment of large nuclear reactors and Small Modular Reactors (SMRs), as well as cooperation in advanced reactor systems, nuclear power plant operations and maintenance and nuclear safety. UAE's state-run Abu Dhabi National Oil Company is the only overseas entity that has participated in India's strategic petroleum reserves.