UAE leaves OPEC: what it means for the US, oil markets & Saudi

This morning, the United Arab Emirates announced that it was going to formally withdraw from the Organization of Petroleum Exporting Countries (OPEC). The move comes as yet another signal of a deepening split between Saudi Arabia and the UAE on a broad range of diplomatic issues.

However, it also reflects a longer-standing divergence between the two dominant Gulf monarchies on OPEC production and the allocation of quotas within OPEC, arising from different fiscal dynamics and export revenue needs. Even back in 2021, the UAE was unhappy about Saudi plans for a relatively gradual restoration of OPEC production after the Covid collapse in oil demand, and pushed for bigger production quotas for itself.

The differences in opinion stem in part from the very different demographic and fiscal pressures that each country faces. With a population of 35 million, Saudi Arabia has 3 times as many people as the UAE, and World Bank estimates put Saudi per capita income at $35,000, compared to $50,000 in its Gulf rival for influence. Amid a sharp drop in oil prices following the American shale revolution of the 2010s, the UAE invested in relatively inexpensive efforts to attract foreign investment. Saudi Arabia, meanwhile, has relied on oil revenues to diversify its economy and pour eye-watering sums into megaprojects like the Neom linear city.

The result was a sharp reversal in Saudi Arabia’s trade balance from a surplus to a deficit over a decade as Saudi Arabia kept ploughing ahead with expensive government-funded projects despite a lower oil price. Meanwhile, the UAE kept chugging along with external surpluses amounting to roughly 13% of GDP in 2025. This led to a massive divergence between Saudi Arabia and the UAE in the IMF’s so-called fiscal breakeven oil price. In countries where oil exports are a major source of government revenues (typically because the oil-exporting company is wholly or substantially owned by the government) the breakeven oil price estimates the price per barrel needed to deliver a balanced budget.

In 2025, the IMF saw the breakeven at $49 per barrel for the UAE and $90 for Saudi Arabia, a reflection of both the more successful diversification of the Emirates’ economy away from reliance solely on oil exports as Dubai became an offshore financial (and influencer) center, and the sheer scale of Saudi fiscal expansion under Saudi Crown Prince Muhammad bin Salman.

One important consequence of these developments is that, at least until the Iran war broke out, the UAE economy was less threatened by American shale oil production. This may have been one of the factors allowing both a closer Emirati alignment with the U.S. and a significantly more aggressive regional foreign policy, often in direct opposition to the preferences of Saudi Arabia as seen in both Yemen and Sudan.

A more recent example of this was the UAE calling a loan to Pakistan early, forcing Islamabad to secure a backstop from Saudi Arabia and Qatar. Yet another instance is seen in Somaliland, where the UAE seems to be hewing closer to both the U.S. and Israeli line on recognition, in contrast to the Saudis.

Broadly speaking then, the UAE’s exit from OPEC reflects a long-simmering dispute stemming from different economic and fiscal positions that has acquired an increasingly geopolitical tinge. And, for all the speculation that the exit from OPEC is a quid pro quo for access to U.S. dollar swap line, indicators of the Emirates’ financial health suggest that this move was driven more by assertiveness than distress, as explored here.

The move does indicate that the UAE is in alignment with the current U.S. position favoring lower oil prices. However, this may be a difficult circle to square from a political point of view, because oil needs to be low enough not to hurt U.S. consumer real incomes through the gasoline price, high enough to keep American shale production going (with breakevens estimated around $60 right now), and higher still to lead to greater investment by major oil companies in Venezuela (perhaps $100).

It’s complicated.