The UAE withdrew from OPEC. What does this mean for Russia and the investor

The main thing in the material:

— The UAE withdrew from OPEC and OPEC+, weakening the discipline of the cartel; the market is shifting towards greater competition
— Abu Dhabi's decision is related to the desire to monetize investments: the country is able to increase production to 5 million barrels per day
— The UAE is strengthening its export infrastructure, reducing dependence on Hormuz
— Market fragmentation plays into the hands of the United States, while for Russia it means increased risks and a weakening role of OPEC+ as a stabilizer
— Investors' focus is shifting from the dynamics of Brent to the stability of the cash flow of Russian companies

The United Arab Emirates withdrew from OPEC and OPEC+ on May 1, a decision described as one of the most serious blows to the oil cartel in recent years. A large producer is no longer required to comply with quotas and intends to increase production. Despite this, oil prices are not falling, but are holding in the region of $110-120 per barrel amid tensions in the Strait of Hormuz. Izvestia investigated whether OPEC had lost control of the market, whether a new price war was starting, and what the consequences would be for Russia and the private investor.

What does the UAE's exit mean for OPEC

The UAE was the third largest producer in OPEC with production at 3.4 million barrels per day (before the start of the US-Israeli campaign against Iran). At the same time, the country has the potential to increase production to 5 million barrels per day next year. Therefore, the UAE's withdrawal from the cartel is not an emotional demarche, but a rational move by a producer seeking to monetize investments in infrastructure before the oil market enters a period of declining demand.

At the same time, OPEC lost one of the few members capable of rapidly increasing production, which makes the organization weaker. But it's too premature to say that OPEC has collapsed. Rather, the cartel has lost discipline within the club, especially given that a number of its members — Iran, Libya and Venezuela — have been exempted from quotas due to sanctions or internal conflicts. And discipline is, in fact, the only thing that an organization's influence on the market is based on.

OPEC has no control over global demand, nor over geopolitics, nor over the financial system through which settlements take place. Its real tool is the collective restriction of production to maintain prices. The system is based on discipline — the ability of countries to sacrifice short-term gains for the sake of a common price. And the UAE's withdrawal, without which it will be more difficult to regulate the supply, is becoming a signal that the rules can no longer be followed. As a result, the market stops relying on agreements and returns to a volatile mode, where the price is determined not by coordination, but by competition.

Will the UAE be able to increase supplies

Abu Dhabi has already promised to act responsibly, gradually increasing production in line with market demand. But an increase in production by itself does not automatically mean an increase in supplies — in the oil market, the key now is the ability to bring a barrel to a buyer. The UAE has an advantage here: They have a fairly well-developed export infrastructure, which includes terminals in the Persian Gulf, a large oil hub in Fujairah (on the coast of the Gulf of Oman) and the Habshan-Fujairah pipeline, which allows bypassing the Strait of Hormuz. This gives the Emirates flexibility that many other manufacturers do not have.

However, an increase in production to the announced 5 million barrels per day will require the expansion of the entire export chain. The current Habshan-Fujairah pipeline has a maximum capacity of 1.8 million barrels per day. The UAE is going to expand this corridor by building a pipe connecting the Jebel Dhanna and Fujairah terminals. According to some estimates, this will double the capacity of the route bypassing Hormuz.

As a result, the UAE will not become completely independent from the strait, but will be less vulnerable than competitors in the region. And in the oil market, this is enough to tighten contracts. The main export of the Emirates goes to Asia. Saudi Arabia, Russia, and Iraq are also actively supplying oil there. This means that Abu Dhabi will have to compete to increase its market share. In stable conditions, competition is based on price and contract terms. At risk, the buyer in Asia will choose a partner who guarantees delivery.

Why is the United States called a beneficiary

Analysts consider the UAE's withdrawal from OPEC to be a victory for US President Donald Trump, who criticizes the organization for influencing prices by curbing production. At the same time, the American position is historically ambivalent. On the one hand, the United States is the largest consumer interested in low prices. On the other hand, they are the largest producer, and too cheap oil is hitting their own industry.

Washington's goal is not cheap energy resources, but controlled oil without a strong cartel. Because OPEC is creating a coordination center outside the control of the United States, and the fewer large producers it has, the weaker its collective bargaining power and the more individual players appear.

But if a strong OPEC smooths the market, then a weak one makes it more nervous. The main long—term consequence is not an immediate drop in prices, but an increase in volatility, when the price does not move smoothly, but in spurts: it rises due to Hormuz, decreases due to increased production, and rises again due to sanctions or attacks on infrastructure. Even in such conditions, with market fragmentation, the United States retains significant leverage. The role of the United States as a financial center is growing, as oil remains a dollar-denominated commodity, despite the growth of alternative settlements, as we wrote earlier. Meanwhile, a significant part of trading, hedging and lending is tied to the Western financial infrastructure.

Influence on Russia

The situation is more complicated for Russia as an OPEC+ member. The Kremlin has already stated that Moscow is not going to withdraw from the format, but respects Abu Dhabi's decision. This is logical: Russia benefits from a mechanism that helps to influence the supply balance and maintain prices, especially with sanctions restrictions, discounts on Russian oil and budget dependence on raw materials revenues. However, if one major player leaves the quotas and starts selling more, the other participants are faced with a choice: either continue to limit production and lose market share, or loosen discipline and be prepared for falling prices.

Finance Minister Anton Siluanov formulated the essence of the risks for Russia quite bluntly: if other countries follow the example of the UAE, oil may start to become cheaper, so Moscow needs a cash reserve for at least three years. For Russia, the oil price is not an abstract Brent chart, but a source of foreign exchange earnings, taxes, export flows, and the stability of the ruble. With expensive oil, even the sanctioned economy gets oxygen. At the same time, pressure on the budget increases, and social and military obligations become more difficult to finance.

Therefore, for Moscow, the UAE's exit is a structural signal. If the discipline within the format weakens, then the oil price stabilizer becomes less reliable. Moscow has to rely on budget reserves, currency flexibility, tax adjustment, and the ability to sell oil without restrictions. This model requires a safety margin.

In the current situation, at $110-120 per barrel of Brent, Russia receives support in foreign exchange earnings. But it is not based on a strong OPEC, but on instability in the Middle East and the risk of supply. If the geopolitical premium goes away and the UAE begins to increase production, Russia will face double pressure: the global price may decrease, and OPEC+'s negotiating power will weaken.

What does this mean for an investor

It makes no sense for a private investor in Russia to try to guess the short—term movements of oil - this is a game, not a strategy. It is much more important to understand what mode the market is in and how the cash flow is generated in it.

The link between the oil price and the investor's income does not work as before. A few years ago, the growth of oil directly affected the profits of companies and, as a result, the share price and dividend policy. Today, this chain has been broken: there are many intermediate links between the price of a barrel and the money that reaches the shareholder, each of which takes part of the flow.

The discount factor has an impact: Russian oil has been selling cheaper than the Brent benchmark in recent years, and this difference directly reduces revenues. Added to this are the costs of logistics (more expensive freight and insurance), as well as the increased capital costs required to maintain the industry in the face of sanctions.

Against this background, the UAE's withdrawal from OPEC and OPEC+ increases the main risk — instability. When the market becomes less predictable, companies begin to act more cautiously, accumulating liquidity and reviewing dividend decisions. This means that even with a high oil price, an investor may not see a comparable increase in payments. The key factors for decision-making here are the stability of companies' cash flow, manageable debt, dividend policy, and dependence on specific export routes.

The abstracts contained in the text are not an investment recommendation, but an editorial opinion.