The United Arab Emirates (UAE) left Opec effectively on May 1, a move that could lower global oil prices and directly affect South Africa’s fuel costs, inflation and interest rates once the US-Iran war starts cooling.
This development is significant for South Africa as we import most of our crude oil, so any shift in global oil supply dynamics feeds directly into domestic fuel prices, the cost of living and the country’s broader economic performance.
If, or more likely when, the UAE increases its oil production due to it no longer being restricted by Opec quotas, it could result in an easing of price pressures globally. It could also lead to greater uncertainty in an already volatile market.
In simple economic terms, lower oil prices reduce transport and production costs and help contain inflation. For South Africa the effects are direct. As a country that relies on imported crude oil and refined product, South Africa is highly exposed to international price movements. A sustained decline in oil prices would lower fuel costs, moderate inflation and support overall economic stability.
It would also ease pressure on the South African Reserve Bank, potentially allowing for a more accommodative monetary policy stance and reducing the likelihood of further interest rate increases. For consumers it would provide direct relief by reducing the cost of fuel, transport and everyday goods, thereby easing the overall cost of living.
Opec is a group of major oil-producing countries that was established in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Other countries joined over time, including the UAE in 1967. These countries are responsible for about 40% of the global crude oil production and co-ordinate their respective oil outputs in such a way that it influences global supply and pricing.
One of Opec’s founding statutes mandates the stabilisation of oil markets and the reduction of harmful price fluctuations. In practice, this has meant managing — or co-ordinating — production levels through quotas across member states, which is why the organisation is often described as a cartel.
The UAE is not the first country to leave Opec. Qatar, Angola, Indonesia and Ecuador have also withdrawn from the grouping in recent years. The “Gulf Tiger” nation’s exit however, has far larger implications for the grouping because, in terms of crude oil extraction, the UAE ranks eighth globally and has been Opec’s third largest producer after Saudi Arabia and Iraq.
The UAE is not the first country to leave Opec. Qatar, Angola, Indonesia and Ecuador have also withdrawn from the grouping in recent years.
As the UAE accounts for about 4% of global oil production, this departure will materially weaken Opec’s ability to co-ordinate global supply. By opting out of the bloc, the UAE is no longer bound by production quotas that have historically limited its output, giving it the flexibility to increase production.
The UAE is reported to be looking to produce 5-million to 6-million barrels per day in the coming years. Even a modest increase in production at this scale can shift global supply dynamics, with estimates suggesting that oil prices could decline by as much as $10/barrel in the medium term, particularly once normal shipping operations resume.
The UAE’s decision appears to have been rooted in structural frustration. It has invested heavily in expanding its production capacity, yet Opec quotas have constrained its output. This mismatch between capacity and permitted production has made continued membership less attractive as the country seeks to maximise returns on its infrastructure investments.
The UAE’s decision is also influenced by geopolitical factors. Tensions in the Middle East, particularly involving Iran, have heightened risks for its energy infrastructure. Recent attacks by Iran on UAE oil production infrastructure have heightened concerns about remaining in a grouping alongside a country that views it as an “enemy” and whose actions directly threaten the same energy systems underpinning its economic strategy.
The UAE’s decision appears to have been rooted in structural frustration. It has invested heavily in expanding its production capacity, yet Opec quotas have constrained its output.
Russia’s role in the Opec framework adds further complexity to this decision, given the country’s alignment with Iran in the war. Moreover, regional rivalry plays a role. Leaders Mohammed bin Salman of Saudi Arabia and Mohammed bin Zayed of the UAE are both pursuing ambitious national agendas and seeking to position their countries as dominant powers in the Gulf. Energy policy is central to that competition.
This development is triggering broader reflection in the Opec framework. Analysts have identified potential “flight risk” countries that may also reconsider their membership. Kazakhstan, for example, has consistently exceeded its production quotas, signalling growing dissatisfaction with the constraints imposed by the group.
Nigeria presents an even more compelling case. Though it produces significant amounts of crude oil, it is increasingly focusing on refining that oil domestically, particularly through the Dangote refinery. This allows Nigeria to produce higher-value fuel products such as petrol and diesel, rather than relying solely on crude exports.
The refinery is expanding its capacity and exploring opportunities in East Africa, signalling a broader shift towards regional energy integration. As a result, Nigeria is set to become less dependent on global crude markets and subsequently less reliant on Opec’s strategy of limiting supply to support prices.
The same kind of shift is starting to happen in Venezuela. Its oil production is increasing again as a result of its new relationship with the US following the capture of leader Nicolás Maduro, and it may also want more freedom to produce and sell more oil instead of being restricted by Opec rules.
These trends suggest that Opec could weaken further over time. If more members prioritise their own production and economic interests over collective agreements, Opec will struggle to act as a unified force. This would reduce its ability to manage global production and keep prices stable, leading to a more unpredictable and volatile market.
In the short term, geopolitical tensions, particularly around key energy transit routes, will continue to shape price movements, but over the medium term a less cohesive Opec is likely to weaken the credibility of production limits. This could result in oil prices settling at lower levels as additional supply and competition enter the market, though volatility is expected to persist.
For South Africa this presents an opportunity and a challenge. Lower oil prices could provide much-needed relief to consumers, reduce inflationary pressure and support economic activity. However, increased volatility makes it more difficult to plan and manage economic policy effectively.
Ultimately, the UAE’s exit signals a shift towards a more competitive and less predictable global oil market. For South Africa, the key will be preparation rather than prediction. Diversifying sources of oil imports and strengthening strategic fuel reserves will be essential to cushion the economy against future shocks.
In an environment defined by uncertainty, resilience and adaptability will be critical to maintaining economic stability.
• Bokveldt, a former researcher, is a procedural adviser in the South African parliament.
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