Has the UAE seen the writing on the wall (peak oil that is)?

A lot of the post WW2 institutional structure is being challenged at present and/or vanishing altogether. Some of the changing environment will prove to be disastrous for the world, while some of the changes are likely to be beneficial. There will also be pro and con of many of the disruptions. Tomorrow (May 1, 2026), the United Arab Emirates (UEA) will formally leave the Organization of the Petroleum Exporting Countries (OPEC), which many consider will mark the beginning of the end for the cartel that has shown at various times since it was established in 1960, that it can manipulate world oil prices to the advantage of cartel members. But OPEC has been in decline for many years and member states have been doing informally, what the UAE plans to do formally as a Non-OPEC, non-DoC member. The departure will have some negative impact on oil prices once the Iran mess ends. But the most significant aspect I think is that it marks the recognition by one of the largest oil producers that peak oil is past and they need to cash out their remaining reserves and invest in renewables before it is too late. If that is correct, and that sentiment catches on then positives might come from the decision in the medium-term.

OPEC – was created on September 14, 1960, when five governments decided to act in concert to control world oil prices in order to increase their profits.

The five – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela – wanted to shift the power in global oil markets away from the traditional Anglo-American corporations – the so-called Seven Sisters (Anglo-Persian Oil Company (became BP), Shell, Standard Oil of California, Gulf Oil, and Texaco (which became Chevron) and Jersey Standard and Standard Oil of New York (which became ExxonMobil).

The modern version of the Seven Sisters is referred to as – Big Oil – (Exxon, Shell, Total Energies, BP, and Eni).

Big Oil is still very influential and is a leading voice pushing against reducing reliance on fossil fuels.

Prior to 1973, the Seven Sisters were in control of around 85 per cent of the known oil reserves.

The Seven Sisters operated as a cartel – that is, to collude so as to control supply and manipulate prices in global markets.

In the 1940s, there were large discoveries of oil in Saudi Arabia, which initially posed a threat to the cartel.

That was headed off by the corporate mergers designed to maintain control of the new oil in the hands of the Seven Sisters.

While the American and British governments also bullied national governments on behalf of the corporations with head offices in their nations so as to reduce taxes and regulations.

But the 1950s saw increasing nationalistic pressures in the oil producing nations, with Iran first to nationalise its oil industry in 1951.

By the end of the 1950s, the Seven Sisters colluded to reduce the price of Venezuelan and Middle Eastern oil, which led to pressures from the respective national governments to seek a new organisation to better represent their national interests.

With the prospect of a new government run cartel being formed, the Seven Sisters acted in usual bullying mode and threatened to block market access to any nation that joined.

This provoked further nationalisation of oil reserves in the nations with large oil reserves, which paved the way for OPEC to arrest control of global oil markets from the corporations that comprised the Seven Sisters.

It was a classic example of how legislative fiat can dominate corporate power, any time a government wants to exercise their capacity.

That doesn’t exclude military action and we saw in 1953 how the US and Britain funded the – 1953 Iranian coup d’état – which toppled the PM and installed the puppet Shah, all because Iran had nationalised Iran’s oil industry.

The Seven Sisters were also continuously trying to manipulate supply even at their own expense to maintain control as the OPEC states gained influence.

OPEC consolidated its power over global oil prices in the 1960s.

Effectively one cartel replaced another as the dominant force.

Yet, the OPEC cartel supports state prosperity while the Seven Sisters was about funnelling as much profits (and power) to the narrow set of shareholders of the giant oil companies.

So while neoliberals like to vilify OPEC and promote ‘free markets’, the reality is that the Seven Sisters were (are in current form) a body that seeks to ‘fix’ the market in their favour and bully whoever tries to restrict their power.

However, OPEC has always faced the problem that while collective action can control the world oil supply and increase prices, there is always the incentive for one member to break loose and monetise their own oil stocks by producing and selling as much as possible even at lower prices than the cartel would desire.

I won’t go into how a lower price can lead to more revenue – this is the world of elasticities or the sensitivity of demand to price variations.

There is evidence (contested) that OPEC members have cheated many times to advance their own position at the expense of the collective.

In the period after inception, several more oil producing countries, sensing the security of a collective membership, joined OPEC (Qatar 1961, Indonesia 1962–2008 and then 2014–2016, Libya 1962, United Arab Emiratesm 1967, Algeria 1969, Nigeria 1971, Ecuador 1973–1992 then 2007–2020, and Gabon 1975–1994 then 2016.

Going into the 1970s, OPEC controlled more than 50 per cent of total global oil output.

The first large-scale demonstration of their capacity to the world as a cartel came in October 1973.

With the onset of the – Yom Kippur War – which saw Israel fighting several Arab states as a continuation of the tensions after the Arabs lost the – Six-Day War – in 1967, and Israel illegally occupied the West Bank, Gaza and Sinai Peninsula and the Golan Heights.

OPEC members observed the extensive funding and military assistance that the US was providing to Israel to slaughter Arabs and in retaliation imposed significant output cuts and an embargo on all the nations providing military support to Israel.

The following graph shows what happened.

Oil prices rose from $US3/bbl to $US12/bbl virtually overnight (bbl is barrel and is a standardised unit of volume equal to 159 litres).

Oil dependent nations were confronted with a massive supply price shock that precipitated the stagflation era (high inflation and high unemployment together).

The unemployment came after governments tried to deal with the supply shock as if it was a demand shock and harshly cut back total spending.

This has lessons for today as central banks are once again about to hike rates to deal with the inflation spike arising from the Iran War and blockades etc.

The rate hikes will do nothing to bring down price rises arising from the shortage of oil but will further erode consumer confidence and spending, which will drive the economy into recession (talking here about Australia).

The two lessons we haven’t learned:

1. To jettison how oil dependency – yes, we drove smaller cars but still resist major shifts away from fossil fuel transport systems.

In Australia, the shift to smaller cars didn’t last long and now there are these massive SUVs driving kids a few hundred metres to school and consuming massive amounts of petrol.

2. To treat supply shocks as if they are demand shocks.

There was massive disruption among oil dependent nations which saw many shifts in demand preferences.

For example, I recall as a young adult the ‘council waste throw-outs’ (where annually households put junk out on their nature strips for collection by council) were dominated by the large oil heater tanks.

It became too expensive to use oil for heating and households quickly shifted to gas which was produced locally and was much cheaper.

The other dramatic consumer substitution came in motor vehicles – within a year or two the sale of large US-looking 6 and 8 cylinder cars dropped dramatically and in their place consumers started to buy small 4-cyclinder cars from Japan initially, then other Asian states (South Korea, etc).

Anyway, there was massive global disruption.

With the Iranian Revolution in 1979-80, the second OPEC price hike drive crude oil to above $US30/bbl.

Interestingly, the so-called flood of petrodollars into the coffers of the OPEC nations created new sources of finance separate from the old colonial avenues.

It also saw the OPEC nations rapidly developing their own nations and also created a new powerhouse in foreign aid.

Arab nations are now among the largest sources of foreign aid to poorer nations.

What does the UAE decision to leave OPEC mean?

A negative of the oil price disruption in the 1970s was the expansion of coal-fired power stations.

The subsequent history of OPEC – its failings and successes is very interesting but I want to consider the latest developments.

I have received several E-mails asking me whether the decision by the UAE to leave the cartel tomorrow (May 1, 2026) is desirable.

What does it mean?

The Ministry of Energy and Infrastructure of the UAE said the following:

This decision follows a comprehensive review of the UAE’s production policy and its current and future capacity and is based on our national interest and our commitment to contributing effectively to meeting the market’s pressing needs …

… bringing additional production to market in a gradual and measured manner, aligned with demand and market conditions.”

During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all. However, the time has come to focus our efforts on what our national interest dictates.

First, only Saudi Arabia and the UAE have large untapped oil reserves – spare capacity to vary production at will.

It is the variation in production that allows OPEC to manipulate the crude oil price in their favour.

Most of the oil producing members are unable to expand and contract supply as easily.

According to OPEC’s – Annual Statistical Bulletin 2026 – the UAE also represents 15.5 per cent of OPEC’s total crude and petroleum exports, which means its decision to leave is significant but not terminal for OPEC.

The following graph shows OPEC crude oil export shares in 2025.

In terms of production, the following graph shows the OPEC and the Non-OPEC – Declaration of Cooperation – countries (OPEC+) for 2025.

UAE is the fourth largest OPEC producer but has more excess capacity than most other OPEC nations.

In 2025, OPEC produced 36.7 per cent of crude oil – compare that to its peak in 1973 when it produced 52.5 per cent.

The OPEC+ expansion in addition to the shale oil ventures in the US have eroded its influence.

The departure of the UAE will further this decline.

Second, this is not a decision that has been provoked by the current chaos surrounding the Iran War.

The UAE has regularly complained about the collective decisions by OPEC to withhold oil supplies to push the price up.

As the UAE invested massive amounts to tap into its oil reserves it has been pressuring OPEC to increase its quota so that it can monetise the return on its investments.

The Saudi influence in OPEC though takes the opposite view.

It wants quotas to hold and production to be restricted to ensure the oil price remains as high as possible for as long as possible.

Third, the UAE might be seen as the ‘canary in the mine’ of the fossil fuel industry.

Peak oil has passed and the oil producing nations have only finite capacity and time left to reap the benefits of their resource endowments.

Demand for oil is contracting and the UAE has clearly sensed that it should now monetise the remaining reserves its hold and get as much as it can back in cash even though it will have to sell its oil at a lower price per bbl.

The ‘rats deserting the ship’ strategy.

To some extent, OPEC has been troubled by ‘deserters’ since its inception although the renegades have been surreptitious and largely remained in the cartel.

In general, world oil prices will probably trend lower with the departure of UAE from OPEC.

That is, once the Iranian disruption works its way out.

That is good and bad – good for households struggling with the cost-of-living but bad because it will retard the substitution away from fossil fuels.

When I write that though, I am very aware that the cost-of-living pressures impact disproportionately on low-income households who also are unable meet the relative high purchase price of new EVs (for example) to insulate themselves from the oil price pressures.

Conclusion

In general, cartels are bad but there are positives that arise when they manipulate prices – for example, spawning new technologies to undermine fossil fuel reliance.

That is enough for today!

(c) Copyright 2026 William Mitchell. All Rights Reserved.