On a daily basis, we receive a lot of information; the news cycle in our modern world is a 24/7 one with updates by the minute. Keeping track of all the breaking news is almost impossible; in fact, more often than not, the longevity of a news item (depending on importance) isn’t as long as it used to be.
One breaking news item that was relevant for about a day last week was that the United Arab Emirates (UAE) had pulled out of the Organization of the Petroleum Exporting Countries (OPEC). News reports cite that they came to this decision to promote “national interests” first above all else, with no other specific reasons being provided. This came out of nowhere and genuinely surprised me. Why now? And why at all? were the first questions that came to mind. The thing is, OPEC is often referred to as the “cartel” of petroleum, a group of oil-rich nations that not only dictates the terms of production but also the price at which it is sold.
Given that petrol prices are the hottest topic right now, I thought it best to try to figure out if the UAE’s exit matters, and if it means anything for us consumers of oil. I have to admit that, although I have automotive journalistic experience, I am not an economist or an energy expert; all my assumptions are based on the information that I could access through research.
First its important to define OPEC, as mentioned, it is a group of countries where vast reserves of oil can be found. It was born during the 60s and 70s by 5 founding members: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The main goal of OPEC was to challenge the Western oil companies that had controlled most of the oil in the world at the time. OPEC showed its might first during the oil crisis in the 1970s, brought about by the instability in that region. OPEC placed an oil embargo on Western countries, which depleted supplies and quadrupled oil prices, showing the world that oil can be used as a political and economic tool.
Over the years, OPEC has become the de facto controller of oil prices and production in the world. It even expanded into OPEC+ back in 2016, which gave space to additional non-OPEC producer countries like Russia to join. OPEC+ was born out of a need to address the Oil Glut during that time. It’s important to note that the UAE is not the first country to leave OPEC; Qatar, Indonesia, Angola, and Ecuador have left the group.
What makes the UAE’s departure shocking is that it’s been a part of OPEC for over 60 years. Not to mention the timing of the departure raises some eyebrows, considering the world is currently facing an oil supply and price issue brought about by the US-Israel war on Iran.
The question now is, what does it really mean in the grander scale of things? We first have to look at the UAE as a member of OPEC. Based on my research, the UAE had been producing much lower than its actual capability because of the quotas handed down by the OPEC+ members. Rough estimates of the region’s production are at 3.4 to 3.6 million barrels per day. Before it exited OPEC, the UAE held 25 percent of the group’s total share capacity, making it a major player in the world of oil.
The UAE is also home to one of the biggest financial centers in the Middle East, with most Western companies choosing Dubai as a place to conduct business in the region. Dubai is widely regarded as a foreign-friendly part of the UAE and is even a hot tourist destination for most of the world. However, since the start of the war, Iran has also chosen to get aggressive with its fellow OPEC member, which could have also played a part in the UAE’s decision to withdraw from the group.
Given that the UAE is a strong oil-producing country, it might also be thinking long-term in terms of using its vast oil production capabilities to become an independent supplier and seller against OPEC. As we all know, basic economics says that the more competition there is, the better it is for the consumers. With the UAE now out and free from the constraints of OPEC rules, it can freely produce and dictate its own prices, which the OPEC members will need to match to stay competitive. In the long run, this could help bring down oil prices globally and help consumers save money at the pumps.
At the moment, the only hindrance to the UAE’s success as an independent lies in the stability of the region. The Strait of Hormuz is currently the most vital passage in that region; if blocked, it creates a supply issue for the UAE. However, experts have said that once shipping lanes stabilize, the UAE’s independent output could lead to more competitive global pricing and a structurally weaker OPEC.
Of course, everything is speculation at the moment; one caveat to this is that members who’ve resigned from OPEC are actually able to reapply for membership. If the UAE is somehow enticed to return, then it’ll likely be status quo, but should it stand strong on its own, we could benefit from it in the near future.
Words by Pablo Salapantan
The question that should be answered where does the Philippines source its oil? Don’t think it comes from Iran .
ReplyDeleteIIRC, we only have one refinery in the whole country so we import most of our fuel as already refined instead of oil. Where we import from likely does source some oil from Iran. Regardless, the loss of 20% of global oil (from the straight of Hormuz) will raise the overall price kahit saan pa source mo.
DeleteSo basically it's all theoretical and what ifs at this point..
ReplyDeleteJust buy and electric car and fill your roof with solar panels and you don't have to deal with this kind of bullshi...
ReplyDeleteWhats the efficiency of your solar roof system? It might not even fill your ev battery to 50% whole day charging during rainy season.
DeleteI have 3 EVs and a solar set up at home. All vehicles are used almost daily by me and my 3 sons. Home is 18 kms from our offices or 36 kms round trip. What used to be a 330 liters of fuel consumption monthly and 10,000 electric bill before adoption is now down to 5 liters and P3,500 electricity bill a month. You do the math how much I save monthly nowadays. Since the switch accumulated savings now reach close to P500,000.
ReplyDeleteFrom 330 liters to 5 liters using 3 EV’s very good😁
Delete2 EVs and 1 PHEV. Sealion 6 DMi. Need to use 5 liters just to utilize my fuel and fill up 25 liters every 5 months. Essentially consuming 5 liters of fuel for 1,000 kms of travel per month.
ReplyDelete