A silver lining

The United Arab Emirates' Opec exit could open doors for India

13 min read

Updated On: Jun 10 2026 | 7:10 AM IST

The UAE Armed Forces during a military drill in Abu Dhabi, UAE (Photo: Reuters)

During the Yom Kippur war, also known as the 1973 Arab–Israeli War, the Organisation of the Arab Petroleum Exporting Countries (OAPEC), a cartel of major oil-producing countries led by King Faisal of Saudi Arabia, launched an oil embargo on nations that were aiding Israel, including the United States (US), Canada, the Netherlands, and Portugal.

Access to oil was fast becoming the foundation of prosperity during the postwar years, and the embargo took up oil costs in the US by as much as four fold, from $3 to close to $12 a barrel. It wasn’t until early 1974 that an Egypt-Israel disengagement agreement negotiated by the US brought an end to the embargo.

That was the first time oil was used as a political weapon, showing OAPEC’s monopoly and control over the oil industry, which, at its peak, controlled nearly half of the world’s oil supply. Economist Edward Morse and Amy Myers Jaffe argue that the embargo was “hailed at the time as the first major victory of ‘Third World’ powers to bring the West to its knees”.

More than half a century later, it is safe to say that the successor Opec countries (OAPEC with the Arab in the title) do not hold the same influence and leverage as they once did. That status risked further emasculation on May 1, when the United Arab Emirates (UAE), one of the most important members of Opec, left in a huff after a longstanding disagreement over the group’s quota system for oil production finally tipped over amid the Iran war. The UAE’s Energy Minister, Suhail Al Mazrouei, told the New York Times, “The world needs more energy, the world needs more resources and the UAE wanted to be unconstrained by

any groups,” The UAE was the fourth-largest oil producer in Opec, accounting for 13 per cent of its production. Its departure means the cartel has lost a key member with substantial spare capacity – the ability to quickly ramp up production during supply shocks of the kind unleashed by the Iran war.

India's fuel exports may revive after slumping amid Ukraine, Iran conflicts

The UAE, a key western ally, has had to weather mounting Iranian missile and drone attacks and it blamed regional Gulf countries for not doing enough to thwart the assault. Its Fujairah port, a major terminal used for exporting an average of 1.7-1.8 million barrels of crude oil and refined fuels per day, came under Iranian attacks.

“This decision obviously gives them (the UAE) freedom from many of the restrictions of Opec. It gives them greater choice to make their own decisions in terms of both production and sale of their oil,” said T P Seetharam, former Indian ambassador to the UAE.

“The UAE particularly has demonstrated its ability to anticipate problems and deal with whatever challenges are there by remaking itself, by adjusting and calibrating its plans accordingly to deal with such crises.”

Soon after this decision, the UAE’s state-owned oil company, Abu Dhabi National Oil Company (ADNOC), pledged to spend $55 billion on new projects over the next two years, aiming to expand production capacity to five million barrels a day (bpd) by 2027 from 4.8 million bpd (as of April–May 2026)

“What changes is flexibility; outside Opec, the UAE can align investment, production capacity, and customer commitments without waiting for quota negotiations. ADNOC's announcement of $55 billion in project awards signals that Abu Dhabi wants to monetise capacity faster and lock in future demand, especially in Asia,” said Ebtesam Al Ketbi, president of Emirates Policy Centre, a think tank based in the UAE.

“The UAE is not replacing Opec but positioning itself as a flexible, reliable producer with independent room for manoeuvre,” she added.

A joint exercise by Saudi and US Navies in Jubail, Saudi Arabia (Photo: Reuters)

Cracks within

Opec is arguably the most powerful energy cartel in the world, controlling nearly 80 per cent of the world's proven crude oil reserves. It was founded by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela in September 1960.

The Emirate of Abu Dhabi joined first in 1967, and the UAE later assumed membership on behalf of the federation, formed in 1971. Over time, the cartel came to set oil prices and production quotas for each member-state. In 2016, the group allied with 10 non-member countries, including Russia, to form Opec+.

Today, Opec+ controls about half of global oil production. Member-states say they cut and raise production to stabilise the market. Critics like the US argue the group manipulates oil prices for its own gain.

In the 1980s, rifts within the cartel began to emerge over production quotas and prices. During the Iran-Iraq war (1980-88), Iran accused members of deliberately holding oil prices low to aid Iraq. However, neither Iraq nor Iran left Opec.

Opec’s worst-ever crisis came with Iraq’s invasion of Kuwait, when Iraq, under Saddam Hussein, accused Kuwait of stealing Iraqi oil. More than four million barrels of oil per day were wiped out of the market and Gulf allies had to increase production to stabilise the oil market. Saudi Arabia, which produces nearly one-third of the cartel’s total production, arguably holds the most influence in the group. It requires high oil prices at around $90 per barrel to fund its expensive domestic infrastructure developments, like the $500 billion NEOM project.

“They (UAE) were always a little uncomfortable that they had to follow the diktats from the Saudis because they have the leadership within Opec. Then Opec is not only those two countries, but there are also several others. There have been departures from the expected terms for the members and so on, which must have made them uncomfortable,” Seetharam said.

Conversely, the UAE has a much lower fiscal break-even price and a highly diversified economy, meaning it can tolerate cheaper oil in exchange for selling higher volumes. In 2025, Saudi Arabia flooded the market with excess oil specifically to punish under-the-table “cheating” by countries like Iraq and Kazakhstan, a strategy that severely depressed prices and strained relations with cash-strapped members.

This almost-unquestioned dominance has put off some members that have been keen to increase their production quotas. In 2019, Qatar withdrew, citing Saudi dominance and a Saudi-led blockade of Qatar.

Angola left in January 2024 following a dispute with Opec regarding oil production quotas. Other countries like Indonesia, Ecuador and Gabon have left and rejoined the group during different periods.

With the UAE gone, many analysts say the burden of stabilising the group now falls squarely on Saudi Arabia, forcing it into a “lone wolf” role with diminished influence. There are concerns that other member states may follow the UAE’s suit.

Jack Rystand, CEO of energy research firm Rystad Energy, said in an interview, “It is reasonable to question whether Opec will ever attain the prominence it once had. Could this even be the beginning of the end for the cartel? With the swift change from oversupply to a tight oil market, Opec’s role is limited in 2026 and 2027.”

From allies to competitors

Historically, Saudi Arabia and the UAE have always enjoyed close ties, but more recently, with other Gulf nations shifting from relying on their oil revenues, tensions between the two states have started emerging.

Historically, the UAE has established its reputation as a global financial, logistics, and business centre. So when Saudi Arabia’s Crown Prince Mohammed bin Salman introduced Vision 2030 in April 2016 to make his state less dependent on oil and become a major global investment nation, they turned into direct rivals.

Now, Saudi Arabia requires foreign companies to open their regional offices in its capital Riyadh, in order to get government contracts. This move has been interpreted by many in the UAE as a threat to their country’s reputation as a secure place to invest in. Today, both Saudi Arabia and the UAE compete in many emerging industries, such as renewable energy, AI, logistics, and space.

The competition is not limited to economics alone: Both sides have been involved in proxy conflicts in West Asia. The UAE backs the Southern Transitional Council, a separatist group seeking independence for southern Yemen, and Saudi Arabia backs the internationally recognised government to ensure a unified state on its vulnerable southern border.

These tensions culminated in 2025 when Saudi-led forces bombed an Emirati weapons convoy in the port of Mukalla in southern Yemen and asked UAE forces to leave the country in 24 hours.

In Sudan, Saudi Arabia backs the national army, the Sudanese Armed Forces, while the UAE has been accused of arming the rival paramilitary Rapid Support Forces. This pattern of competition extends to Libya, Somalia, and the Horn of Africa, where the two powers now routinely back opposing sides.

An analysis published in The Soufan Centre, a think-tank based in New York, noted, “Saudi concern has intensified due to the cumulative effect of Emirati activities across Sudan, Somalia, and Yemen, which Riyadh increasingly interprets not as tactical interventions but as part of a broader pattern of state fragmentation and geopolitical realignment.”

The UAE’s closeness to Israel after the signing of the Abraham Accords is seen as the rise of a new power bloc in West Asia. Israeli Prime Minister Benjamin Netanyahu praised the UAE following the recent Iran war and spoke of a “window of opportunity” to enlarge peace accords. His office even claimed he made a “secret visit” to the UAE during the conflict, meeting the UAE’s President Sheikh Mohamed bin Zayed. However, the UAE explicitly denied any visit.

UAE President Mohamed bin Zayed Al Nahyan and Prime Minister Narendra Modi in Abu Dhabi, on May 15, 2026 (Photo: Reuters)

“The war has pushed the UAE closer to Israel and created more drift between the UAE and Saudi Arabia. The UAE is more aligned with Israel now. India is one of the leading importers of oil, so this could become a new oil diplomacy emerging from West Asia,” said Afaq Hussain, senior fellow at the Atlantic Council. “India is already part of the bloc. In India, the UAE, Israel and the US, there is already an I2U2 (strategic partnership between India, Israel, UAE and the US) framework that exists. Whether it is IMEC (India–Middle East–Europe Economic Corridor), free trade agreements, Israel-India connections or the food security corridor between India and the UAE, they are all part of the larger I2U2 framework,” he added.

Meanwhile, Saudi Arabia has been warming up ties with Turkey through a visa exemption agreement in May and signing a confidential “Strategic Mutual Defence Agreement” with Pakistan in September 2025. It has been reported that Turkey is likely to join this defence pact, and talks are in advanced stages. “I do not think that we should take sides immediately between what's happening between the UAE and Saudi. There have to be subtleties. It's not a black and white kind of situation,” Seetharam said. “We have Indian expatriates in all these countries. So we have to be far more calibrated.”

Opportunities for India

Analysts say that India stands to gain from the UAE’s exit as the emirate is no longer constrained by Opec quotas. India is one of the largest importers of crude, and the UAE is the fourth-largest crude supplier, behind Russia, Saudi Arabia and Iraq. “India stands to gain from a UAE that is less constrained by Opec quotas and more able to expand long-term supply. ADNOC is targeting 5 million bpd capacity, which strengthens India’s supply diversification. But ‘stable supply’ will still depend on Hormuz security, prices, and long-term contracts, not just UAE production capacity,” Al Ketbi said.

Under the strategic petroleum reserves programme launched during PM Narendra Modi's first visit to the UAE in 2015, India now stores 5.33 million tonnes of the UAE-supplied oil in underground caverns at Mangalore, Padur, and Visakhapatnam. Plans are also underway to add another 6.5 million tonnes at Padur and a new facility in Odisha’s Chandikol.

“India would have to think in terms of building up even larger reserves for the current situation and any future contingency,” Seetharam said.

One of the most intriguing questions is whether the UAE’s newfound freedom could accelerate the shift away from dollar-denominated oil trade. India and the UAE already have a local-currency settlement framework.

“The UAE may expand rupee-dirham settlement selectively, especially for strategic India ties, but this should be seen as gradual diversification, not de-dollarisation,” Al Ketbi said. Indian Oil has previously paid ADNOC for crude in rupees. But large-scale oil trade remains mostly dollar-based because exporters prefer dollar liquidity.

“We’ve all been talking about it; the UAE has also spoken about using the yuan with China. There have already been conversations around rupee-dirham trade between India and the UAE. So this could potentially open up the avenue for oil trade in local currencies,” Hussain said.“We already do rupee-ruble trade with Russia because dollar transactions are difficult there (due to sanctions). Similar frameworks exist globally, so rupee-dirham trade for oil is definitely possible in the future.”

However, India -UAE ties are not limited to crude oil; the UAE is the second-largest exporter of liquefied natural gas (LNG). In January, the two countries signed a deal worth $2.5 billion-$3 billion for ADNOC Gas to supply 500,000 tonnes of LNG every year to Hindustan Petroleum Corporation for the next 10 years. The UAE and India are evaluating a proposed deepwater subsea pipeline corridor to transport crude oil directly between the two nations.

Beyond energy, the India-UAE comprehensive economic partnership agreement (CEPA), signed in 2022, has driven bilateral trade up by 37 per cent in just four years. In defence cooperation, Modi’s visit in May saw the strategic partnership between the two countries take the form of a Strategic Defence Partnership, which will cover joint military training, maritime partnership, intelligence sharing and defence industrial collaboration.

However, the current Iran war and the blockade of the Strait of Hormuz have severely affected India-UAE trade. Indian exports to the UAE crashed by 61.9 per cent, and the effect of the disruption was felt in Indian kitchens when LPG sales to commercial users dropped nearly 48 per cent in April.

Experts are hopeful that the situation will bounce back whenever normal passage resumes in the Strait. Some also view the UAE’s decision to leave Opec as a “market stabilising” move at a time when oil prices have reached well above $100 per barrel, although the decision is unlikely to have any immediate effect on the oil market. “A ‘market balancer’ outside Opec means acting through capacity, contracts, and timing rather than cartel discipline. The UAE can increase supply when markets are tight, hold spare capacity when needed, and use long-term partnerships to reassure buyers,” Al Ketbi said.

In these uncertain times, one certainty could be that the era of unquestioned cartel power is over, with a pragmatic UAE betting on flexibility over allegiance.

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