By the time you’re reading this, the United Arab Emirates, the world’s fourth-largest oil exporter, will have left the Organization of the Petroleum Exporting Countries after nearly 60 years of membership.
In an existential blow to the historically indomitable oil cartel, the Gulf monarchy announced that it would instead “respond to evolving market needs” by adjusting production to “take into account global supply and demand.”
On paper, the UAE’s decision may look like a ploy to bolster its financial bottom line amid regional tumult in the two-plus months of hostilities between Iran and the United States. After all, the UAE’s production capacity has improved by 1 million barrels of oil per day since 2019, more than any other member, and such production puts it well on the way to achieving its goal of producing 5 million barrels per day and driving down global oil prices — all in opposition to OPEC’s intentions as price setters.
But the UAE’s withdrawal is less about short-term economic interest and more a declaration of liberation from the political failures of decades of global Iranian appeasement. And the UAE’s desire to fully realign with the imminent victors of the Iran War: the United States.
Could economic press bring Iran to heel?
Operation Epic Fury’s bombs and sorties have made significant military progress. But the Iranian regime may finally be brought to its heels by President Donald Trump’s economic warfare. The clock is ticking for Ayatollah Mojtaba Khamenei, the Islamic Revolutionary Guard Corps, or whichever remaining regime lackeys we haven’t blown up yet, and it’s ultimately the power of the purse that will do them in.
The Foundation for Defending Democracy estimates that the warfare thus far has already destroyed $144 billion of Iran’s economy, or 40% of its GDP. The real pain point, however, is the impending, irrevocable destruction of its oil production.
As of the UAE’s official withdrawal from OPEC on May 1, the maritime tracking firm Kpler estimates that Iran has just eight to 18 days remaining before it fills all of its excess storage capacity for the surplus oil that the U.S. blockade has rendered it unable to export. On top of the 2.5 million barrels per day that Goldman Sachs estimates Iran has already had to curtail production by, Kpler surmises that Iran will have to cut output by another 1.5 million barrels per day in the following fortnight.
The problem for Iran is not merely that its oil exports, which fund between one-quarter and half of the government’s operations, have plunged from nearly 2 million barrels per day in March to just over 1 million barrels per day since the start of the blockade. Alternatively, its shortage of oil and gas storage means that the regime could be forced to shut off production, which would damage or destroy its oil fields and wells.
Unlike a faucet, an oil field cannot be shut off and simply turned back on again. Instead, the “pause” of oil production more likely turns into the clogging of the pressurized valves and veins that moved the product, rendering reservoirs inoperable after a “shut-in.”
Iranian theocratic leadership boxed in
The useful idiots of the West may try to argue that the mullahs can find a way out of basic petrophysics, yet the UAE sees the writing on the wall. Iran is not resorting to stuffing 29-year-old, retired tankers and tiny trains with oil to China, and sending its foreign minister back to Pakistan for negotiations abandoned by the Trump administration, because it is operating from a position of strength. Iran, rather, is finally facing a consequence that would indefinitely end its ability to fund its 47-year Shia Islamic authoritarian rule, not just temporarily ask it to swallow some pain in pursuit of outlasting the U.S.
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The end of the war is now a matter of when, not if, and the UAE no longer wishes to be throttled by OPEC’s delusion that it is capable of curtailing American export power. While OPEC produced more than half the crude on the planet in 1973, it now comprises less than 30% of global production. By contrast, the U.S. has tripled its share of global crude production in the past 18 years.
The UAE is wise enough to know that once this war is over, the deluge of pent-up demand is ready to be released, and the U.S. and its vassals will be ready to profit through volume, not artificially elevated prices. The UAE is ready to leave the central planners behind and join a victorious West.
Tiana Lowe Doescher (@TianaTheFirst) is an economics columnist for the Washington Examiner.