The Real Reason the UAE Is Quitting OPEC Is Not Just About Oil

When the United Arab Emirates announced yesterday that it would be leaving OPEC, the intergovernmental organization that has long sought to steer global oil markets, by the end of this week, the news came abruptly—but not without precedent.

Indeed, as the New York Times noted in its coverage of the UAE’s departure from the group, the Gulf country’s leaders have repeatedly talked about backing out over frustrations with how it limits their oil exports.

Still, after more than half a century in OPEC, this split begs the question: why now? The Emirate’s energy minister Suhail Al Mazrouei told the Times that it was a pivot made in the interest of meeting consumer demand: “The world needs more resources and U.A.E. wanted to be unconstrained by any groups,” Al Mazrouei explained, and doing so now, when oil production is down, would reduce the disruption to the global oil markets.

Yet Steve H. Hanke, a professor of applied economics at Johns Hopkins University, identifies a more specific culprit as having prompted this rupture: the Israeli-American war with Iran.

“The war suddenly made job one for the UAE ‘take the money and run,’” Hanke, a former member of the UAE’s Financial Advisory Council, told Fortune in a new interview published Wednesday. “The problem’s gone from a long-term decline in the real price, to the possibility that in the future, they won’t be able to sell all, or can only sell much less, because Iran controls the Strait of Hormuz, or periodically takes out part of its infrastructure.”

Indeed, he said, the war with Iran presents “a much bigger danger for a long time to come” than the UAE’s comparatively minor beef with OPEC itself.

Although the UAE has not framed its exit from OPEC as a response to the war, it has nevertheless suffered some blowback during the conflict. Iran, also a member of OPEC, has hit the Emirates with drone and missile attacks since the start of the war—including strikes on UAE oil and gas facilities, Fortune reports. Long-simmering tensions with the Saudisalso a major player in OPEC, were likely a contributing factor in the UAE’s exit as well.

So what happens after Friday, when the Emiratis are set to leave OPEC for good?

“The UAE now has a big incentive to tilt oil production towards the present and away from the future,” says Johns Hopkins’ Hanke, explaining that “if you think future prices are going higher, you slow down and wait to produce. If you think they’re going lower, you ramp up fast.”

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