InvestorQ : Why are some of the OPEC members in the oil cartel unhappy and is it possible that some of them may exit?
diksha shah made post

Why are some of the OPEC members in the oil cartel unhappy and is it possible that some of them may exit?

Mahima Roy answered.
3 years ago

Let me answer your question in two parts. Let me answer the issue of problems among the OPEC members in the first place. This is nothing new because for a long time Saudi Arabia has been the dominant force and other participants have often felt let down.

But now these reports are almost becoming like a barrage. According to reports from the Middle East and especially the GCC nations, a clutch of OPEC members including the United Arab Emirates may look to exit the OPEC membership.

These members are unhappy with the sustained supply cuts imposed by OPEC. What is more surprising is that the disgruntled members this time around are not the traditional suspects like Iran and Iraq but a long-time ally of Saudi Arabia; the United Arab Emirates.

There is a reason for that as the importance of UAE has diminished in the OPEC cartel with the major role played by Russia. In the last couple of years, OPEC decisions on supply of crude have been largely driven by the decisions of Saudi Arabia and Russia.

The problem for most players is that Russia is not part of OPEC but only a member of the informal alliance. But considering their huge oil output, they are exerting more influence even than Saudi Arabia. Sadly, none of the traditional OPEC members are benefiting.

While the OPEC members want to restore supply to old levels to boost their oil revenues, both Saudi and Russia are all in favour of containing oil supply for another 6 months. While supply cuts were to be eased by the beginning of 2021 that looks unlikely at this point.

With the downside pressure on oil demand still quite strong due to COVID, Saudi Arabia is apparently in favour of extending supply cuts for another 6 months but most other OPEC nations are averse to that idea as it is hitting their national revenues in a big way.

Some extreme views have been referring to UAE exiting the OPEC cartel but it looks likely that any GCC nation may exist at this time. In these tough markets, they need the support of the cartel. The last nation to leave OPEC was Indonesia in the year 2009, post Lehman.