OPEC has long been Saudi Arabia reducing output, and everyone else selling everything they can. They haven't had much power since the 1970s, but that they exist means they are a threat that if everyone else actually stuck to the agreement for a change.
This is the common problem for cartels: everyone has inventive to cheat on the deals made. By selling a little more than your share you get more money, while because everyone else is following along the prices are higher. (see also prisoners dilemma)
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, and my grandson is going to ride a camel". Sheikh Rashid bin Saeed Al Maktoum, the former Emir of Dubai.
Where is the Land Rover supposed to sit on this scale?
There are current Land Rovers with market positioning suggesting they're "better" than Mercedes, and there are historic Land Rovers which were arguably not much better than camels.
That's a quote. You may want to ask Sheikh Mohammed (current ruler of Dubai) for why his dad was mocking him for his choice of a car. I just posted the quote - felt relevant.
Money solves a lot, but not everything. At the end of the day it's still a country in a desert. Unfortunately that entire region is a repeating history of temporary wealth and stability that gives way to instability. When that happens the underlying constraints can quickly reassert themselves. Just luck at the history of Kuwait.
Money retrained means nothing when cheap oil is gone. Cars are only a thing because we have volumes and energy for large supply chains and scale. A rich person can afford a model-T level car, but large parts of what makes a luxury car are things that they won't be able to get at any price without modern industry that is built on distributed wealth for many people. All the electronics - needs industry. Precision manufacturing - depends on precision electronics. You can't even rebuild a current design if someone thinks to print out the blueprints.
Of course who knows how to end of oil will happen. Best case is a switch to renewables (or fission...) in which case there will be more than enough expensive oil for a few rich people to drive expensive gas cars if they want to. There are lots of other options as well, only time will tell.
(and a nod here to the replies who suggest this was never actually said)
Well yes, that is because they have heard the line and took it as a warning.
However just because they are trying doesn't mean they will succeed. Their attempts at diversification still seem very reliant on oil money, and its far from clear that they will eventually be able to stand on their own.
The US has long sought to erode OPEC’s ability to dictate global oil prices. The US has made massive progress in being broadly energy independent to isolate it from challenges elsewhere. The US has been a net energy exporter since 2019. Global oil pricing was always an annoying thorn in that strategy.
This is an initial but big crack in shaking up global oil markets in a way that meaningfully shifts global power dynamics.
They export because their own refineries along the Gulf coast esp were designed for middle east heavy crude cuz the US once upon a time believed it was about to run out of American light sweet crude. So the story is not black and white.
CAFE standards were always a stupid idea. If we want to reduce fuel usage then increase the tax on fuel instead of punishing manufacturers for selling vehicles that consumers want to buy.
I think the initial crack was ousting Maduro in Venezuela. Since OPEC exempts Venezuela from production caps, it gives the US government a lever on non US production.
Global pricing affects all fossil fuels and always will. Energy independence will remain a fantasy until we are fully on renewables. Which is entirely within reach and requires fighting zero wars.
Geopolic: A US-aligned Gulf state walking away from a Saudi/Russia-led bloc in the middle of a war, after deciding the bloc didn’t really have its back
Economic: it weakens OPEC’s pricing power in a way you might not see right away if Hormuz is closed, but it could really change the supply picture once things reopen
UAE announced this week they might start selling oil in yuan so this doesn’t read like anything US aligned to me. If anything it reads like the opposite to me - a move away from traditional opec petrodollar system
I don't think there is any evidence that they actually need the dollar swap line - the dirham-dollar peg isn't at any risk and they have plenty of money for fiscal flexibility going into the foreseeable future. If you take financial reasons off of the table then it is clear it is just a political play for a bigger seat at the table with the US.
The Saudis did it to Biden in 2023, the UAE sees the opportunity to do it to Trump now.
exactly. this sounds like a third path where the UAE charts its own course, and that course increasingly looks paved in Yuan.
OPEC cartel membership didnt gain it access to Hormuz, and the US petrodollar promise to protect UAE states from aggression in exchange for trade in USD could not be upheld.
> the US petrodollar promise to protect UAE states from aggression in exchange for trade in USD could not be upheld
Well the war is still ongoing, and Iran's regime is already feeling the pain of the blockade [1]. Pricing oil in Yuan because, I guess, the US is somehow not protecting the UAE doesn't make sense because China won't be there to protect them either. The US can just say, well fine you can sell your oil in Yuan. But we'll just blockade the Straight and seize oil priced in Yuan or something. Who exactly does the UAE need protection from? Iran? China's ally?
I swear I read this same story over and over again. There's always just an accusation "thing happened, here's how the US is now in a state of being screwed" and there's just never any follow-up or perhaps imagination that the US could just do something too. Hypersonic missiles? US Navy is done for, no possible counter. Iran has drones? Boom. US is done for no way they can spend Patriot missile money on $30,000 Iranian drones. Nope, nothing anyone can do at all. Iran "closes the Straight", well the US can't do anything. Now they are "embarrassed" and "slammed".
> OPEC cartel membership didnt gain it access to Hormuz
Im not concerned with them selling with the yuan as China regularly screws around with its currency. The bigger issue is and other currencies which reduces the US impact.
On the backside I’m sure there will be lots of fun back door deals around all those interceptors and future anti drone technologies. Today though the US has been the impetus of a lot of the current issues.
That doesn't mean the warnings were frivolous. There was ultimately a change in course which averted it. How sure are you that will be the case this time?
Has the GCC been in an existential state of panic to the point where they’re seriously questioning their relationship with the US any time in the past 30 years?
Kuwait was “saved” by the US. The Iraq invasion was approved by the GCC, partly as payback for Kuwait, and anyways Iraq is not part of the GCC. The Qatar blockade was self-inflicted (and extremely stupid).
Can somebody knowledgeable help me understand why this is in the interests of the UAE? Also, seems like a moot point since the strait is closed. Why do they think it’s in their best interests, and why now?
Iran lets oil traded in Yuan to navigate the Strait. OPEC sets prices in Petrodollars. What is the point of staying in OPEC then? Qatar is not part of OPEC so they were able to trade freely in Yuan.
> The UAE's exit from OPEC represents a win for U.S. President Donald Trump, who in a 2018 address to the U.N. General Assembly accused the organisation of "ripping off the rest of the world" by inflating oil prices.
I can't see how it is actually a win for Trump. OPEC has mostly been a big partner with the US. They are the ones that have mandated using the dollar as the baseline currency for buying and selling OPEC oil.
The UAE's exit almost certainly signals they are planning on selling oil in other currencies (probably the Chinese yuan). It's also a sign of the UAE wanting out of the partnership it's enjoyed with the US and it's allies.
> OPEC has mostly been a big partner with the US. They are the ones that have mandated using the dollar as the baseline currency for buying and selling OPEC oil.
Has anyone ever quantified the benefit the U.S. supposedly gets from dollar denominated oil? How does that compare to the cost to the U.S. of paying cartel pricing for oil? Given that the U.S. is a huge oil consumer, surely the cost to it of cartel pricing in oil is huge.
In fairness to the UAE, of all the nations of the world, they're the ones who have lost the most economically speaking in the current unpleasantness.
It's kind of unfair.
If they can recoup some of those losses selling outside the system in Chinese currency, (or even in US currency), I have to imagine that would provide some ameliorative relief. It won't make them whole. They've got a lot of problems right now. But I mean, at least it starts them filling back in the giant hole that everyone else dug for them.
> I can't see how it is actually a win for Trump. OPEC has mostly been a big partner with the US.
I mean, I don’t even know if I mean this sarcastically anymore, but are we sure that Trump and the US’ interests are aligned? I think something can be a win for Trump and a loss for the USA.
Ok I was initially thinking this would be good for oil prices since they are leaving a cartel, but the article is saying this will just create more uncertainty. Seems we are damned if we do, damned if we don't these days.
> Ok I was initially thinking this would be good for oil prices since they are leaving a cartel, but the article is saying this will just create more uncertainty.
Where does the article say that? It says this is expected to lower the price of oil.
It also says that, because the price of oil is currently unstable, the impact will be difficult to see:
> Mazrouei said the move, in which the UAE will also leave the OPEC+ grouping, would not have a huge impact on the market because of the situation in the strait.
But it doesn't say anywhere that there's uncertainty over in which direction this moves the price of oil. The uncertainty is over what the price of oil will be.
Since covid, either way and whatever the event is, it will always be used to increase the prices on consumer’s goods: war, tweets, a giraffe died in Nairobi, it doesn’t matter, prices will go up and never down! It won’t stop unless people, the normal average people, go out in streets rioting against that.
OPEC has long been Saudi Arabia reducing output, and everyone else selling everything they can. They haven't had much power since the 1970s, but that they exist means they are a threat that if everyone else actually stuck to the agreement for a change.
This is the common problem for cartels: everyone has inventive to cheat on the deals made. By selling a little more than your share you get more money, while because everyone else is following along the prices are higher. (see also prisoners dilemma)
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, and my grandson is going to ride a camel". Sheikh Rashid bin Saeed Al Maktoum, the former Emir of Dubai.
Where is the Land Rover supposed to sit on this scale?
There are current Land Rovers with market positioning suggesting they're "better" than Mercedes, and there are historic Land Rovers which were arguably not much better than camels.
That's a quote. You may want to ask Sheikh Mohammed (current ruler of Dubai) for why his dad was mocking him for his choice of a car. I just posted the quote - felt relevant.
To my mind, it's still an automobile, but not a posh one. It's like "I wear a suit with a necktie, but my son wears fatigues".
Its a fun line, but the volume of money they have and the way its managed says they are looking at retaining that wealth somehow
Money solves a lot, but not everything. At the end of the day it's still a country in a desert. Unfortunately that entire region is a repeating history of temporary wealth and stability that gives way to instability. When that happens the underlying constraints can quickly reassert themselves. Just luck at the history of Kuwait.
Money retrained means nothing when cheap oil is gone. Cars are only a thing because we have volumes and energy for large supply chains and scale. A rich person can afford a model-T level car, but large parts of what makes a luxury car are things that they won't be able to get at any price without modern industry that is built on distributed wealth for many people. All the electronics - needs industry. Precision manufacturing - depends on precision electronics. You can't even rebuild a current design if someone thinks to print out the blueprints.
Of course who knows how to end of oil will happen. Best case is a switch to renewables (or fission...) in which case there will be more than enough expensive oil for a few rich people to drive expensive gas cars if they want to. There are lots of other options as well, only time will tell.
(and a nod here to the replies who suggest this was never actually said)
Well yes, that is because they have heard the line and took it as a warning.
However just because they are trying doesn't mean they will succeed. Their attempts at diversification still seem very reliant on oil money, and its far from clear that they will eventually be able to stand on their own.
The US has long sought to erode OPEC’s ability to dictate global oil prices. The US has made massive progress in being broadly energy independent to isolate it from challenges elsewhere. The US has been a net energy exporter since 2019. Global oil pricing was always an annoying thorn in that strategy.
This is an initial but big crack in shaking up global oil markets in a way that meaningfully shifts global power dynamics.
They export because their own refineries along the Gulf coast esp were designed for middle east heavy crude cuz the US once upon a time believed it was about to run out of American light sweet crude. So the story is not black and white.
Cheap and plentiful fossil fuels.
We’re rolling back CAFE standards too.
CAFE standards were always a stupid idea. If we want to reduce fuel usage then increase the tax on fuel instead of punishing manufacturers for selling vehicles that consumers want to buy.
I think the initial crack was ousting Maduro in Venezuela. Since OPEC exempts Venezuela from production caps, it gives the US government a lever on non US production.
Global pricing affects all fossil fuels and always will. Energy independence will remain a fantasy until we are fully on renewables. Which is entirely within reach and requires fighting zero wars.
The US, or Saudi Arabia, or Venezuela, or Russia could very well be energy independent on fossil fuels alone, even though that won't be wise.
Europe, or China, or India could not though.
Geopolic: A US-aligned Gulf state walking away from a Saudi/Russia-led bloc in the middle of a war, after deciding the bloc didn’t really have its back
Economic: it weakens OPEC’s pricing power in a way you might not see right away if Hormuz is closed, but it could really change the supply picture once things reopen
UAE announced this week they might start selling oil in yuan so this doesn’t read like anything US aligned to me. If anything it reads like the opposite to me - a move away from traditional opec petrodollar system
> UAE announced this week they might start selling oil in yuan
That is just UAE pressure to make sure they get their dollar swap deal: https://www.reuters.com/world/middle-east/trump-says-currenc...
Indeed it’s leverage but at same time they only need the swap because all is not well in petrodollar land.
I don't think there is any evidence that they actually need the dollar swap line - the dirham-dollar peg isn't at any risk and they have plenty of money for fiscal flexibility going into the foreseeable future. If you take financial reasons off of the table then it is clear it is just a political play for a bigger seat at the table with the US.
The Saudis did it to Biden in 2023, the UAE sees the opportunity to do it to Trump now.
exactly. this sounds like a third path where the UAE charts its own course, and that course increasingly looks paved in Yuan.
OPEC cartel membership didnt gain it access to Hormuz, and the US petrodollar promise to protect UAE states from aggression in exchange for trade in USD could not be upheld.
> the US petrodollar promise to protect UAE states from aggression in exchange for trade in USD could not be upheld
Well the war is still ongoing, and Iran's regime is already feeling the pain of the blockade [1]. Pricing oil in Yuan because, I guess, the US is somehow not protecting the UAE doesn't make sense because China won't be there to protect them either. The US can just say, well fine you can sell your oil in Yuan. But we'll just blockade the Straight and seize oil priced in Yuan or something. Who exactly does the UAE need protection from? Iran? China's ally?
I swear I read this same story over and over again. There's always just an accusation "thing happened, here's how the US is now in a state of being screwed" and there's just never any follow-up or perhaps imagination that the US could just do something too. Hypersonic missiles? US Navy is done for, no possible counter. Iran has drones? Boom. US is done for no way they can spend Patriot missile money on $30,000 Iranian drones. Nope, nothing anyone can do at all. Iran "closes the Straight", well the US can't do anything. Now they are "embarrassed" and "slammed".
> OPEC cartel membership didnt gain it access to Hormuz
What does this mean?
[1] https://www.wsj.com/world/middle-east/iran-is-flooded-with-s...
Im not concerned with them selling with the yuan as China regularly screws around with its currency. The bigger issue is and other currencies which reduces the US impact.
On the backside I’m sure there will be lots of fun back door deals around all those interceptors and future anti drone technologies. Today though the US has been the impetus of a lot of the current issues.
“Might” and either way breaking OPEC is good for the West, regardless of their intent
defecting from the cartel, a tale as old as time
>UAE announced this week they might start selling oil in yuan
I have read this headline dozens of times in the previous 30 years.
I don’t think the gulf is in same as always mode right now
That doesn't mean the warnings were frivolous. There was ultimately a change in course which averted it. How sure are you that will be the case this time?
Has the GCC been in an existential state of panic to the point where they’re seriously questioning their relationship with the US any time in the past 30 years?
Someone has at several different points. It isn't always the same someone, but someone.
Which country?
Kuwait was “saved” by the US. The Iraq invasion was approved by the GCC, partly as payback for Kuwait, and anyways Iraq is not part of the GCC. The Qatar blockade was self-inflicted (and extremely stupid).
Russia-led? Russia isn't even part of OPEC.
I believe they are in opec+
That's the ad-free version, it's an extra $12.99 a month.
UAE is responsible for 12-13% of OPEC output as its third most productive member.
In 2019 Qatar left OPEC, but nobody cared because oil is less than 10% of their national fossil fuel output, which was about 2% of OPEC's oil output.
Can somebody knowledgeable help me understand why this is in the interests of the UAE? Also, seems like a moot point since the strait is closed. Why do they think it’s in their best interests, and why now?
The US is bailing out the UAE for liquify issues and this is likely a quid pro quo in return??
Iran lets oil traded in Yuan to navigate the Strait. OPEC sets prices in Petrodollars. What is the point of staying in OPEC then? Qatar is not part of OPEC so they were able to trade freely in Yuan.
> The UAE's exit from OPEC represents a win for U.S. President Donald Trump, who in a 2018 address to the U.N. General Assembly accused the organisation of "ripping off the rest of the world" by inflating oil prices.
I can't see how it is actually a win for Trump. OPEC has mostly been a big partner with the US. They are the ones that have mandated using the dollar as the baseline currency for buying and selling OPEC oil.
The UAE's exit almost certainly signals they are planning on selling oil in other currencies (probably the Chinese yuan). It's also a sign of the UAE wanting out of the partnership it's enjoyed with the US and it's allies.
OPEC has no rules requiring its members to sell oil in US dollars. Iran and Venezuela are members of OPEC.
> OPEC has mostly been a big partner with the US. They are the ones that have mandated using the dollar as the baseline currency for buying and selling OPEC oil.
Has anyone ever quantified the benefit the U.S. supposedly gets from dollar denominated oil? How does that compare to the cost to the U.S. of paying cartel pricing for oil? Given that the U.S. is a huge oil consumer, surely the cost to it of cartel pricing in oil is huge.
It will probably increase total global oil production, which is good for the US consumer (what Trump seems to care about more), but not US producers.
In fairness to the UAE, of all the nations of the world, they're the ones who have lost the most economically speaking in the current unpleasantness.
It's kind of unfair.
If they can recoup some of those losses selling outside the system in Chinese currency, (or even in US currency), I have to imagine that would provide some ameliorative relief. It won't make them whole. They've got a lot of problems right now. But I mean, at least it starts them filling back in the giant hole that everyone else dug for them.
> I can't see how it is actually a win for Trump. OPEC has mostly been a big partner with the US.
I mean, I don’t even know if I mean this sarcastically anymore, but are we sure that Trump and the US’ interests are aligned? I think something can be a win for Trump and a loss for the USA.
It's a win for Trump in the pretty straightforward sense that it's something he publicly announced he wanted.
Whether he finds the overall effects positive or negative is a different question.
Ok I was initially thinking this would be good for oil prices since they are leaving a cartel, but the article is saying this will just create more uncertainty. Seems we are damned if we do, damned if we don't these days.
> Ok I was initially thinking this would be good for oil prices since they are leaving a cartel, but the article is saying this will just create more uncertainty.
Where does the article say that? It says this is expected to lower the price of oil.
It also says that, because the price of oil is currently unstable, the impact will be difficult to see:
> Mazrouei said the move, in which the UAE will also leave the OPEC+ grouping, would not have a huge impact on the market because of the situation in the strait.
But it doesn't say anywhere that there's uncertainty over in which direction this moves the price of oil. The uncertainty is over what the price of oil will be.
Since covid, either way and whatever the event is, it will always be used to increase the prices on consumer’s goods: war, tweets, a giraffe died in Nairobi, it doesn’t matter, prices will go up and never down! It won’t stop unless people, the normal average people, go out in streets rioting against that.
Some more discussion: https://news.ycombinator.com/item?id=47933983