Cartels die in two ways: Either through a price war or from sudden exits. The UAE has chosen the second. From May 1, OPEC’s third-largest producer will leave the cartel and the OPEC+ after six decades. The UAE pumps about 3.5 million barrels per day (mb/d) — roughly 4 per cent of global oil output and around 13 per cent of OPEC’s. The announcement landed in the ninth week of the US-Israel war on Iran. Brent is at $111 a barrel, up roughly 76 per cent in a year, and the Strait of Hormuz is functionally shut.
For Abu Dhabi, the move is overdue. The UAE has spent a decade lifting its capacity past 4.8 mb/d, only to be capped by quotas set largely in Riyadh. By 2027, it is targeting 5 mb/d — a goal flatly incompatible with cartel discipline. According to Energy Minister Suhail Al Mazrouei, they chose this moment because the price effect would be minimal. That has held true so far, with Brent rising under 3 per cent, most of that pinned on Iran.
The UAE has for years pushed for higher production baselines. When that failed, exit was the rational choice. Cartels hold only as long as restraint pays better than defection. With capacity toward 5 mb/d locked under existing quotas, the inside option had become worse than the outside one.
The more serious damage is to signalling. For decades, a single line from a Vienna (OPEC’s headquarters) communiqué could move Brent prices up and down, and that mechanism ran on credibility. Strip out the third-largest producer, and the next OPEC statement will have subdued pricing effects. OPEC+’s share of global oil output had already slipped to 44 per cent in March from 48 per cent in February. Iraq, a chronic quota-buster, has the cover to follow. Saudi Arabia will have to bear the burden of price stabilisation almost alone.
India imports around 85 per cent of its crude oil requirement. Russia now supplies about 36 per cent. The UAE alone accounts for 8-9 per cent of the basket, and along with Saudi Arabia, Iraq and Kuwait, Gulf producers route 45-50 per cent of barrels through the Strait of Hormuz. New Delhi has therefore been a quiet beneficiary of OPEC’s cohesion. Production discipline kept prices in check even when India was nowhere near Vienna. Gulf proximity also kept freight cheap.
Both anchors are loose now. With the UAE outside the tent, OPEC’s discipline might weaken. With Iran’s coastline alight, the freight certainty is gone. A sustained $10-per-barrel rise adds $13-14 billion to India’s net oil import bill and 0.3 per cent of GDP to the current account deficit. Translated to the pump, every $10/bbl wave moves retail petrol and diesel by roughly Rs 4-5 a litre under full pass-through and lands as a heavier subsidy bill, or an OMC hit when the state intervenes. The RBI flags a 15-basis-point drag on GDP for every 10 per cent rise above its baseline crude assumption.
But the exit also opens a door. Freed of quotas, Abu Dhabi National Oil Company (ADNOC) needs reliable, scaled buyers for its incremental output. India’s refining hubs at Jamnagar, Vadinar and Paradip are viable options. The bilateral scaffolding is extraordinarily deep already, with a 2022 Comprehensive Economic Partnership Agreement, a 10 per cent Indian stake in Lower Zakum, and 5.86 million barrels of ADNOC crude already stored at the Mangalore strategic reserve. The IMEC corridor could be leveraged far more usefully when one of its anchor producers is selling outside a quota.
Two moves should follow at the earliest. First, commercial: A multi-year offtake from ADNOC at term pricing, with a slice of volume invoiced in rupees. Term contracts smooth the volatility that OPEC will no longer be able to dampen. Second, strategic: Fill the Strategic Petroleum Reserves (SPR). Indian Strategic Petroleum Reserves Limited (ISPRL) was at 64 per cent capacity in March 2026. Topping up at today’s prices would cost roughly $2 billion, which can be interpreted as modest insurance compared with a $145 billion annual import bill. This is crucial as India’s combined cover of 74 days still trails the IEA’s 90-day benchmark.
The UAE’s departure marks the slow unwinding of an oil-pricing architecture designed in the 1970s. That world rested on coordinated supply discipline. What replaces it is transactional and more volatile. Price spikes will arrive faster, stay longer and pass through stronger. Cartel statements will be second to geography and economic incentives in moving the fiscal balance. India’s defence against this volatility should be term contracts, diversified geographies, full SPRs, and bilateral lifelines such as the ADNOC-ISPRL link. The window to lock in protection is open, and New Delhi should not waste it.
Bardhan is a Junior Fellow at the Observer Research Foundation
