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May

West Asia Conflict Reshapes Oil Politics: UAE Exit Signals New Risks for India

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Shivaji Sarkar

New Delhi I Friday I 01-05-2026

Few analysts—even in the United States—anticipated that a conflict with Iran would so rapidly alter the global energy landscape. What was seen as a limited confrontation has instead disrupted American strategic calculations and exposed vulnerabilities across the Gulf.

For decades, Washington has sought to shape global energy flows. Yet the current conflict has damaged US assets across multiple Gulf locations and accelerated shifts already underway in the oil economy.

A major turning point is the decision of the United Arab Emirates (UAE) to exit OPEC from May 1. This follows the end of the US-Saudi dollar-based oil arrangement in 2024 and Riyadh’s growing openness to trade in alternative currencies such as the Chinese yuan. Saudi Arabia has also shown interest in BRICS, where India holds the chair this year.

These developments indicate a gradual erosion of the US-led energy order. A broader geopolitical realignment—especially if NATO allies move towards a settlement with Russia—could accelerate this transition.

For India, the UAE’s move is not merely a regional development. It has direct implications for fuel prices, inflation, currency stability, and overall economic resilience.

India imports nearly 85 percent of its crude oil. It purchased about 245 million tonnes in 2025–26, up from 243 million tonnes the previous year. Any sustained rise in global oil prices feeds directly into higher transport costs, fertiliser prices, and food inflation.

With Brent crude already above $110 per barrel due to the Iran conflict and disruptions in the Strait of Hormuz, the UAE’s exit adds fresh uncertainty.

At first glance, increased UAE production could moderate prices. However, the immediate effect is likely to be greater volatility, as OPEC’s ability to manage supply weakens. For India, unpredictability—not just high prices—is the central concern.

The UAE, OPEC’s fourth-largest producer, has been a member for nearly six decades. OPEC itself was formed in 1960 to stabilise markets by coordinating production. While it once controlled over half of global output, its share has declined to around 30 percent due to rising production from the US and other countries.

To regain influence, OPEC expanded into OPEC+ in 2016 by including Russia and other producers. Even so, internal differences have grown.

The UAE currently produces about 3.4 million barrels per day and has invested heavily to raise capacity to nearly 5 million. It has long sought higher production quotas, but Saudi Arabia has resisted in order to keep supply tight and prices elevated.

These differences have sharpened in the wake of the Iran conflict, which has damaged regional energy infrastructure and heightened security risks. Attacks on facilities such as the Ruwais refinery and Fujairah export terminal, along with threats to shipping through the Strait of Hormuz, have underscored the need for flexibility in production and exports.

Outside OPEC, the UAE will be free to increase output and pursue its own pricing strategy.

Although other countries—such as Angola, Ecuador, and Qatar—have exited OPEC in recent years, none matched the UAE’s scale or strategic importance. Saudi Arabia will now bear greater responsibility for stabilising markets.

Meanwhile, the United States has emerged as OPEC’s principal competitor. Once dependent on imports, it now accounts for roughly one-fifth of global oil production, driven by the shale boom and expanded influence in regions such as Venezuela.

President Donald Trump has repeatedly criticised OPEC for keeping prices artificially high and has pushed for increased output.

The UAE has also strengthened ties with both the US and Israel, and its exit from OPEC gives it greater flexibility to align energy policy with market conditions and strategic partnerships rather than Saudi-led coordination.

At the same time, the US is reinforcing its presence along critical maritime routes, including through deeper engagement with Indonesia. These routes connect the Indian and Pacific Oceans and are vital for global energy flows. For India, secure access through both the Strait of Hormuz and alternative sea lanes is essential.

Heightened geopolitical competition raises the risk of disruptions along these routes.

In the short term, India faces clear challenges. Higher oil prices increase the import bill, weaken the rupee, and add to inflationary pressures across sectors—from transport to agriculture. Government finances and monetary policy will also come under strain.

Over time, however, increased UAE production could help ease prices. As a low-cost producer, the UAE can remain profitable even at lower price levels, which may benefit large importers like India.

The Fujairah port offers an additional advantage, allowing some exports to bypass the Strait of Hormuz and reducing shipping risks. Direct bilateral arrangements with the UAE could further improve supply security and pricing flexibility.

Nevertheless, immediate relief is unlikely. War-related disruptions, higher insurance costs, and shipping risks will continue to keep markets volatile.

OPEC is not collapsing, but its authority is weakening. New alignments—particularly involving China and regional negotiations—are reshaping the energy order. For now, India remains more an affected stakeholder than a decisive player in this transition.


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