A MARTÍNEZ, HOST:
For decades, the Organization of the Petroleum Exporting Countries, better known as OPEC, has influenced the world's fuel prices and supplies. After the United Arab Emirates announced it was leaving OPEC, how much will the oil cartel's influence change? Here to help us understand the impact, we called Helima Croft. She's the global head of commodity strategy at RBC Capital Markets. So, Helima, what's your understanding of why the UAE decided to pull out of OPEC?
HELIMA CROFT: Well, the UAE has spent around $150 billion to expand their spare capacity by about 40%, and they've been pushing for years for a higher OPEC production quota. They've essentially said, we've made this investment, we'd like to monetize it. And so I think they believe it is a good time, given the fact that we have so much production off the market, that signaling that they want to be unconstrained is not going to really upset market dynamics at this point. But it's very future-looking, essentially saying, we want to make sure that investment pays off.
MARTÍNEZ: How much will this influence OPEC's influence around the world?
CROFT: Well, the reality is that spare capacity - the ability to serve as a central banker for the oil market - that really rest primarily with Saudi Arabia. They are the country that holds the most spare capacity that can be deployed when there is a supply disruption. Now that said, the Iran war has changed the dynamics for now when it comes to how you can use spare capacity because the Middle East barrels are essentially blocked in because of the issues with the Strait of Hormuz. But there is a view that when this war ends, you know, Saudi Arabia will retain its ability to play that central banker role. So it is important for the overall image of unity within the organization, but again, real power rests with Saudi Arabia.
MARTÍNEZ: So you think the war put maybe a thumb on the scale for what the UAE was going to do, or were they always going to do it anyway?
CROFT: Well, we've heard for years that the UAE had been looking for a higher quota. There was a big issue in the summer of 2021, where they couldn't get an agreement for around 12 days 'cause the UAE was being adamant they needed a higher quota. There had been rumors about a potential UAE exit ever since then. So it's not that surprising to OPEC watchers, but the timing is interesting because there had been this view that the Gulf states were going to try to project unity in the face of the Iran war. The UAE has been very, very assertive, saying that when this war ends, Iran cannot be in charge of the Strait of Hormuz. They cannot operate a toll booth. And there have been some disputes within the Gulf countries over Yemen, over Sudan, over Libya. And so the question is, are we seeing a potential regional realignment when it comes to UAE's broader strategy?
MARTÍNEZ: I can already hear people, Helima, that have gas-powered cars wondering, OK, great. All that's great. How does this affect my gas prices?
CROFT: Well, it doesn't really affect their gas prices right now because, again, so much oil from the Middle East - we're talking about 12.5 million barrels a day - are not reaching the market because of this ongoing disruption with the Strait of Hormuz. So really, the most important story for consumers is what's happening with the war.
MARTÍNEZ: And really quick, it seems like UAE is ready to ramp up oil production pretty quick then, right?
CROFT: Well, I think it's going to be challenging for any of these countries to ramp up quickly because there's been significant damage to oil facilities and fields because of this war. So it's going to be a long way back in terms of production.
MARTÍNEZ: Helima Croft, global head of commodity strategy at RBC Capital Markets. Thanks a lot.
CROFT: Thank you.
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