UAE’s Opec exit brings Malaysia ‘mixed’ fortunes, says analyst

 Higher oil prices would boost petroleum-related revenue but would raise the cost of subsidies, says Samirul Ariff Othman.

The Organization of Petroleum Exporting Countries and its alliance Opec+ coordinate oil production to influence global supply and stabilise prices. (EPA Images pic)

PETALING JAYA:

The United Arab Emirates’ shock withdrawal from the Organization of Petroleum Exporting Countries (Opec) and its wider alliance, Opec+, could have far‑reaching consequences for Malaysia, bringing opportunity and risk, says an energy analyst.

Samirul Ariff Othman, an adjunct professor at Universiti Teknologi Petronas, said the consequences of the fallout could be “mixed, but important” for Malaysia, since the country was both an oil and gas exporter and an importer of crude and refined petroleum products.

“If UAE’s withdrawal weakens Opec discipline and leads to more supply, oil prices may soften, easing Malaysia’s import bill, inflationary pressures and the government’s fuel subsidy burden,” he said.

“But if the withdrawal creates uncertainty and price volatility, Malaysia could face the opposite problem: higher import costs, higher logistics costs, and more pressure on subsidies.”

He said while higher oil prices would boost petroleum-related revenue and allow Petronas to pay bigger dividends to the government, the resulting fiscal gain would be partly offset by rising subsidy costs and added strain to household budgets.

“For Malaysia, the issue is not simply whether oil prices rise or fall. The bigger issue is volatility. Volatile oil prices make fiscal planning, subsidy targeting and inflation management more difficult,” he said.

The UAE recently announced its withdrawal from Opec and Opec+ effective May 1 to focus on its national interests.

Founded in 1960, Opec – now comprising Algeria, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia and Venezuela – and its allies under Opec+, including Russia, coordinate oil production to influence global supply and stabilise prices.

Prior to its exit, UAE was among the group’s key oil producers, with an output of about four million barrels of oil daily.

Cracks in Opec’s unity?

Samirul described the UAE’s exit as an indication of “deeper cracks” within Opec’s framework.

“The UAE is not a small producer. It is a major Gulf player with growing capacity ambitions. Its departure suggests frustration with production limits and a desire for greater policy flexibility,” he said.

He added that Opec’s strength depends on its collective discipline.

“Once a major member decides its national energy strategy is better served outside the cartel, it weakens the perception of unity,” he said, adding that it may also result in a loss of market confidence.

Volatility ahead

Samirul said markets may initially interpret UAE’s exit as potentially adding supply, but “serious structural implications” might ensue if Opec is less able to coordinate production.

This, he said, may lead to price volatility.

“For Malaysia, this matters because oil volatility feeds into fuel costs, transport costs, business margins, inflation expectations and government subsidy exposure.”

He said businesses and consumers would feel the ripple effects, with transport operators, manufacturers and households all vulnerable to swings in fuel prices.

Will more countries leave?

Samirul cautioned that global oil markets could end up increasingly fragmented if more countries follow the UAE’s lead.

“Instead of one coordinated producer bloc managing supply, we may see more national-level production strategies.

“This may increase competition, but may also reduce predictability,” he said.

He urged Malaysia to strengthen its resilience by ensuring its energy strategy is “adaptive, forward-looking and resilient to shocks.”

No meaningful impact, says another economist

Another economist took the view that the withdrawal is unlikely to have a major impact on Malaysia either in the short or longer term.

Renato Lima de Oliveira said the rise of non-Opec producers such as the US and Brazil had already significantly weakened Opec’s market power.

“It is meaningful to Opec because it shows that the incentives to stay in the cartel are lower now, but not so meaningful in terms of price impact to Malaysia, which is not part of Opec or a major oil producer,” he said.

Lima de Oliveira said Opec’s collective discipline has kept oil prices elevated.

He said that by leaving the organisation, UAE was now free to ramp up production, potentially lowering global prices.

“As the world accelerates the energy transition, the role of oil in the global economy is set for a structural decline,” he said.

“With potentially declining demand for oil, it can be even harder to maintain OPEC’s framework and coordination of production quotas moving forward.” - FMT