The United Arab Emirates has announced that it is leaving OPEC (the Organization of the Petroleum Exporting Countries) after almost sixty years as a member. Why does this matter?
Well, oil is still one of the most important resources in the world. The price of oil affects how much we pay for petrol, the cost of transporting food, airline tickets, electricity, and much more. When oil prices rise, the economy is also affected.
OPEC is one of the most powerful organisations influencing oil prices. For decades, this group of oil-producing countries has worked together to control how much oil enters the global market. But now one of its main members is walking away.
In todayโs episode, weโre going to think about a few important questions.
What is OPEC? Why is it often called an โoil cartelโ? Why has the UAE decided to leave? And what could happen next?
And weโll do all of this while learning come new vocabulary and practicing your English listening comprehension!
Listen Here!
Apple Podcasts
Spotify
YouTubeInteractive Transcript!
You Can Now Read and Listen at the Same Time With an Interactive Transcript!
Vocabulary
- cartel (n): a group of independent producers who cooperate to control prices or supply in a market
- OPEC is sometimes called an “oil cartel” because its member countries coordinate how much oil they produce.
- quota (n): a fixed limit or amount of something that is allowed or necessary
- The UAE has grown frustrated with oil quotas
- supply and demand (phr): the economic relationship between how much of something is available and how much people want it
- OPEC uses the principle of supply and demandโฆ by reducing oil supply, they can cause prices to rise.
- capacity (n): the maximum amount that can be produced, held, or processed
- The UAE now has the capacity to produce far more oil than before
- coordinate (v): to organize or work together
- OPEC member countries coordinate oil production levels
- infrastructure (n): the physical systems and facilities that support an economy or industry
- The UAE has spent years building oil infrastructure.
- stabilise (v): to make something steady and prevent sudden rises or falls
- One of OPEC’s original goals was to stabilise oil prices.
UAE Leaves OPEC
The United Arab Emirates, or the UAE, has announced that it will leave OPEC after nearly 60 years as a member. The UAE first joined OPEC in the 1960s and has spent the past six decades [00:04:00] working with other major oil-producing nations to coordinate their oil production. But now, that relationship is coming to an end.
Economists and politicians, people in the energy industry around the world, are paying attention, close attention, to this news story. I’ll talk more about why the UAE is leaving later in the episode, but one major reason is that they want more “freedom” over their oil production.
OPEC members usually need to agree to production limits or production targets. They want to control how much oil enters the global market. This allows them to keep the prices stable or high.
But the UAE has been investing billions of dollars into increasing its oil production capacity over the past few years. The country now has the [00:05:00] ability to produce much more oil than it currently does, and it wants to take advantage of this.
Instead of limiting oil production, the UAE wants to sell more oil internationally, or at least they want the option to sell more.
The global oil market is already under a lot of pressure. There are tensions in the Middle East and tensions around the Strait of Hormuz, which I’m sure you all know about. And this has really disrupted energy supplies and shipping routes.
There are shortages in countries around the world, and oil prices have risen sharply. Prices usually increase because countries and companies worry about these shortages.
What Is OPEC
To understand why the UAE’s decision to leave OPEC matters so much, maybe we should talk about what OPEC is to begin with.
OPEC stands for the [00:06:00] Organization of the Petroleum Exporting Countries.
It is a group of oil-producing countries that work together to coordinate how much oil they produce and sell to the world. This means they agree, make an agreement to sell the same amount of oil, or an agreement to sell a certain amount of oil.
OPEC is one of the most influential organizations in the energy industry because oil is essential to our lives.
Cars, planes, factories, shipping, plastics, electricity production, all of these things depend on oil.
And because oil is so important, controlling its supply gives oil-producing countries enormous economic and political power.
OPEC was founded in 1960 by five countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
At [00:07:00] that time, these oil-producing countries felt frustrated. They were frustrated that large Western oil companies controlled oil prices and production. The companies were often from places like the USA or the UK or Europe, and they were making huge profits. But the countries that actually owned the oil, produced the oil, had a much more limited influence.
OPEC was created to give the countries, the oil-producing and the oil-exporting countries, more control.
The organization had a few different goals.
It wanted to protect the economic interests of oil-producing countries. So for example, they wanted to stabilize oil prices. This meant avoid massive rises or unpredictable crashes.
It also wanted the member countries to cooperate with each [00:08:00] other instead of competing against each other.
Over the decades, more and more countries have joined OPEC, and it grew in power. In the 1970s, the group demonstrated how much influence it had when oil prices rose dramatically during the oil crisis.
OPEC still controls a significant share of the world’s oil supply, and they have even expanded their influence through something called OPEC Plus. OPEC Plus includes non-members. I think it includes Russia, for example. These countries cooperate on decisions, even if they’re not officially part of OPEC itself.
The reason why OPEC is so influential is the principle of supply and demand.
If countries reduce oil production, there is less oil available on the market, on the global market. There’s less oil to buy. This usually causes prices to rise.[00:09:00]
But if OPEC countries increase their production and release more oil into the market, prices tend to fall. There’s more oil to buy.
By coordinating production levels together, by cooperating, by agreeing how much oil to sell or not sell, OPEC can influence oil prices. And this is why people sometimes describe OPEC as an “oil cartel“.
Why OPEC Is Cartel
Actually, in a lot of the news articles about this story, about the UAE leaving OPEC, the word “cartel” is used. The BBC headline, for example, was:
“United Arab Emirates to Quit Oil Cartel OPEC.”
If you have heard the word “cartel” before, it’s most likely in a negative sense. I think the word sounds negative because it is associated with drug [00:10:00] cartels.
In economics, though, a cartel is just a group of independent producers, producers of something. And these independent producers work together, cooperate with each other, to control prices or control the supply of their product in a market.
Businesses normally compete against each other. But in a cartel, the businesses work together instead of competing. This is because sometimes cooperation, working together, can actually earn you more money.
OPEC fits this definition because its member countries coordinate how much oil they produce. Instead of every country producing as much oil as possible and then selling as much oil as possible, they agree to limits or they agree to targets. They do this to keep oil [00:11:00] prices higher than they would be otherwise.
If everyone was just selling as much oil as possible every day, the prices of oil would be lower. But OPEC wants to keep the prices higher, of course. So they agree to produce less oil.
I guess the most well-known use of the word cartel is to do with drug cartels. Drug cartels are illegal criminal organizations involved in violence, smuggling, and crime.
OPEC, though, is a legal international organization made up of governments.
Its meetings are public. Its policies are officially announced. And its negotiations are relatively open. But, critics of OPEC do argue that the organization, that OPEC, controls prices too much, and it gives these small countries too much influence.
Why UAE Is Leaving
Let’s go back to the UAE. Why [00:12:00] exactly has the UAE decided to leave OPEC?
The decision seems to be a combination of different things. Importantly though, the UAE is not the first country to leave OPEC. I think Angola, Ecuador, and Qatar have all left in the past, and they have left for similar reasons to the UAE. But the UAE is the most influential or the largest country to do so recently.
One major factor behind the UAE leaving is freedom, freedom to produce oil.
As we discussed earlier, OPEC works by coordinating oil production among members. Countries agree to limit the amount of oil they produce, or they agree to quotas on oil production, and this is to control the supply and influence prices.
But these limits, limit how much oil a country [00:13:00] can sell, and the UAE seems unhappy with these restrictions. The UAE seems to want to sell more oil than OPEC allows it to. They want more flexibility to export more oil. They no longer want to be tied to those agreements that stop it selling oil when it wants to sell oil.
Another reason is that the UAE has massively increased the amount of oil it can produce. It’s increased its capacity. They have invested billions of dollars into new infrastructure: new pipelines, new ports, and export sites. The UAE is now capable of producing far more oil than it could in the past.
But the country cannot use this infrastructure or technology fully if they stay in OPEC.
Also, not all oil-producing countries want the same thing. For example, countries [00:14:00] like the UAE have been in a disagreement with countries like Saudi Arabia.
Saudi Arabia prefers higher oil prices. They support limiting the oil supply. If there is less oil being sold, the prices of oil will be higher, which increases the profit you can make from each barrel of oil you sell.
But the UAE seems to be thinking a bit differently. They seem to want to sell more oil right now, even if that makes the price of oil a little bit lower.
Possibly this is because they’re nervous about the future of oil. If the world starts using more green energy, if electric cars become dominant around the world, perhaps there’ll be less need for oil. And the UAE wants to sell its oil right now.
And the UAE is becoming much closer to the United States.
The US is a massive [00:15:00] oil-producing country. It’s not in OPEC. And it always criticizes OPEC. The UAE moving away from OPEC could make the relationship with the US stronger.
What Happens Next
So at the beginning of May, the UAE announced it was leaving OPEC. What could happen?
In the short term, we might not notice much of an impact. The global oil market is already a mess. It’s being influenced heavily by things happening in the Middle East. There are wars and sanctions happening, tensions in the Strait of Hormuz, and that’s affecting prices far more than the UAE leaving would affect it.
But over the long term, there could be consequences, big consequences. OPEC’s power depends on cooperation. It works when the members follow production targets together. The UAE leaving makes them less effective.
The UAE [00:16:00] is not the largest oil producer in OPEC, that is Saudi Arabia, but it is a wealthy, influential country producing a lot of oil. If the the UAE starts to sell even more oil, that could make oil prices lower over time. Might be a good thing for consumers.
There is another possibility, though. Oil markets might become less stable. If OPEC countries don’t coordinate together or if there are less countries in OPEC, it could make prices change quicker.
Higher energy prices will mean higher transportation costs. Ships, lorries, planes, all of these things will become more expensive. The fact that these are more expensive means that consumers, people like us, will have to pay higher food prices or higher prices for services.
And there is a possibility that there could be a little bit of a domino [00:17:00] effect. If the UAE leaves OPEC successfully and benefits economically, maybe other countries will decide to do the same in the future.โ
Final Thought
OPEC is one of the world’s most powerful energy organizations. It is made up of countries that influence global oil production and prices. But now the UAE has decided to leave.
The UAE wants more freedom to produce and sell oil. And while the impact might be limited right now because of the instability in global energy markets, the long-term consequences could be much larger.
Decisions made by oil-producing countries affect inflation, transportation, food prices, and our everyday lives.
What do you think? Do you think countries should cooperate to control prices of things like oil? [00:18:00] Or do you think they should compete in the market? Have a competition?
Is OPEC good for the economy? Or is OPEC bad for the economy?
Would you personally prefer stable energy prices even if they’re a little bit higher? Or would you prefer cheaper energy prices that could go up and down unpredictably?
Extended Vocabulary List
Become a Patreon Subscriber to Access the Extended Vocabulary List!
Vocabulary Games and Activities!
Learn and practice vocabulary from this Thinking in English episode.
Practice using 5 different study games and activities – including writing, listening, and memorisation techniques!
Flashcards
Matching Game
Learning Game
Test Yourself
Listening and Spelling
Do you want to Think in English?
I’m so excited that you found my blog and podcast!! If you donโt want to miss an article or an episode, you can subscribe to my page!
