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The episode hosts Eran Efrat, an expert on the global energy market, for a conversation about the reports of the United Arab Emirates’ withdrawal from OPEC, the Organization of the Petroleum Exporting Countries. The two discuss the move’s significance for the global oil market, relations in the Gulf, and the Israeli consumer.
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What is OPEC?
According to Eran Efrat, OPEC is a cartel of oil-producing countries founded in 1960 by Iraq, Kuwait, Venezuela, Iran, and Saudi Arabia. The United Arab Emirates joined in 1967 (as Abu Dhabi) and became the organization’s third-largest producer. The cartel’s goal is to advance the interests of its member states, mainly by coordinating production quantities and prices, to prevent competition that would lower prices and hurt their profits. Efrat explains that unlike the United States, where energy companies are private, OPEC member states have state-owned oil companies. This allows them to use oil not just as a source of income, but also as geopolitical leverage, as happened during the 1973 Arab oil embargo. Later, “OPEC Plus” was established, a cooperation agreement with additional countries, led by Russia.
The United States enters the market
Efrat describes how the entry of the United States as a major player in the oil market in 2015 changed the rules of the game. The American interest, he explains, is the opposite of OPEC’s: the United States wants a low oil price because it is both a large producer and a large consumer, and the price of fuel directly affects its economy. Efrat details why the United States both exports and imports oil. In the 1970s, Americans believed their light, sweet crude was about to run out, so they built refineries suited for heavy, sour crude from Canada and Mexico. Later, shale oil technology uncovered vast reserves of light crude, but the refineries were already adapted for the other type. Therefore, the United States exports its light crude and imports heavy crude that is suitable for its refineries.
The reasons for the UAE’s withdrawal
The main reason for the United Arab Emirates’ withdrawal from the cartel, according to Efrat, is the production limits OPEC imposes on it. The UAE has invested large sums to increase its production capacity, understanding that the future of fossil fuels is limited. The country’s Vision 2071 foresees a world with no need for these fuels, so its interest is to sell as much oil as possible while it is still in demand. As a member of the cartel, it cannot sell as it wishes and depends on quotas set by the organization, which is largely controlled by Saudi Arabia. Withdrawing from OPEC would allow the UAE to sell its oil independently, without depending on the Saudis, and even to sign private agreements based on other interests, such as arms deals. Efrat notes that there are no sanctions for leaving the organization, as proven by Qatar and Angola, which left in recent years.
Implications of the move
According to Efrat, the departure of the UAE, such a central producer, could be the first step toward the cartel’s dissolution. For consumers, such a dissolution is good news, because it would increase competition and lead to lower prices. He emphasizes that relations between Saudi Arabia and the UAE were particularly close, and they used to make joint decisions. Therefore, this separation is more significant than similar moves in the past. Against the backdrop of the global transition to renewable energy, especially in China, other countries might conclude that they should also withdraw and sell their oil before the market disappears. However, Efrat estimates that in the immediate term, the effect on the price of gas at the pump will not be significant.
Nuclear energy and the future of energy in Israel
Boris Gorelik asks about nuclear energy in the Gulf. Efrat confirms that Saudi Arabia and the UAE are indeed advancing in the development of nuclear energy, alongside solar power and green hydrogen, as part of their preparations for the post-oil era. In contrast, he argues that Israel is lagging in this field. Efrat suggests that Israel should promote joint projects with its neighbors, such as Jordan, in areas like water desalination or nuclear energy. He believes that such a project, based on small, modern nuclear reactors, would be more beneficial than turning Israel into a land corridor for transporting oil, an idea he sharply criticizes. According to him, cooperation on infrastructure and energy is the key to advancing geopolitical interests in the region.
The original episode, in Hebrew: מיני דרמה בעולם הנפט