English version is followed by a Persian, then a long written analysis in light of US “Energy Dominance” strategy.
One problem with giving a quick take on breaking news is that one can forget something. In the interview, I forgot about the US dollar swap line that the UAE had cajoled out of the USA –Trump and Bessent – just before it decided to quit OPEC. Below is the post I immediately wrote with many, IMHO, relevant issues underlying this move. These include national economic and geostrategic differences, often rather sharp, between the UAE and Saudis. However, the swap line issue is now included as point “Zero”.
-0.a- Regarding the swap line: there are so many pieces in motion that we need a litte overview refresher first.
As readers here know, my analysis is that the Trump administration’s sharp moves in the latter part of 2025 against Russian oil exports, together with the Ukrainians’ drone campaign, was at a point where it had begun threatening to force Russian oil exports offline. This, in turn, would force Russia to shut in its old and delicate West Siberian fields. I wrote a detailed study on this. This strategy is exactly like what the USA now openly says it intends to do to Iran by blocking exports from its Kharg Island oil terminal.
The Trump administration claims that the available Iranian storage on the island is near full (Scott Bessent has said this repeatedly). This will force wells to be shut in, likely ruining their productivity for the long term. (However, I believe the Iranian fields are not generally as fragile as Russia’s.)
-0.b- You will recall that Trump constrained and/or convinced India’s Modi to halt Russian oil imports as part of this larger anti-Russian oil campaign to press Putin to end the Ukraine war.
-0.c- However, before the USA proceeded to the next step vs. Russian exports, it went to Venezuela and took control of its oil sector, beginning a comprehensive and very rapid campaign there to bring Venezuelan oil back online.(I spoke at length to Swedish public radio on this again this week,)
The USA has shut off an approximately 2 million battels per day (mbd) stream of oil Venezuela was sending to China, and diverted that oil principally to India. That stream is now part of the USA effort to take care of India during the Iran crisis, so that it does not revert to taking Russian oil.
-0.d- The USA then attacked Iran. This has nothing to do with any urge of the USA to control Iran itself. In this, it is very similar to the USA’s lack of interest in control of and/or regime change in Venezuela either.
In Iran, the issue is regional hegemony. Iran has been seen as seeking regional hegemony in the Gulf and parts of the larger MENA region for decades. The Trump administration, like every one of the past about eight(!) administrations seeks to prevent the Islamic Republic from obtaining the tools required for this such as nuclear weapons, regional proxies and a comprehensive drone and missile offensive capacity.
The core reason the USA will not allow Iranian hegemony in the Region is clearly the role of the Gulf and the Straight of Hormuz in the flow of roughly 20% of the world’s crude oil and refined products to global markets and about 20% of its LNG supplies.
-0.e- In this situation, the UAE has been taking a much sharper stance vs. Iran than have, for example the Saudis. The Saudis seem to be more interested in negotiations and smoothing over differences with Iran, and getting on with business. The UAE, which says it was actually hit by more Iranian missiles and drones than Israel, is only interested now in defeating Iran. It even launched its own retaliation bombing raid against Iran a few weeks ago, in retaliation for an Iranian hit on one of its petrochemical facilities.
-0.f- However, the UAE has suffered damage and is upset that the USA got it into this situation. Of course, it would be much more upset, later on, if the USA, like the Europeans, had refused to stand up to the Iranians and remove their threats.
In any case, the UAE is in a position to cry a bit to Washington and demand some benefits from the USA in return for its resolute anti-Iran stand, and for not cozying up to the Chinese – which they threatened to do, helping them get Trump’s attention. So the USA agreed to the currency swaps the UAE asked for. There is no way the UAE really needed these. It is one of the richest states on earth. However, this means it won’t have to sell its own bonds in the market to raise cash and/or to sell USA bonds for cash – if it even would have to. So, this swap line cements the UAE-Washington ties like never before.
-0.g- Finally, regarding the withdrawl from OPEC: In return for the swaps, and undoubtedly after US assurances it will try to do better at protecting them from Iranian missiles, it appears that the USA wanted some demonstrative move by the UAE in the direction of supporting the Trump administration’s energy geostrategy.
So, the UAE quit OPEC and in doing so asserts it intends to market approximately 2.5 mbd more than they normally market under OPEC’s current quotas when the war ends This, according to Treasury Secretary Bessent, pleases the USA, as the USA wants the maximum amount of oil online ASAP after the war with Iran, and to push prices lower for longer.
I should point out that this will also allow it to very credibly show Mr. Putin that, together with many other new oil sources, such as from Venezuela that it controls, it would be no problem to take, say 3.5 to 4.5 mbd of Russian oil exports offline, ruining Russia’s West Siberian fields for the long term. (There are also advantages to the USA in keeping the UAE in line with its oil strategies vs. China.)
So, that is my take on the role of the currency swap deal as a prozimate trigger of the UAE decision to leave OPEC, something it has long threatened and has had its own reasons to do. Following is my take on those economic and strategic points. …
-1- First are differences in their oil market strategies and home economies.
The KSA needs a higher oil price as it has not succeeded in diversifying its budget as much as has the UAE.
This sort of thing was always a key division of the price hawks vs. KSA/GCC OPEC members. The “price hawks” had many more citizens to support with their petrodollars (what the USA termed “the Axis of evil”) vs. the market-oriented states (which were USA allies), such as the Saudis and UAE. The latter have always had an order of magnitude more oil revenues and many less citizens to support. The latter could afford to be “business like,” to optimize price and output to meet market conditions while the first group were geoeconomically desperate.
What is interesting to me here is that now a similar geo-economic and market-strategy divide has opened up within the rich OPEC members with small populations, within the GCC itself.
The UAE has less oil than the Saudis but, with a lower population, less than one-third that of KSA, has a higher per capita oil income, and they have diversified their economy much more. MbS of Saudi Arabia has plans to do the same. Grandiose plans. Will he ever really succeed at his plans for diversifying the economy? IMHO, if one relies on McKensie (and similar) to make your economic development strategy, you’ll keep building white elephants like the Neom.
To quote Wikipedia:”NEOM is a massive $500 billion+ futuristic, renewable-energy-powered region in northwest Saudi Arabia, launched by Crown Prince Mohammed bin Salman in 2017 to diversify the economy. Originally featuring the 170-km mirrored city “The Line,” the project is being scaled back due to financial and logistical challenges, with plans for a much smaller development than initially envisioned. …”
IMHO, MbS should have stuck to oil and gas, added nuclear, and focused on education, R&D, inviting start ups, etc. or being a financial, trading and transport hub, like the UAE.
Aside: This UAE move somewhat reminds me of late-1990’s push by much of PDVSA’s board to quit OPEC from resentment of KSA over quotas. That’s why specs for the Faja upgraders in the internationalization were to be profitable at $20’s per barrel. If the USA puts them back in charge, they may go back to this policy. But not all are/were on board. And, it was always sketchy how producing much more at much less would benefit them. Many different takes, but resentment of KSA & falling revenues consistent.
-2- The other factor is the current, very sharp UAE-KSA differences on geo-policy.
The UAE is very upset at the incapacities of the GCC for years to deter Iran, is ready to fight alongside the USA and upset at KSA’s tendency to negotiate and appease, as they see it.
So too, the UAE and Saudis have quite different visions for Yemen, consistent with their different national geo’economic and geostrategic postures.So too to Israel, with the UAE being much closer.
Meanwhile, in my view, the USA under the Trump administration enticed both countries with the prospects of regaining and expanding their traditional Indian & Chinese oil export market shares since early-2025, in order to get them onboard the administrations larger anti-RU (to press Putin to get out of Ukraine) & anti-Iran policies, pushing both the UAE and KSA to put the then-offline-since-Corona OPEC and OPEC+ production capacities back online. This process created more favorable conditions of a marker-supply excess before the administration’s Iran war, and in order to sanction more harshly Russia and, in my view, aim to start seriously taking Russian barrels offline after US control of Hormuz and taming of Iran is secured.
The Global Barrel 