Daniel sent us this one — and the timing couldn't be sharper. Yesterday, the UAE announced it's quitting OPEC, effective May first. That strips the cartel of its third-largest producer right in the middle of the worst global energy crisis in history, driven by the war between Iran and Israel. Daniel wants to know what OPEC actually is, whether this exit could trigger a full unraveling of the organization, and what the downstream effects would be on energy prices — and on the cost of living for ordinary people everywhere. There's a lot to unpack here.
There really is. And before we dive in, quick note — today's episode is powered by DeepSeek V four Pro. Which feels appropriate, because we're going to need some serious analytical horsepower for this one.
Alright, let's start with the basics. What is OPEC? Because I think most people have heard the acronym, they know it has something to do with oil, but the mechanics of what it actually does are fuzzy.
OPEC — the Organization of the Petroleum Exporting Countries — was founded in Baghdad in nineteen sixty. The original five members were Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The idea was simple on paper but radical in practice: a group of sovereign nations coordinating their oil production to manage prices. Instead of competing against each other, they'd set collective production targets — quotas — and by tightening or loosening supply, they could influence the global price of crude.
That's the key mechanism, right? It's a supply-management cartel. They're not setting prices directly, they're controlling the taps.
If prices are falling, OPEC members agree to cut production — less oil on the market, prices rise. If prices are spiking too high and they want to cool things off, they open the spigots. And for decades, this worked because OPEC controlled a huge share of global output. At its peak in the nineteen seventies, OPEC accounted for more than half of world oil production. That's real leverage.
That leverage has eroded over time. The US shale revolution changed the game entirely.
The United States went from being a major oil importer to the world's largest producer. OPEC's share of global output had already fallen to about forty-four percent by March of this year, according to the Reuters reporting. And that was before the UAE walked.
Let's talk about the UAE specifically. Why does their exit matter so much? They're the third-largest producer in the cartel, but what makes them structurally important beyond just the barrel count?
That's the word you hear analysts keep coming back to. The UAE was pumping about three point four million barrels per day before the war started, but they have the capacity to produce roughly five million barrels per day. That gap — that unused capacity — is what gives a cartel flexibility. When supply disruptions happen, someone needs to be able to step in and pump more. Saudi Arabia has traditionally been the central bank of oil in that sense — the swing producer. But the UAE was one of the few other members who could actually ramp up meaningfully.
Losing them isn't just losing current production. It's losing future responsiveness.
And the UAE has been itching to pump more for years. They've chafed under OPEC quotas that they felt were too restrictive — quotas that were set largely to accommodate what Saudi Arabia wanted. The AP report on the exit noted that this tension has been building for a while. The UAE looked at their five million barrel per day capacity and saw lost revenue every month they were held below it.
Then the war happened, and everything got scrambled. Let's set the stage on that, because the energy crisis we're in right now isn't just bad — it's historically bad.
I was reading the International Energy Agency's assessment, and they called it the largest oil supply disruption in history. The effective closure of the Strait of Hormuz — which is the chokepoint through which about twenty percent of the world's oil and liquefied natural gas normally passes — has removed something like four hundred million barrels from the market. That's roughly four days of global supply just gone.
Four days doesn't sound like much until you realize that oil markets are balanced on a knife edge. A one or two percent supply disruption can move prices dramatically. Four days of global supply vanishing is an earthquake.
The price action reflects that. Brent crude surged more than fifty-five percent since the war began on February twenty-eighth. It jumped from around seventy-two dollars per barrel to nearly a hundred and twenty dollars at its peak. As of yesterday, when the UAE made its announcement, Brent was still trading above a hundred and eleven dollars. March saw one of the largest monthly oil price jumps ever recorded — Brent gained fifty-one percent in a single month.
You've got prices already at crisis levels, and now the cartel that's supposed to manage supply is losing a key member. The timing is almost designed to maximize uncertainty.
Uncertainty is what markets hate most. But here's the thing — the UAE's decision isn't happening in a vacuum. This is part of a broader strategic realignment. The UAE has been positioning itself as an independent energy power for years. They hosted COP twenty-eight in twenty twenty-three. They've deepened ties with China, with the US, with Israel through the Abraham Accords. They're not just leaving a cartel — they're betting they can be the reliable supplier in a fragmented, crisis-prone world.
The US Interior Secretary, Doug Burgum, said something at an Abu Dhabi oil conference that stuck with me. He said there is no energy transition, there is only energy addition. The UAE seems to have internalized that completely. They'll invest in renewables for the headlines, but they're expanding production capacity for the bottom line.
That gets to something Daniel asked — could OPEC actually unravel entirely? Because Qatar left in twenty nineteen. Now the UAE. Is this a domino situation?
I think the domino question is the right one. If the third-largest producer can walk, what stops Iraq? What stops Kuwait? And the really destabilizing question — what stops Saudi Arabia from eventually deciding the cartel is more trouble than it's worth?
The historical parallel people reach for is the collapse of commodity cartels generally. They're hard to hold together because every member has an incentive to cheat. If everyone else is cutting production to support prices, you can secretly pump more and capture the high price without bearing the cost. That's the classic prisoner's dilemma of cartels. OPEC managed to overcome that for decades through Saudi leadership and a shared interest in stable prices. But if the shared interest frays, the math changes.
Right now, the shared interest is fraying in a very specific way. The UAE-Saudi relationship has gotten complicated. They were firm allies for a long time, but they've clashed on oil policy, on regional geopolitics, on competition for foreign talent and capital. The UAE views its relationship with Israel as a unique channel to Washington — something Saudi Arabia doesn't have in quite the same way. These aren't just policy disagreements. They're strategic divergences.
Jorge Leon at Rystad Energy made a point I thought was really sharp. He said that outside OPEC, the UAE would have both the incentive and the ability to increase production, which raises broader questions about the sustainability of Saudi Arabia's role as the market's central stabilizer. If the stabilizer can't stabilize anymore — because the cartel is too weak — then what replaces that function?
Nothing, in the short term. And that's the scary answer. You get price volatility without a backstop.
Let me paint the scenario if OPEC does unravel. In the immediate term — during the war, with Hormuz still effectively closed — it might not matter that much. Supply is physically constrained regardless of what any cartel says. But the moment those straits reopen, you've got a completely different dynamic. Instead of coordinated production restraint, you'd have every producer racing to capture market share. That's a price war.
Which sounds great if you're a consumer — cheap oil — but price wars in commodities have a way of destroying the producers who can't survive them. And then you get underinvestment, supply tightens again, and prices spike even higher on the other side.
The boom-bust cycle on steroids. That's what a post-OPEC world might look like. Without a central coordinator, the market oscillates between gluts and shortages, with prices swinging wildly. And wild price swings are terrible for planning — for airlines, for shipping companies, for farmers, for anyone whose business model depends on predictable energy costs.
Let's bring this down to the level Daniel's really asking about — the cost of living for ordinary people. Because we can talk about Brent crude and production quotas all day, but the question is whether this flows through to grocery bills and gas pumps.
It already is. US retail gasoline prices have risen more than a dollar per gallon since February twenty-eighth, now sitting around four dollars a gallon. Jet fuel in Europe hit a record of roughly two hundred and twenty dollars per barrel. But the gasoline price is honestly the least of it. The thing that worries me more — and I think this is under-covered — is fertilizer.
Explain that connection, because it's not obvious to most people why an oil supply disruption hits food production.
About a third of global fertilizer trade normally passes through the Strait of Hormuz. Natural gas is a primary feedstock for nitrogen-based fertilizers — urea, ammonia. When gas supplies are disrupted and prices spike, fertilizer production gets hammered. Prices for urea have already risen thirty to forty percent. Fertilizer factories in India, Bangladesh, and Malaysia are halting orders or shutting down entirely.
This is happening during spring planting season in the Northern Hemisphere.
Half the world's food is grown using synthetic fertilizers. In some countries, fertilizer accounts for up to half the cost of grain production. When fertilizer becomes unaffordable or unavailable, farmers apply less of it. Grain prices rise. And that flows through to everything — bread, meat, dairy, anything that depends on feed crops. The UN's Food and Agriculture Organization chief economist warned that if the conflict lasts just a few more weeks, global food supplies will be significantly disrupted.
We're not just talking about paying more at the pump. We're talking about a food price shock layered on top of an energy price shock. And those tend to hit the world's poorest people hardest, because food is a much larger share of their household budgets.
In many developing countries, food is forty to fifty percent of the consumer price index basket. In the US, it's more like thirteen percent. So a thirty percent increase in global grain prices is an inconvenience in wealthy countries. In places like Egypt or Pakistan or Nigeria, it's a crisis. It's political instability waiting to happen.
We're already seeing governments take drastic steps. Thailand ordered civil servants to suspend overseas trips and use stairs instead of elevators. Bangladesh closed its universities. Sri Lanka imposed fuel rationing. China banned refined fuel exports. The UK's contingency plan includes cutting speed limits. These are not normal policy responses. These are wartime measures, even for countries that aren't at war.
The IEA has been scrambling to update its forecasts. They slashed their twenty twenty-six oil demand growth forecast from a six hundred forty thousand barrel per day increase to an eighty thousand barrel per day drop. And they now project supply will fall by one point five million barrels per day this year. At the start of the year, they were forecasting supply growth of two point five million barrels per day. That's a complete reversal.
That's a four million barrel per day swing from expected to actual.
Their base case assumes Hormuz flows resume by mid-year. If that doesn't happen, their severe scenario projects supply disruptions drawing almost two billion barrels from stocks and forcing demand to fall five million barrels per day year-on-year from the second quarter through the fourth quarter. That's not a recession — that's a global economic reset.
Let me poke at something here. There's a political dimension to this that doesn't get talked about directly enough. President Trump has spent years criticizing OPEC for, in his words, ripping off the rest of the world. His administration has explicitly linked US military support for Gulf states to oil prices. The UAE's exit from OPEC is being framed in some quarters as a win for that approach — the cartel weakens, a major producer goes independent.
The contradiction is that the war his administration launched is causing the very price spikes that hurt American consumers at the pump. And midterm elections are coming up. There's a tension between wanting OPEC weakened on principle and needing stable oil prices during a war you started. You can't have both.
The UAE seems to understand that contradiction and is exploiting it. They're betting that Washington will value a reliable, independent supplier more than it values cartel stability. And they're probably right.
There's another piece of this that I want to flag, because it connects to Daniel's question about downstream effects. It's not just about oil flows. Iran's strike on Qatar's Ras Laffan LNG complex is going to knock out twelve point eight million tons per year of liquefied natural gas — that's about three percent of world supply — for three to five years. That's a long-duration hit to global gas markets.
Europe is particularly exposed to LNG markets after the Russia-Ukraine disruptions of the past few years. They've been competing with Asia for LNG cargoes, and now there's less to go around.
The energy crisis isn't one crisis. It's three or four stacked on top of each other. You've got the oil supply disruption from Hormuz. You've got the LNG destruction in Qatar. You've got the fertilizer knock-on effects. And now you've got the institutional framework for managing oil supply — OPEC — potentially coming apart. Each one of these would be a major story on its own. Together, they're unprecedented.
Let's get concrete. If OPEC unravels — not just the UAE leaving, but a genuine dissolution of coordinated production quotas — what are the scenarios for global energy prices?
I think there are two main paths, and they depend on what happens with the war. Path one: the war ends relatively soon, Hormuz reopens, supply normalizes, and a weakened or dissolved OPEC means producers pump freely. In that scenario, you could see oil prices crash — potentially below fifty dollars a barrel — as everyone races to recapture revenue. That sounds good for consumers, but it would devastate higher-cost producers like US shale companies and Canadian oil sands, leading to bankruptcies, consolidation, and eventual underinvestment that sets up the next price spike.
The cure that causes the disease.
Path two: the war drags on, Hormuz stays disrupted, and OPEC's disappearance means there's no coordinated mechanism to manage the remaining supply. In that scenario, prices could go much higher than a hundred and twenty dollars — maybe to a hundred and fifty or beyond — because every country acts in its own short-term interest, hoarding supply, and the normal buffers that a cartel would coordinate just aren't there.
Neither of those is a stable equilibrium. That's what bothers me. The global economy has been built on the assumption of relatively predictable energy prices. Supply chains, just-in-time manufacturing, international shipping — all of it assumes you can roughly forecast what energy will cost next quarter. If that predictability vanishes, the economic model has to change.
It's not just about the absolute price level. It's about volatility. Businesses can adapt to high energy prices if they're stable. They can't adapt to prices that swing forty percent month to month. That kind of uncertainty freezes investment. It makes everyone hunker down and wait. And an economy where everyone is hunkering down is an economy that's not growing.
Let's talk about what this means for different parts of the world. The US is relatively insulated because it's a major producer. But Europe, Japan, India, China — they're import-dependent to varying degrees.
India is in a particularly tough spot. They import about eighty-five percent of their crude oil. They've been buying discounted Russian oil where they can, but the Hormuz disruption hits them directly because a lot of their Middle Eastern supply normally transits that strait. And now with fertilizer factories shutting down domestically — India is a major agricultural economy, and they're heading into planting seasons where fertilizer availability is going to be a serious problem.
China's response has been interesting. They banned refined fuel exports, which tells you they're worried about domestic supply. When China starts hoarding, the rest of Asia gets nervous.
China is the world's largest oil importer. They've been building strategic petroleum reserves aggressively for years, anticipating exactly this kind of scenario. But even their reserves have limits. The IEA's severe scenario — the one where Hormuz stays closed — implies that global strategic stocks would be drawn down by almost two billion barrels. That's not sustainable indefinitely.
Then there's the political stability question. The last time we saw food price spikes on this scale was twenty ten to twenty twelve, and that contributed directly to the Arab Spring. High bread prices in Egypt, high grain prices across the Middle East and North Africa — it was kindling for political upheaval.
The connection is direct and well-documented. When the cost of basic staples doubles or triples, governments that were already fragile start to crack. We're seeing the early warning signs already — the university closures in Bangladesh, the fuel rationing in Sri Lanka, the austerity measures in Thailand. These are governments trying to get ahead of unrest by conserving foreign exchange and managing expectations. But those measures only buy so much time.
I want to circle back to something you mentioned earlier about the UAE's strategic pivot, because I think it's more significant than the market commentary suggests. The UAE isn't just leaving a cartel. They're making a bet that the future of energy geopolitics is bilateral deals, not multilateral institutions.
That's a really important point. The UAE has been signing long-term supply agreements directly with Asian buyers — China, India, Japan. They're essentially building a book of clients who depend on them specifically, rather than on the OPEC system as a whole. If you're a refiner in India and you've got a ten-year supply contract with ADNOC, the UAE's national oil company, you don't care what happens to OPEC. You've got your supply locked in.
That model fragments the global oil market. Instead of a single price benchmark — Brent, West Texas Intermediate — you get a more balkanized market where different buyers pay different prices depending on their bilateral relationships. That's less efficient, but it gives producing countries more geopolitical leverage.
We're already seeing the early signs of that. The Japanese tanker that transited the Strait of Hormuz in coordination with Iran earlier in the crisis — that looked to me like a signal that Japan was exploring independent channels. When major importers start cutting their own deals outside the established framework, the framework becomes less relevant.
The UAE's exit from OPEC isn't just a supply story. It's an institutional story. It's about whether the post-World War Two model of multilateral commodity management — the idea that countries should coordinate through formal organizations — is giving way to something more ad hoc and transactional.
That connects to a broader trend we've seen across multiple domains. The World Trade Organization has been struggling. The World Health Organization faced challenges during the pandemic. Multilateralism is under pressure everywhere. OPEC was one of the more successful examples of sustained international coordination — it lasted more than sixty years. If it falls apart, that's not just an energy story. That's a story about the trajectory of global governance.
I'm going to push back slightly on the idea that OPEC was purely a multilateral success story. It was a cartel. It was designed to enrich producing countries at the expense of consuming countries. The fact that it provided price stability was a byproduct, not the purpose.
But stability is stability, regardless of the motive behind it. And the question now is whether anything replaces that stabilizing function. The IEA has an emergency response mechanism — coordinated strategic reserve releases — but that's designed for short-term disruptions, not for a permanent restructuring of the global oil market.
Let's bring this back to Daniel's core question about the cost of living. What should ordinary people actually expect to feel over the next six to twelve months if these trends continue?
I think we need to separate the direct effects from the indirect ones. The direct effects are what people are already feeling — higher prices at the gas pump, higher heating bills, more expensive air travel. Those are painful but manageable for most people in wealthy countries. The indirect effects are what worry me more. Food prices are going to rise, possibly significantly. And food price inflation is regressive — it hits low-income households disproportionately hard.
Food prices tend to be sticky. Energy prices can spike and then collapse. But once food prices go up, they tend to stay up, because the supply chain adjustments — planting decisions, harvest cycles, processing capacity — take months or years to work through.
There's a lag effect that people don't appreciate. The fertilizer disruptions happening now will show up in grain harvests six to nine months from now. Those grain prices will flow through to meat and dairy prices over the following six to twelve months. So we're looking at an inflationary pulse that could extend well into twenty twenty-seven, even if the war ended tomorrow.
Central banks are in a bind. They've been fighting inflation with interest rate hikes for the past few years. An energy-driven inflation spike is different from demand-driven inflation — raising interest rates doesn't make oil cheaper. But if they don't respond, inflation expectations can become unanchored. It's a lose-lose situation.
The European Central Bank is in an especially tough spot. Europe is a net energy importer, heavily exposed to both the oil and LNG disruptions. Their inflation is already being driven by external supply shocks. Rate hikes can't fix that, but they also can't afford to let inflation run hot. I don't envy the central bankers right now.
Alright, let me try to synthesize this. The UAE leaving OPEC is significant in three ways. First, it reduces the cartel's spare capacity and market share, weakening its ability to stabilize prices. Second, it signals that the political cohesion that held OPEC together for six decades is fraying — and if the UAE can leave, others might follow. Third, it accelerates a shift toward bilateral energy deals that fragment the global oil market and make it harder to coordinate responses to future crises.
That's a good framework. And I'd add a fourth dimension: timing. This is happening during the worst energy supply disruption in history. The interaction between the institutional breakdown and the physical supply disruption amplifies both. If the UAE had left OPEC during a period of calm — say, twenty twenty-four, when oil was trading around seventy-five dollars and supply was steady — it would have been a significant story, but not a crisis-level event. The fact that it's happening now, with Hormuz disrupted and prices above a hundred and ten dollars, turns a significant story into a potentially transformative one.
The downstream effects on cost of living are real and already materializing. Gasoline prices, fertilizer costs, food prices, shipping rates — all of these are moving in the wrong direction simultaneously. The question isn't whether ordinary people will feel this. They already are. The question is how much worse it gets, and for how long.
I keep coming back to the IEA's severe scenario. If Hormuz stays disrupted through the end of the year, we're looking at demand destruction on a scale that implies a global recession — not a mild one, but something more significant. And in that scenario, the cost of living question becomes almost secondary to the employment question. Because recessions cost jobs, and job losses hit household budgets harder than price increases.
That's the dark scenario. But let me offer a slightly more optimistic take, because I think it's important to acknowledge the upside risks too. The UAE's exit from OPEC, combined with the end of the war — whenever that comes — could actually accelerate a return to lower prices. If the cartel is weakened and the taps reopen, you could get a supply surge that brings prices down faster than anyone expects.
That's possible. The question is whether the producers can coordinate enough to avoid a price war that destabilizes the entire industry. Because if prices crash too far, you lose investment, you lose capacity, and you set up the next crisis. There's a Goldilocks zone — prices high enough to sustain investment, low enough to support economic growth — and the risk is that without OPEC, we oscillate between the extremes rather than settling in the middle.
I want to address one more angle Daniel raised — the idea that this could flow down to the cost of living for citizens around the world. I think the answer is yes, but unevenly. A family in suburban America will feel higher gas prices and higher grocery bills, but they'll absorb it. A family in rural Bangladesh, where fertilizer shortages mean lower crop yields and higher food prices, faces something closer to an existential threat. The cost of living crisis is global, but the severity is distributed very unequally.
That inequality has political consequences. When people in developing countries can't afford bread, governments fall. When governments fall in strategically important regions, the ripple effects spread. We saw this in twenty eleven. We could see it again.
Where does this leave us? OPEC is wounded but not dead. The UAE's exit is a major blow, but Saudi Arabia is still there, and they've carried the cartel through previous crises. The real test will be whether other members follow the UAE out the door. If Iraq or Kuwait signals they're considering an exit, that's when the domino theory starts to look less like speculation and more like prediction.
The war is the wildcard that makes everything harder to forecast. If the conflict ends quickly and Hormuz reopens, the pressure on OPEC eases and the cartel might hold together in some form. If the war drags on and prices stay elevated, the centrifugal forces pulling members apart get stronger. Everyone starts looking out for themselves.
That's the core dynamic, isn't it? Cooperation is easiest when times are good. When a crisis hits, the temptation to go it alone becomes overwhelming. OPEC survived for sixty years because the benefits of coordination usually outweighed the costs. The question now is whether that calculus has permanently shifted.
Now: Hilbert's daily fun fact.
The average cumulus cloud weighs about one point one million pounds — roughly the same as one hundred elephants — and yet it floats because the weight is spread across millions of tiny water droplets over a vast area.
What can listeners actually do with all of this? I think there are a few practical takeaways. First, if you haven't already thought about your household's exposure to energy and food price inflation, now is the time. That means looking at your budget, understanding where your costs are most sensitive to these trends, and making adjustments where you can — whether that's locking in fixed-rate energy contracts, reducing discretionary driving, or building a bit more buffer into your grocery budget.
Second, for people with investments, this is a moment to think about portfolio diversification. Energy sector volatility creates both risks and opportunities, but the key is not being over-concentrated in anything that gets hammered by sustained high oil prices — airlines, shipping companies, chemical manufacturers that depend on petroleum feedstocks.
Third, pay attention to the food supply chain stories that are going to develop over the next few months. The fertilizer disruption is the under-reported dimension of this crisis, and it's going to become much more visible as harvests come in. If you're in a position to support local food systems — farmers markets, community-supported agriculture, regional producers — those may prove more resilient than global supply chains.
Fourth, on a broader level, this is a reminder that energy policy and foreign policy are not separate things. The decisions that lead to wars have economic consequences that show up in your monthly bills. Being an informed citizen means connecting those dots, even when the connections are uncomfortable.
That's well said. I think the big open question we're left with is whether this crisis accelerates the energy transition or delays it. On one hand, high fossil fuel prices make renewables more competitive and could drive investment in alternatives. On the other hand, when energy security is threatened, countries tend to prioritize supply over sustainability — they'll burn whatever they can get their hands on. Which impulse wins out is going to shape energy markets for decades.
Thanks to our producer Hilbert Flumingtop for keeping this show running. This has been My Weird Prompts. If you want more episodes, you can find us at myweirdprompts dot com or wherever you get your podcasts. We'll be back soon.
