UAE’s Opec exit promises long-term relief for Indian refiners once the Gulf crisis cools

The UAE’s Opec exit could be a major long-term boon for India’s energy security, but the ongoing closure of the Strait of Hormuz means any immediate benefits will remain out of reach, Prashant Vashishth, energy analyst and senior vice president at ICRA, tells EnterpriseAM.

The departure of the Gulf nation would remove roughly 3-4% of global oil production from Opec+ control, weakening the cartel’s ability to artificially manage supplies and driving a more favorable supply environment for massive crude importers like India, Vashishth observes.

Why it matters: If the UAE follows through on its plans to ramp up production capacity to 5 mn bbl / d by 2027, Indian refiners stand to gain due to favorable logistics. Shipping oil from the UAE to India takes just 3-4 days and costs between USD 40-70 / bbl. By comparison, sourcing crude from the Americas takes up to 45 days and costs a hefty USD 2.5-5 / bbl. This makes the UAE an incredibly attractive supplier for large Indian consumers looking for cost-effective flexibility.

Even an incremental increase of 1-1.5 mn bbl / d from the UAE could meaningfully impact global crude prices, similar to how the US shale expansion contributed to the 2014 price decline with an influx of around 2 mn bbl / d, Vashishth notes. The shift could also support deeper India-UAE energy ties, including potential expansion of strategic petroleum reserve arrangements linked to Abu Dhabi National Oil Company.

The diversification dilemma: While India has successfully diversified its crude sourcing — importing from 27 countries, with Russia accounting for more than 30% of imports in recent years — the sheer volume of Middle Eastern oil means the region cannot be entirely bypassed.

Around 20 mn bbl / d of crude, petroleum products, and natural gas liquids transit through the Strait of Hormuz globally. A larger output from the UAE would technically increase India’s overall dependence on the Middle East, though efforts by Gulf countries to build pipelines bypassing the Hormuz chokepoint could eventually mitigate some of that transit risk.

Don’t expect immediate relief: With an estimated 10 mn bbl / d of oil currently shut in the Middle East amid the regional war, any production increases from the UAE are moot in the short term. The constraint is not production capacity but export infrastructure, which remains the binding limit in the near term. “If the corridor is shut, then not much can be expected until the geopolitical situation subsides,” Vashishth warns.

Looking ahead: The UAE’s exit alone won’t singlehandedly solve India’s energy security vulnerabilities. The broader geopolitical fragility of the region is likely to push New Delhi to seriously accelerate investments into alternatives, Vashishth says. Expect India to ramp up its focus on renewables and push harder into flex-fuel vehicle infrastructure, including the adoption of ethanol blends, as it builds levers beyond simple crude and LNG diversification.