When Brent crude briefly crossed $120 a barrel last week amid renewed Hormuz tensions and the UAE’s exit from OPEC, market reactions suggested something beyond just another cyclical oil shock. Markets are recognising the erosion of the framework that governed global crude flows for decades.
The UAE’s move has triggered familiar debates over quotas, spare capacity, and Gulf rivalries. But focusing on cartel mechanics overlooks a deeper shift. OPEC’s exit reveals the premise that producers could manage supply while others guaranteed stable sea lanes was always conditional. That era has ended and a new structure is beginning.
For much of its history, OPEC operated within a relatively predictable system. Oil moved through a handful of critical chokepoints, the Strait of Hormuz foremost among them, and the cartel adjusted production to influence prices. Markets now price geopolitical risk alongside supply and demand. They are factoring in war-risk insurance, sanctions-driven re-routing, and the possibility that key transit routes may face prolonged disruption.
Asian refiners are already recalculating freight exposure as re-routing via the Red Sea extends voyage times and pushes up insurance costs. Producers, meanwhile, are adapting to a market where route stability can no longer be taken for granted. This broader context helps explain the strategic logic behind the UAE’s decision to invest heavily in expanding production capacity toward 5 million barrels per day (mbpd) by 2027 from the current 4.85 mbpd, even as OPEC+ agreements constrained actual output significantly below that threshold.
Continuing to build upstream infrastructure while remaining bound by collective quotas presented a growing commercial and strategic contradiction. The exit reflects a broader recalibration. Producers such as the UAE, the fourth largest in OPEC+, now appear more focused on production flexibility and Asian market access than on maintaining older quota structures.
There is also a parallel demand-side shift shaping producer calculations. Major Asian importers, particularly India, are actively seeking more flexible supplier relationships that operate outside traditional cartel structures. Indian officials have already signalled interest in negotiating long-term oil trade agreements with the UAE now they are no longer constrained by OPEC production quotas. The benefits are clear: proximity means lower freight costs, bilateral deals allow flexible pricing, and direct arrangements avoid constraints associated with the cartel.
For the UAE, this represents more than a break with OPEC. It signals repositioning toward an energy landscape where securing long term Asian demand through flexible export arrangements may matter more than maintaining the appearance of collective discipline.
OPEC attempts coordinated cuts to support prices while the routes moving that oil grew increasingly unreliable. Production quotas mean nothing if tankers cannot move freely.
The older OPEC framework was built for an era when oversupply and price crashes were the main worry. The threats oil markets are facing now are entirely different. Geopolitics has changed how oil moves. The Strait of Hormuz, which carried roughly 20 million barrels per day before Iran effectively closed it in March, represents what the International Energy Agency has called the largest oil supply disruption in history.
Past crises operated on an assumption that disruptions would be brief and oil flows would return to normal. That assumption no longer holds. Risk perception itself now reshapes freight costs, delivery schedules, and market behaviour. A full blockade isn’t necessary for markets to react. This is why Brent hit $120. The price reflected doubt about transit routes, not just supply.
Within this context, divergence inside OPEC makes more sense. The UAE’s exit exposes a widening gap between collective discipline and national strategy. Saudi Arabia still anchors the group, often taking deeper cuts to prop up prices. But not every producer operates on the same timeline. For Abu Dhabi, securing future market share in Asia matters more than defending a coordination system designed for different circumstances.
Iran sees the situation through a different lens. Tehran has long viewed energy security as a contest over access, pressure, and control of routes. Rising US militarisation and sanctions have already turned the oil trade into a geopolitical struggle. The UAE’s departure confirms that producers are going their own way within a fragmented system. OPEC isn’t collapsing. It retains influence, largely through Saudi Arabia’s spare capacity. But the assumptions that held it together, predictable shipping, aligned incentives, and centralised management are eroding.
Parallel energy networks have arisen with Russian crude being redirected toward Asian markets following Western sanctions. This has reshaped tanker routes and altered margins and payment mechanisms. Sanctions did not restrict the supply from those producers they were aimed at but rather accelerated the diversification of trade channels.
The US now seeks to play a dual role: security provider in key maritime regions and major supplier of shale oil and LNG. Growth in non‑OPEC production is steadily eroding the dominance of older, more centralised energy structures. For Asian importers, this shift has been equally enabling and destabilising. Flexible LNG cargoes diversified crude sourcing, and new trading routes have reduced dependence on any single supplier. But they have also tied energy security more tightly to geopolitics, logistics, and financial infrastructure.
For Asian importers, this shift is a double-edge sword. While they have been able to diversify crude sourcing, their energy security is increasingly tied to geopolitics, logistics and financial infrastructure. Market participants recognise this transition. Industry observers note the system may absorb shocks like the UAE’s exit without immediate disruption.
But that calm reflects adaptation, not the old stability. Recent analysis shows how overlapping supply and security networks are now shaped as much by political alignment as by market efficiency. The global oil system no longer revolves around a single centre; it is fragmenting into multiple interconnected but distinct circuits.
Demand is shifting decisively eastward. India is expected to add 1 mbpd by 2030, the largest increase of any country globally, and account for nearly half of all incremental global oil demand through 2035. This shift is reshaping producer strategies. Gulf exporters are no longer just defending price levels. They’re competing for long-term relevance in Asian markets where Gulf-Asia trade reached $516 billion in 2024, double the $256 billion Gulf-West trade volume. The UAE exit reflects this calculation. Rather than abandoning global markets, Abu Dhabi is repositioning toward flexibility, bilateral arrangements, and direct access to Asia’s growth centres.
For Asian economies, the implications are more complex. Diversification across the Gulf, Russia, the US, and Africa improves bargaining power but embeds them in a more fragmented and politically sensitive system. Energy security now means more than securing supply as it requires safer shipping routes, insurance, refining systems, and strategic reserves.
When any of these elements fail, the economic fallout extends far beyond energy costs alone.
India’s experience is an example. As prices surged amid Hormuz tensions, the rupee weakened sharply while inflation pressures intensified and current account deficits widened.
Maritime disruptions now carry immediate macroeconomic consequences. Policy responses are evolving accordingly. Strategic reserves, refinery expansion, growing renewable capacity, and nuclear energy generation are increasingly viewed as parts of a broader resilience network. Maritime security has gained prominence, with Hormuz identified as a key strategic focus.
India has deepened US engagement with LNG and technology, maintained Gulf ties, and continued Russian crude imports despite narrowing discounts. The goal is not alignment with any single bloc but flexibility in a fragmented market. It’s no longer who controls production, but who can ensure oil, and the infrastructure moving it, function reliably in an increasingly uncertain world. Source
Hormuz and the end of the old oil order Edited from an article By Manish Vaid, junior fellow, Observer Research Foundation, with research interests in strategic energy insights and green transitions
CHINA’S SANCTIONS PUSHBACK ON ‘TEAPOT’ REFINERIES
China’s recent reaction to US sanctions marks another new phase in the oil war. On May 2, the Ministry of Commerce of China issued an injunction to block US restrictions against five independent Chinese oil refineries that have been sanctioned for importing Iranian oil and utilising so-called ‘shadow fleets’. Beijing’s decision could be historically significant.
China has been moving towards this decision for the past year. The Shouguang Luqing refinery in Shandong province was the first to be added to the sanctions list on March 20, 2025. By October, the US had imposed restrictions on three other ‘teapot’ refineries. Finally, on April 24, 2026, Hengli Petrochemical (Dalian) Refinery Co. suffered sanctions. With a capacity of 400,000 barrels per day, the facility in Dalian exceeds the combined capacity of the four other refineries. This seems to have been the tipping point, prompting the Chinese government to shift from verbal threats to decisive action.
The legal groundwork has been in place for some time: a local law against foreign sanctions was passed in 2021, but remained largely symbolic due to the absence of implementing regulations. The delay made sense: the law was adopted during Trump’s first term. After the thaw in US-China relations under Biden, it was put on hold. Ultimately, the directive to activate this law was only signed by Chinese Premier Li Qiang in March 2025.
Finally, on April 14, 2026, China implemented the Regulations on ‘Countering Improper Extraterritorial Jurisdiction by Foreign States’. These regulations contain 20 articles, including provisions that allow the Chinese government to add to its sanctions list individuals and organisations involved in discriminatory measures against China. Those included in the list could be expelled from China or denied entry; their assets could be frozen, and they may even be banned from doing business with any individuals or organisations in China.
The situation with Iran. Evidently, China has taken the first practical step regarding the five refineries. As mentioned, this move was tied to the US sanctions against the major refinery in Dalian. The sanctions themselves are the result of America’s conflict with Iran – or more accurately, the blockade of the Strait of Hormuz. Thus, Iran allows only those ships that coordinate their routes with the Iranian authorities by paying for passage to enter the strait, whilst the US attempts to prevent any vessels from leaving the Persian Gulf.
As a result, traffic through the strait has plummeted by 20-30 times compared to pre-war levels; however, Iran has seen the smallest decrease relative to other countries. This is primarily because Iranian ‘shadow fleet’ tankers do not need to seek approval from their own authorities, and they are more willing to take risks, navigating past US naval warships, typically along the Iranian coast and in Pakistani territorial waters. In contrast, legitimate ships refrain from such manoeuvres, as they cannot risk losing insurance coverage.
As of April 22, at least 34 Iranian tankers have successfully navigated around the US maritime blockade since it began, averaging about 3-4 vessels per day. These figures are comparable to pre-war levels, and nearly all the oil from these tankers is headed for China. Consequently, a direct attempt by Washington to influence Chinese buyers of Iranian oil is trying to pressure them into backing off.
This approach aligns with traditional Chinese policy: avoiding direct confrontation, steering clear of disputes, seeking loopholes, and achieving objectives through subtle means. Moscow has felt the impact of this strategy first-hand. Since 2022, China has engaged in trade with Russia discreetly. It is generally known that China was purchasing Russian oil, but new US sanctions affected the flow of those shipments.
The same applied to Iran: when there was an oversupply of oil, China had the luxury of being selective. The market was determined by buyers; sanctioned oil was bought only as a last resort and at a large discount. Tankers could be anchored for months waiting for improved conditions. However, faced with oil shortages, China was reluctantly forced to enter into a more direct conflict with the US. The United States is unlikely to retaliate effectively, and China’s decision leads to the establishment of a functioning alternative trading and payment infrastructure.
All the major decisions have long been in place: for example, the creation and implementation of CIPS, China’s equivalent to SWIFT, but like the sanctions law, the alternative payment infrastructure has remained largely inactive. For the past four years, Russia has been calling on its partners to take action: finding an alternative to the dollar, departing from American control over international trade, and replacing semi-clandestine payment schemes with a solid, transparent, and reliable system.
Also, for the past four years, Russia’s trading partners ignored these calls, implying that they didn’t want to create problems with the US. Iran found itself in a similar position, but unlike Russia, it relied on China as its sole buyer. Now, ironically, it’s Trump who is forcing China to change this approach. In doing so, he risks retaliation since his actions may provoke a new, tougher, and more decisive Chinese policy. Beijing has all the political, economic, and financial tools at its disposal to make this happen. Source
Edited from an article by Sergey Poletaev, an information analyst and publicist https://www.rt.com/op-ed/authors/sergey-poletaev/
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