Is UAE abandoning economic logic by extracting more oil? It’s reacting to a big industry shift

Added: 2026-05-07

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[00:00:45]Hello and welcome to The Print. This is Vidisha and you're watching Economics.

[00:00:51]Let me start with a simple question. If you owned something valuable and limited, would you sell it today or wait for a better price tomorrow?

[00:01:01]In economics, this question has a very precise answer.

[00:01:05]It comes from a principle called Hotelling's rule.

[00:01:09]Formally, Hotelling's rule states that for an exhaustible resource, the net price, that is price minus marginal extraction cost, should rise over time at the rate of interest.

[00:01:23]This ensures that a producer is indifferent between extracting today and extracting in the future.

[00:01:31]To put it in simple words, oil in the ground behaves like an asset.

[00:01:36]If you don't extract it today, its value should grow over time just like money earning interest. So, oil isn't just something you sell, it's the wealth you store.

[00:01:48]And that leads to a clear prediction.

[00:01:51]You don't rush, you extract gradually, you wait because in that world, the future rewards patience.

[00:02:00]But what if the future stops doing that?

[00:02:02]Because that's exactly what we may be seeing today.

[00:02:07]The United Arab Emirates, the UAE, is increasing its oil production capacity significantly.

[00:02:15]From about 3.5 million barrels per day to nearly 5 million by 2027, at the first glance, that looks counterintuitive.

[00:02:25]Why produce more now if waiting is supposed to be more profitable? To understand that, let's look at what's actually happening in global oil markets.

[00:02:36]Take a look at the chart on your screen.

[00:02:39]This shows global oil production over time.

[00:02:43]If the traditional logic held, you would expect production to gradually decline.

[00:02:49]Producers would hold back supply waiting for higher future prices.

[00:02:54]But that's not what we see. Instead, global production has steadily increased from around 75 million barrels per day in 2000 to over 100 million barrels per day today.

[00:03:08]And this has happened despite significant price volatility.

[00:03:12]So, something clearly doesn't add up.

[00:03:15]If waiting is supposed to pay, why is everyone producing more?

[00:03:20]The answer here lies in expectations about the future.

[00:03:24]Think about what's changing. Electric vehicles are expanding, renewable energy is becoming cheaper, climate policies are tightening. Oil demand hasn't disappeared, but its long-term trajectory has become clearly uncertain.

[00:03:40]And that uncertainty changes everything because now the risk is not that oil becomes more valuable, but that it stops becoming more valuable.

[00:03:52]And once that happens, the logic of waiting breaks down.

[00:03:57]Keeping oil underground is no longer a safe bet.

[00:04:01]So, the UAE's strategy begins to look quite rational. It has invested heavily, around $150 billion to expand production capacity, but within OPEC, production is often constrained.

[00:04:15]So, why build capacity if you're not going to use it?

[00:04:19]Because the priority is shifting from waiting for better prices to selling more sooner.

[00:04:26]And there's another layer. Oil markets are competitive.

[00:04:30]If one producer increases output, others risk losing market share.

[00:04:35]So, what starts as one country's decision can quickly become a broader trend.

[00:04:41]The sequence is quite clear. Demand becomes uncertain, future prices look less promising, producers feel pressure to use the capacity, and competition reinforces early extraction.

[00:04:54]The system moves from conserving oil to accelerating its monetization. If more producers follow this path, global supply could remain high even as demand growth slows.

[00:05:07]And that would push prices downward and make it harder for groups like OPEC to stabilize markets.

[00:05:14]So, this chart is not really just about production.

[00:05:18]It reflects a deeper shift, a shift in expectations, a shift in incentives, and how producers think about time.

[00:05:27]For decades, economic logic suggested that waiting would increase value. But today, the future may no longer reward patience. And that is why increasing production now may not be irrational at all, but a rational response, in fact, to a changing world. And that's what is reshaping the future of oil markets.

[00:05:50]Thank you for watching.

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