It would be a crippling blow to the influence of the organization on global oil markets
Saudi Arabia and the United Arab Emirates (U.A.E.) are on a collision course over several issues, one of which could seriously impact the fate and the workings of the Organization of Petroleum Exporting Countries (OPEC).
There were reports last week that the U.A.E., the world’s third-largest crude exporter, is again debating and evaluating the possibility of leaving OPEC. The views and the interests of Saudi Arabia – OPEC’s dominant player – and the U.A.E. are diverging, to say the least. The rift is now in the open. In the past, there have been similar hints, underlining that U.A.E. was considering charting a crude policy independent of OPEC. While it didn’t materialize then, the rumour is again back in the headlines.
U.A.E. quitting OPEC would weaken the cartel. One of the reasons for OPEC’s recent success in managing the global crude market prices has been its cohesiveness and alliance with Russia. The U.A.E. opting out of OPEC could be a crippling blow to the organization’s influence on the global oil markets.
Last week, the Wall Street Journal reported that recent disagreements between Saudi Arabia and the U.A.E. had rekindled the idea of the country leaving OPEC, which would free the country from the OPEC export quotas.
U.A.E. is currently among the few countries with significant spare oil capacity. It is working to enhance its output capacity further. Last November, its state oil company, ADNOC, unveiled a five-year business plan to invest US$150 billion in the oil sector and raise its output to five million bpd by 2027. The United Arab Emirates is currently producing around three million bpd of crude.
But OPEC is a stumbling block to marketing its spare capacity volumes and the additionally planned crude output. Opting out of OPEC, and freeing itself from its export quotas, would help the country market its available, higher, volumes of oil which it is obligated to under the current OPEC quota.
With talks of green energy, the U.A.E. also seems intent on maximizing returns from oil assets before it is too late. They have constantly been pushing within OPEC to be allowed to pump more oil, but ‘the Saudis have stood in their way,’ according to the Wall Street Journal on March 3.
This latest clash follows one from last October between U.A.E. and Saudi Arabia, also involving oil output. While the U.A.E. wanted OPEC to release the brakes on the group’s crude output, as the Biden administration had demanded, the Saudis and Russia, the dominant forces within OPEC, opted to dramatically reduce oil production to prop up crude prices. The U.A.E. was uneasy with that decision, which rekindled the internal debate about the pros and cons of staying within the folds of the OPEC.
The political and strategic bond that has kept Saudi Arabia and the U.A.E. together on all fronts – including OPEC –is slowly becoming unglued. When Saudi Crown Prince Mohammad bin Salman (M.B.S.) first emerged as the frontrunner to succeed current King Salman, it was the U.A.E. President, Mohammad bin Zayed, who was reportedly instrumental in getting him close to the Trump administration, especially the then first son-in-law Jared Kushner. That immensely helped M.B.S. overcome the 2018 assassination of Jamal Khashoggi, allegedly at the behest of the Crown Prince.
But now, the two countries are on conflicting paths. Again according to the Wall Street Journal, Saudi Arabia and the U.A.E. are competing for foreign investment and influence in global oil markets and clashing as to the direction of the Yemen war. Such disagreements once used to unfold behind closed doors but are increasingly spilling out into the open, threatening to reorder alliances in the energy-rich Persian Gulf.
This could lead to the U.A.E. adopting a more and more independent path for itself as it endeavours to get out of the shadows of giant Saudi Arabia. This is the same approach Qatar has taken on major global issues as it also strives to stay independent of Saudi Arabia.
The oil-rich Gulf is entering a new phase. While the U.A.E. may not pull out of OPEC tomorrow, it could happen in not too distant future. Let’s keep our fingers crossed.
By Rashid Husain Syed
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.