Things are turning dramatic in the recent OPEC+ meeting with the two most powerful Arab nations going into a clash. United Arab Emirates (UAE) and Saudi Arabia have been close allies for decades but in the recent OPEC+ meeting, the two countries have shown unusual competition which has raised deep concerns among the economies around the world. These two countries’ opinions on output generally match. UAE, Saudi Arabia along Kuwait are considered by analysts as the central element of the Organization of the Petroleum Exporting Countries (OPEC).
UAE’s energy minister Suhail Al Mazrouei told reporters that OPEC’s quotas were “totally unfair,” and this statement made analysts around the world curious about the cause. The drama further intensified when the meetings between the cartel and its allies were called off due to the spat between the two Arab superpowers. The price of the benchmark Brent crude recorded a two year high at $77 per barrel and then it dropped back to $75.
The immediate reason for the squabble OPEC
In 2020, OPEC+ introduced harsh production cuts as the pandemic began to accelerate. The fuel demand collapsed as lockdowns were imposed and oil prices dropped to less than $30 per barrel. With lockdowns relaxing, the oil demand is gearing up slowly and the cartel is delicately increasing supply. The meeting had been called off with the ambition of agreeing on more increases to output after July. On the other hand, the Saudis and others were also expecting to extend the present authorities for allocating cuts to member countries’ production.
The Emiratis want the quotas to be revised. The present quotas are based on the country’s oil production capacity in 2018, since then the potential has increased due to the country’s heavy investment. 1/3rd of the country’s oil production is left to vegetate which is much higher than any of the member countries. Saudi Arabia along with other members are unwilling to increase production at this moment. The unwillingness is due to its fear that countries like Russia might ask for similar demands for increasing production.
Oil markets are in a state of doubt in the backdrop of reviving oil demands as the world slowly emerges out from the lockdowns. The Saudi-Emirati clash in the OPEC+ meeting has deep-rooted issues that are far more complicated than just a row over quotas to curb output. The recent incident has made analysts conclude that the historical alliance between Saudi and UAE is in trouble. Analysts have noted that lately, Saudi has been making efforts to snatch businesses away from UAE using various tools such as economic incentives, and major investments among others.
On July 5, Saudi Arabia changed its rules concerning imports from its fellow Gulf countries. This move has been viewed by analysts as a part of “an attempt to challenge the UAE’s status as the region’s the trade and business hub.” On July 3, Riyadh declared a ban on entry into the kingdom from UAE (along with Ethiopia and other countries) due to Covid-19 concerns. Two days after this announcement, Khaled Meshaal of Hamas (a Palestinian organization that is hated by the Emiratis) made an appearance on Saudi’s Al-Arabiya TV.
Khaled called on Saudi to improve its ties with the movement and explore more opportunities to support the Islamic movement. This interview of the Hamas leader raised eyebrows of analysts as they understood it to be a humiliation against the Crown Prince of UAE, Mohammed bin Zayed.
The Saudi-Emirati skirmish is about more than just OPEC, petroleum policies and economic rivalry. Significant geopolitical clashes have been constructing up between the two Arab superpowers for years. Most of these clashes originate from Abu Dhabi’s determination to chalk out an independent route in international and regional issues, flaunting cracks between the leaders of the two Arab countries.
According to experts, Saudi Arabia’s Crown Prince, Mohammed bin Salman (MBS) “takes for granted that Saudi Arabia is the automatic leader or ‘big brother’ in the gulf region.” On the other hand, MBZ rejects this notion of Saudi and is progressively confident in his ambition for greater uneven representation and priority of Abu Dhabi’s profits in the region.
Since the setting up of the Gulf Cooperation Council (GCC) in 1981, the UAE along with the other four member countries of the GCC had expressed their anxiety over Saudi’s dominating tendencies throughout the Arabian Gulf. For many years, the officials of Kuwait, Doha, Abu Dhabi and Muscat have shared their perspective that Saudi Arabia most of the time does not value the sovereignty of its GCC neighbours. However, over the past decade, the Riyadh-Abu Dhabi alliance had witnessed remarkable strengthening.
After the Arab Spring protests of 2011, Saudi and UAE have worked closely on many territorial issues. They shared the same interests on matters such as containing Turkey, fighting the Houthis, countering Iran and blockading Qatar until January 2021 among other matters. Riyadh and Abu Dhabi have together aimed at eliminating revolutionary demonstrations for the post-2011 territorial order. Dynamics in the United States were significant as well. MBZ substantially served as MBS’s advocate both during Trump and Obama’s presidencies and benefitted from MBS’s authority to try to direct Saudi policies in directions that were more favourable to UAE’s interests.
However, these two Gulf nations’ interests have diverged. Abu Dhabi and Riyadh have pointed that their foreign policies have taken separate routes, as their interests do not align on several issues. When it comes to territorial affairs, four significant areas of disagreement can be pointed out.
Firstly, last year Abraham Accords signed by Israel and the UAE marked a significant victory for Israeli efforts to enter into the Arab world and become unified with the Arab powers without committing any modifications to Palestinians. The UAE has several interests that are driving it towards Israel, from geopolitics to energy, and from technology to tourism.
On the other side, Saudi Arabia has shown no intention to leave the Arab Peace Initiative. Strife between the two Arab powers over the Abraham Accords came into prominence in December 2020 when Saudi Prince Turki bin Faisal answered the Palestinian concerns at the IISS Manama Dialogue with aggressive comments that offended several people.
Secondly, the UAE’s backing for the Southern Transitional Council (STC) in southern Yemen has been another factor for the collision of the two countries.
However, Riyadh and Abu Dhabi have attempted to fix this conflict of interests through the Riyadh Agreement, the unresolved issue of southern Yemen has been continuing to stimulate the contention. On one hand, the UAE has extended its strong hands to the group which aims to establish an independent state in Aden and other regions of southern Yemen. On the other hand, Saudi Arabia continues to support Yemen’s President Abdrabbuh Mansur Hadi’s unstable and weak government and the notion of a ‘Unified Yemen.’
Thirdly, Abu Dhabi has come together with Russia in believing that Syrian President Bashar al Assad’s regime must be completely refurbished in the Arab world’s political community. In December 2018, Abu Dhabi announced it has opened its embassy in Damascus after 6 years of being shut down. This announcement was a major shift for Syria, which added to Bashar al Assad’s expectations that Syria could reintegrate into the Arab League soon.
But as of now, Saudi Arabia has no intention of backing Assad. However, Saudi has not backed the anti-Assad groups for several years. But, Riyadh has also not taken a step forward to embrace Assad as the lawful head of Syria. Similar to the situation concerning Israel, Saudi Arabia’s foreign policy towards Syria is reflected in the public opinion in the country, which is strictly against any harmonization with the Iran-favoured Syrian Baathist government.
Fourthly, in 2017, UAE, Saudi, Bahrain and Egypt cut all ties with Qatar, accusing it of backing terrorism. In January 2021, the UAE was not happy about the outcome of the AlUla Summit which restored all ties of the Arab states with Qatar. However, Abu Dhabi joined the other Arab countries in lifting the blockade, one can easily understand that had MBS not carried this Gulf Reconciliation summit, MBZ would have been more than happy with the continuation of the blockade introduced on Qatar. Abu Dhabi is still not clear on how easily the relationship between Qataris and Saudis harmonized over the past six months.
Hence, with the present clash between Riyadh and Abu Dhabi in OPEC, the prospect for further intensification cannot be neglected. The exiting of UAE from OPEC would impact the Saudi-Emirati alliance even more. The dramatic turns that OPEC is witnessing is expected to impact oil prices all over the world.
How will this impact India?
If soon the UAE and other OPEC+ member nations do not agree to increase oil production in August, the relief that is expected in the form of low prices of crude oil might be postponed. Presently, India is witnessing record-high prices in diesel and petrol. The price of petrol has crossed Rs 100 per litre in more than 13 states and Union Territories. High prices of crude oil have resulted in increasing prices of petrol by Indian oil marketing firms by almost 19.3 per cent and diesel has increased by almost 21 per cent since the starting of 2021.