- By Sameer Hashmi
- Middle East correspondent for the Economics Department
A bitter-tasting public disagreement between the United Arab Emirates and Saudi Arabia over oil production quotas this week saw talks between the world’s biggest oil-producing nations stall and left energy markets in the poll, leaving oil prices at their highest Stand drifted for six years .
23-nation OPEC+, which includes the Organization of the Petroleum Exporting Countries cartel and allied producers such as Russia, has been forced to postpone talks indefinitely, raising fears over the stability of a group that has been chocking supplies for the past 18 months has managed with the global economic crisis related to the coronavirus.
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The problem began last week when the United Arab Emirates rejected a proposal by OPEC+ leaders Saudi Arabia and Russia to extend production curbs by another eight months.
The UAE wanted to renegotiate its current baseline – the level from which production cuts or increases are calculated – to give it the freedom to pump in more oil. However, Saudi Arabia and Russia refused.
Negotiations took an unusual turn when the energy ministers of the United Arab Emirates and Saudi Arabia, who are close allies, went public with their differences.
“The split came as a surprise, but perhaps the struggle was inevitable,” said Ben Cahill, senior fellow at the Center for Strategic and International Studies in Washington.
“Abu Dhabi’s production capacity is not in line with its OPEC quota. It has invested a lot of money to increase its production. And now the demand is increasing. That’s why the UAE was frustrated with its inability to ramp up production last year,” he adds.
The partnership between Saudi Arabia and the United Arab Emirates has shaped the geopolitics of the Arab world for several years.
The strong relationship between Saudi Crown Prince Mohammed bin Salman and Abu Dhabi Crown Prince Mohammed bin Zayed helped solidify this alliance.
Both men are considered the de facto rulers of their country and have ambitious visions.
There has been intensive cooperation on strategic issues for several years. They formed an Arab military coalition in 2015 to wage war against the Iran-allied Houthi rebel movement in Yemen and imposed a diplomatic, trade and travel embargo on Qatar in 2017.
But cracks in the relationship appeared two years ago when the United Arab Emirates withdrew most of its troops from Yemen, leaving the Saudis unhappy.
In January, the Emiratis reluctantly agreed to a Saudi-led deal to end the embargo on Qatar, though they remain reluctant to trust Doha. Similarly, Saudi Arabia was not enthusiastic about the UAE’s decision to normalize ties with Israel last year.
The rifts began to widen in February when Saudi Arabia gave multinationals an ultimatum to move their regional headquarters to the kingdom by 2024 or risk losing government contracts. This was seen as an implicit attack on Dubai (in the United Arab Emirates), the region’s commercial hub.
After the Emiratis blocked the proposed Opec+ deal, the Saudis appeared to retaliate by suspending flights to the UAE. The kingdom has raised concerns about variants of the coronavirus, but the decision came just ahead of an Islamic holiday when many people travel to Dubai for a break.
Saudi Arabia also announced that it would exempt imports from free zones or zones linked to Israel from a preferential tariff agreement with other Gulf countries, dealing a blow to the UAE’s economy, which revolves around a free zone model.
The struggle at OPEC+ is underscored by growing economic rivalry, with the two countries looking to diversify their economies by reducing their reliance on hydrocarbon exports.
As Saudi Arabia pursues a more aggressive economic strategy under Mohammed bin Salman, it is now competing in sectors such as tourism, financial services and technology.
“Saudi Arabia is the giant in the region that’s waking up now. And in a way, that’s a problem for the Emiratis,” said Neil Quilliam, an associate researcher at Chatham House in London.
“If Saudi Arabia develops into a dynamic economy in 15 to 20 years, that would pose a threat to the Emirates’ economic model.
It remains unclear whether Saudi Arabia and the United Arab Emirates can agree on a new Opec+ deal.
But Ali Shihabi, a Saudi analyst close to the royal court, doesn’t think the split will affect their long-term relationship, even if the Emiratis’ rigid stance has taken the Saudis like a “shock” – especially since they’d worked very hard too to come to a consensus.
“Both sides have had much bigger disagreements in the past,” he says.
“Every relationship has its ups and downs, including the US and the UK. But the basics of this relationship really are [trop] powerful enough to cause permanent damage to this alliance.”