Tuesday, 21 Sep 2021

How Saudi Arabia and UAE oil tensions are a sign competition ‘is just starting’

Tehran: Fire burns at oil refinery in Iranian capital

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The oil sector was hit hard by the coronavirus pandemic, with lockdowns frequently accompanying a collapse in oil prices. The Organization of the Petroleum Exporting Countries (OPEC), an alliance of the world’s leading oil producers and allies, limited its oil output last year amid the pandemic. But last month, Saudi Arabia and the United Arab Emirates (UAE) were engaged in a public dispute over how quickly to boost oil output once again.

Saudi Arabia had supported a plan for producers within OPEC to increase oil output in stages over the remaining months of 2021.

The proposal also outlined remaining cuts would be kept in place until the end of 2022, rather than until the planned expiration date of April 2021.

Saudi Arabia and the UAE both reportedly endorsed raising oil output immediately.

But the UAE did not agree to the plan entirely, as the region hoped to secure a higher production quota if the expiration date was extended until the end of next year.

The very public dispute between the UAE and Saudi Arabia over oil production appeared to reach a resolution in mid-July.

An OPEC+ source told Reuters that Riyadh had agreed to Abu Dhabi’s request to have UAE’s baseline set at 3.65 million barrels per day (bpd) from April 2022, up from 3.168 million.

Despite the fact Saudi Arabia and the UAE are considered allies, the latest conflict over oil has not been the only source of tensions between the powers recently.

This year, Saudi Arabia and the UAE have also clashed over the UAE’s role in Yemen.

In July, pro-government commentators in Saudi Arabia publicly criticised the UAE’s backing of the main separatist group in southern Yemen, while Saudi Arabia backed the recognised government in the region.

As per Reuters, political writer Suleiman al-Oqeliy, who often reflects official Saudi positions, said on Twitter last month: “If Abu Dhabi does not help in implementing the Riyadh agreement regarding the south Yemen crisis, and keeps obstructing it, I think that Saudi-Emirati ties will continue to be tested.”

In recent months, Saudi Arabia and the UAE have also been involved in a conflict over trade.

In what could be interpreted as a challenge to the UAE’s status as a business hub, Saudi Arabia amended its rules on imports from other Gulf Cooperation Council countries to exclude goods made in free zones or using Israeli input from preferential tariff concessions, Reuters reported last month.

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According to experts on the region, the recent dispute over oil production levels could be a sign of further things to come.

Abdulkhaleq Abdulla, a political science professor in the UAE, told CNBC: “What is happening here is these are the two biggest economies in the region, in the Arab world.

“And as Saudi Arabia wants to reform its economy, privatize, etc, there is bound to be competition between them.”

“Competition between the two biggest Arab economies is, I think, just starting. And it is bound to intensify in the days to come.”

Whether the UAE and Saudi Arabia will continue to be at loggerheads economically in the long-term is unclear.

Tobias Borck, a research fellow specializing in Gulf affairs at the Royal United Services Institute in London, told CNBC: “There are clearly multiple areas where they are on a collision course in the economic sphere.

“You’ve now sort of put your position out, and at the moment, those positions are on a collision course.

“Whether they’re going to remain so? We’ll see.”

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