Prince Abdulaziz bin Salman Al-Saud, Saudi Arabia’s Minister of Energy, spoke via video link in a virtual emergency meeting of the OPEC and non-OPEC nations, after the outbreak of the pandemic in the past year.
On July 4, the Saudi energy minister pushed against opposition by another Gulf producer, the United Arab Emirates, to a proposed OPEC+ deal. Saudi Arabia called for ‘compromise and rationality’ to secure some form of agreement when the group reconvenes later today.
That was a rare public spat between allies whose national interests have majorly diverged, spilling over into the OPEC+ policy setting at a time the consumers want some more crude oil to help a global recovery from the Coronavirus pandemic.
OPEC+ groups the Organization of the Petroleum Exporting Countries and its allies and it voted on June 2 to raise output by some 2 million barrels per day from August to December 2021. They voted to extend the remaining cuts to the end of 2022, but the UAE objections prevented any agreement, according to reliable sources.
Saudi Energy Minister told Saudi-owned Al Arabiya television channel:
“The extension is the basis and not a secondary issue. You have to balance addressing the current market situation with maintaining the ability to react to future developments … if everyone wants to raise production then there has to be an extension.”
The minister was speaking while noting the uncertainty that has come up about the course of the pandemic and output from Venezuela and Iran. On July 4, the UAE said that it backs an output increase from August. However, it suggested deferring to another meeting the decision on extending the supply pact.
It stated that baseline production reference, a level from which cuts are calculated, should get reviewed for any form of extension. The standoff might delay any plans to pump more crude oil up to the end of this year to cool oil prices. The Saudi energy minister said:
“Big efforts were made over the past 14 months that provided fantastic results and it would be a shame not to maintain those achievements. … Some compromise and some rationality are what will save us. We are looking for a way to balance the interests of producer and consumer countries and for market stability in general, especially when shortages are expected due to the decrease in stockpiles.”
While responding to the growing oil demand destruction arising from the COVID-19 pandemic lockdowns, OPEC+ agreed in 2021 to cut output by nearly 10 million barrels per day from May 2021. The group plans to phase out all these limits by the end of April 2022. Today, the cuts now stand at around 5.8 million barrels per day.
Reliable OPEC+ sources said that the UAE contended its baseline was initially set too low but was ready to tolerate in case the deal ended in April 2022. The United Arabs Emirates has some ambitious production plans and has already invested billions of dollars to enhance capacity.
Prince Abdulaziz insisted that Riyadh’s “sacrifice” in making voluntary cuts and no country should use any particular month as a baseline reference. He added that there was a mechanism set in place to file any objections that may come up and that “selectivity is difficult”.
The regional alliance that ensured that the UAE and Saudi Arabia joined forces to project their power in the Middle East and beyond seems to have loosened as different national interests appear to come to the forefront. The alliance also coordinated the use of financial clout and military force in Yemen.
Abu Dhabi extricated itself from the Yemen war that happened in 2019, saddling Riyadh. In 2021, Saudi Arabia took the lead to end a row with Qatar despite reluctance from its Arab allies.
The Saudi Kingdom has also moved to challenge the UAE’s dominance as the region’s business and tourism hub with Riyadh vying for foreign capital aiming to diversify its economy away from dependence on oil.