- Samir Hashemi
- Middle East Business and Trade Correspondent
A public dispute between the United Arab Emirates and Saudi Arabia over oil production quotas recently led to a halt in talks between the world’s largest producers of black gold.
This rare spat has also left energy markets on hold, while sending oil prices to their highest level in six years.
Indefinitely, the negotiations of the OPEC Plus alliance, which is made up of 23 oil-exporting countries, OPEC and its allies from the producing countries such as Russia, have been suspended.
Concerns increased as a result of this about the stability of the coalition that managed the oil supply process during the global economic crisis caused by the Corona epidemic over the past 18 months.
The problem surfaced last week, when the UAE rejected a proposal to extend the production restrictions agreement for another eight months, which was submitted by Saudi Arabia and Russia on behalf of the OPEC Plus alliance.
And the UAE wanted to renegotiate its own baseline, on which the issue of increasing or decreasing production is calculated, in order to be free to pump more oil.
But Saudi Arabia and Russia opposed the will of the Emirates.
But the negotiations took an unusual turn when the energy ministers of the United Arab Emirates and Saudi Arabia came out and announced differences between the two allies.
According to Ben Kahl, a researcher at the Center for International and Strategic Studies in Washington, “the dispute came as a surprise, and perhaps could not be announced.”
“Abu Dhabi’s production capacity is not commensurate with its share in OPEC,” Kahl says. “They are investing a lot of money to increase their production at a time of rising demand, hence the UAE’s frustration over the past year with its inability to increase production.”
For years, the partnership between Saudi Arabia and the UAE mapped the geopolitics of the Arab world.
The personal relationship between the Crown Prince of Saudi Arabia, Muhammad bin Salman, and the Crown Prince of Abu Dhabi, Muhammad bin Zayed, was an essential element in consolidating the pillars of this alliance.
The two men are seen as de facto rulers of their countries, each with an ambitious vision. For many years, cooperation between them has deepened on many strategic issues, and they formed an Arab military alliance in 2015 to fight the armed Houthi movement loyal to Iran in Yemen, in addition to imposing a diplomatic and commercial blockade on Qatar in 2017.
But the cracks in the body of this relationship began to become clear two years ago, when the UAE withdrew most of its forces from Yemen against the wishes of the Saudis.
And last January, the Emiratis reluctantly agreed to a Saudi-led agreement to end the blockade of Qatar, despite their complete distrust of Doha.
Likewise, Saudi Arabia has shown no enthusiasm for the UAE’s decision to normalize relations with Israel last year.
But the rifts began to deepen last February, when Saudi Arabia issued an ultimatum to multinational companies that they must move their regional headquarters to the kingdom by 2024 in order to avoid losing government contracts.
After the UAE rejected the proposed OPEC Plus agreement, Saudi Arabia – in what appeared to be a retaliatory response – suspended its flights to the UAE, citing the outbreak of the Corona epidemic as the reason for this suspension. But the Saudi decision coincided with Islamic holidays that many usually look forward to spending in Dubai.
Saudi Arabia also announced that it will exclude goods imported from free zones or linked to Israel from customs privileges under agreement with other Gulf countries, which represents a blow to the UAE economy, which benefits from the free zone model.
There is a growing economic competition behind the OPEC+ dispute; The UAE and Saudi Arabia are trying to diversify their economies by reducing dependence on hydrocarbon exports.
Under the leadership of Mohammed bin Salman, Saudi Arabia is adopting a bolder economic strategy that has placed the Kingdom in competition with the UAE in a number of sectors such as tourism, economic services, and technology.
Saudi Arabia represents the region’s giant, which is now rising and alarming the Emiratis on a number of levels, as described by Neil Quilliam, a researcher at Chatham House in London.
Quilliam believes that “within 15 to 20 years, if Saudi Arabia manages to transform into a dynamic economy, this could pose a threat to the UAE economic model.”
It is not yet clear whether Saudi Arabia and the UAE will be able to reach a new agreement for the OPEC Plus alliance.
But Ali Shihabi, a Saudi analyst close to the royal court, does not believe that the current dispute will impede the long-term partnership process, although the hardening of the Emiratis’ position came as “shocking” to the Saudis – even though they tried hard to reach consensus.
Al-Shihabi says: “In the past, the two sides faced greater disagreements than the current ones…and every relationship experiences ups and downs, including the relationship between the United States and Britain, but the basis of this relationship is so strong that it is difficult to cause permanent damage to this alliance.”