Explainer: UAE and Saudi Arabia’s spat over OPEC oil production | Oil and Gas News

Saudi-led plan to extend a deal with a cap on oil production triggers dispute between two OPEC heavyweights.

In a rare public spat between the Gulf state allies, the United Arab Emirates and Saudi Arabia have found themselves at loggerheads over an OPEC plan that seeks to extend a cap on oil production.

Saudi Arabia has led a push in OPEC to extend oil production curbs to the end of 2022, but the UAE pushed back on Sunday, saying a cut in output beyond the initial deadline of April 2022 would be “unfair to the UAE”.

The UAE has said the market is “in dire need of higher production” of crude oil following a plunge in oil prices and production last year as the pandemic hit travel and energy use.

OPEC’s sharp output cuts have kept prices from collapsing even further. However, pumping too much too soon could undermine the rebound in energy prices.

Meetings on Friday, both between the 13 members of OPEC proper and between the 23 members of OPEC Plus, failed to reach a deal on oil output.

Under a proposed OPEC Plus deal, the UAE would proportionally cut its oil production by 18 percent, while Saudi Arabia would cut its output by 5 percent.

Negotiations over the dispute are set to resume on Monday.

Reactions to proposal

Speaking to CNBC on Sunday, the UAE’s Energy Minister Suhail Al Mazrouei said that his country has “sacrificed the most, making one-third of our production idle for two years”.

“We can’t make a new agreement under the same conditions – we have a sovereign right to negotiate that,” he said.

But Saudi Arabia has imposed the deepest production cuts and urged caution over raising output during the ongoing pandemic while oil demand and economic recoveries remain weak, with the kingdom’s energy minister calling for “compromise and rationality”.

“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 is what will save us,” Saudi Energy Minister Prince Abdulaziz bin Salman said.

Iraq also backed the OPEC Plus proposal to extend the pact on output curbs until December 2022, adding it expected oil prices to remain at $70 per barrel or above until then.

So far, it is yet to be seen whether the UAE would continue in its traditional role of following Riyadh’s directive, or whether it would decide to pursue a more independent policy.

Alliance under pressure

Riyadh and Abu Dhabi have seen eye-to-eye on a number of issues over the years, most notably their involvement in Yemen’s war against the Iran-aligned Houthi rebels, although the UAE withdrew most of its military forces from Yemen in 2019.

Along with Bahrain and Egypt, the UAE and Saudi Arabia launched a boycott against neighbouring Qatar in 2017. An agreement to end the boycott was announced by Saudi Arabia in January, but analysts say the UAE is less inclined to bury the hatchet.

Meanwhile, the UAE’s normalisation of ties with Israel last year was not followed by Saudi Arabia.

The Gulf allies have not only disagreed over oil production, but also over restrictions related to the coronavirus pandemic.

On Sunday, Saudi Arabia banned all flights to the UAE, Ethiopia and Vietnam to protect against the highly contagious Delta coronavirus variant – which accounts for many new infections in the UAE.

Observers say the move could be designed to challenge the UAE’s dominance as the region’s business and tourism hub, though Saudis have said the decision to halt incoming flights was about safety rather than politics.

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