The United Arab Emirates’ refusal to agree to a Saudi-backed plan to boost oil output is the latest in an emerging rivalry playing out between the two traditional Gulf allies as both countries seek to diversify their economies and manage a long-term transition away from the petroleum industry.
The unusually public spat between the UAE and Saudi Arabia over output increases by the Organization of the Petroleum Exporting Countries (OPEC) has kept oil prices volatile. Monday’s OPEC meeting was cancelled and has yet to be rescheduled, leading to market uncertainty.
Saudi Arabia supports a plan for OPEC producers to increase oil output in stages by a total of two million barrels per day (bpd) from August through December 2021 and extend remaining cuts until the end of 2022 instead of letting them expire as planned next April.
But OPEC, which relies on unanimous decision-making, saw that plan unravel Monday when the UAE demanded that its own production quota be revised upward, a move that would allow it to increase output further.
While the UAE said it could support raising production to two million bpd through the end of the year, it said extending a cut in output beyond April would be “unfair to the UAE”.
The UAE hopes that by ratcheting up supply now, on the back of the global economic recovery, it can increase revenue needed to support its economic diversification plans.
Saudi Arabia is cautious that too large an increase could put downward pressure on prices, stifling investment and leading to supply issues later on.
For now, the OPEC rift continues — but it is just one in a series of events that show the growing competition between the two Gulf allies.
“It’s not so much about handling a one-year output extension in the oil cartel, but how Saudi Arabia and the UAE manage to work together,” Bader Mousa Al-Saif, a nonresident fellow at the Malcolm H Kerr Carnegie Middle East Center in Beirut, told Al Jazeera.
The Gulf’s two leading economies were hit particularly hard by the COVID-19 pandemic. The UAE’s economy shrunk around 6 percent in 2020, while Saudi Arabia experienced a 4.1 percent contraction, according to the World Bank.
The collapse in oil prices accompanying lockdowns was a reminder of how much Gulf states still depend on petrodollars. And with OPEC forecasting that peak oil demand could plateau and begin to decline by the late 2030s, countries are under increasing pressure to diversify their economic models.
Adel Hamaizia, an associate fellow with the Middle East and North Africa Programme at Chatham House in London, said that while the OPEC dispute put Saudi-Emirati differences into public view, competition has been simmering for a number of years.