OPEC oil alliance deadlocked between Saudi Arabia and UAE

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DUBAI, United Arab Emirates (AP) – The OPEC oil cartel led by Saudi Arabia and other allied producing countries resumed talks on Monday amid a standoff with the United Arab Emirates over increasing production levels with demand still hampered by threats of new variants of the coronavirus.

The United Arab Emirates on Sunday pushed back a plan by the OPEC + group, which includes non-OPEC producers like Russia, to extend a pact to cut oil production beyond April 2022.

There are fears that if an agreement between the 23 member states cannot be reached, the alliance could break down, triggering a price war and huge swings in world oil prices at a time of uncertainty over future demand for oil. oil due to continued blockages in parts of the world and the uneven distribution of vaccines around the world.

The abrupt halt to travel last year and widespread lockdowns reduced global demand for oil, pushing down energy prices as unused barrels of oil quickly filled storage sites. The OPEC + group has accepted a sharp drop of some 9 million barrels a day to prevent prices from collapsing further.

Saudi Arabia has gone further, purposely cutting its own production even further to keep prices from falling. In June, the kingdom was producing just under 9 million barrels a day, up from more than 10 barrels a day before the pandemic.

As economies began to rebound and vaccine distribution gained momentum, the OPEC + group increased production so that daily reductions averaged around 6 million barrels per day. Currently, the OPEC + alliance produces some 37 million barrels per day compared to about 43 million barrels per day in April of last year, at the start of the pandemic.

Russian news agency TASS reported on Friday that all members of the OPEC + Joint Ministerial Follow-up Committee – except the United Arab Emirates – supported a proposal to increase production to 400,000 barrels per day from August and extend the agreement until the end of 2022.

UAE Energy Minister Suhail al-Mazrouei addressed several media outlets over the weekend, voicing his country’s concerns and lamenting that a third of UAE’s output is remained inactive for two years.

Sunday, UAE Department of Energy released rare statement, saying that while the country is willing to extend the current OPEC + deal, if necessary, it wants a higher baseline production level that reflects the actual production capacity of the UAE rather than what it has said be an obsolete reference.

The UAE currently produces around 2.7 million barrels per day under the OPEC + deal, although it averaged around 3 million per day between January 2019 and March 2020, according to Refinitiv, a financial market data provider. Analysts suggest the country can easily produce up to 4 million a day.

Saudi Energy Minister Prince Abdulaziz bin Salman told Al-Arabiya TV station on Sunday evening that “a bit of rationality and a bit of compromise” were needed. He added that in more than three decades of OPEC meetings, he had “never seen such a demand” and that he was neither optimistic nor pessimistic about the resumption of talks on Monday.

According to Magnus Nysveen, head of analysis at research and consultancy firm Rystad Energy, in order for the UAE to get what it wants, Saudi Arabia may need to cut production further.

“If the UAE were to have a higher quota in the future, only Saudi Arabia could cut production on their side,” he said, explaining that the kingdom had already made voluntary cuts and might be willing to concede in order to keep OPEC together.

Still, it could be a hard sell as both countries need oil revenues to support their economies, which have been rocked by the pandemic and falling oil prices.

There are also political differences between the UAE and Saudi Arabia to be aware of.

Saudi Arabia and the United Arab Emirates have been closely aligned in recent years, reflecting the nascent relationship that had developed between Abu Dhabi Crown Prince Mohammed bin Zayed and Saudi Crown Prince Mohammed bin Salman. The two de facto rulers were so close that the two countries jointly embarked on a war in Yemen and severed ties with neighboring Qatar. At the end of 2017, the two nations announced a new partnership to coordinate in all military, political, economic, commercial and cultural fields.

But in recent years, national interests have diverged. The UAE has significantly reduced its footprint in the Saudi-led coalition fighting the Iran-backed Houthis in Yemen. The Saudis decided to quickly reestablish diplomatic ties with Qatar earlier this year, but the UAE has yet to reestablish full diplomatic ties and continues to block Qatar-based news sites like Al Jazeera.

Meanwhile, Saudi Arabia on Sunday suspended all flights to and from the United Arab Emirates, grouping them with Ethiopia, Vietnam and Afghanistan as coronavirus risks. The kingdom has expressed concern over the rapidly spreading delta variant, which has emerged in the United Arab Emirates.

In recent days, the kingdom has amended its law on goods imported from Arab Gulf countries to exclude from a preferential tariff agreement imported goods produced by Israeli-owned companies, as well as goods with components produced in Israel. Israel. Such products have proliferated in the United Arab Emirates following the normalization of the country’s ties with Israel.

In February, Saudi Arabia warned companies that if their regional offices were not moved to the kingdom by 2024, their contracts with the Saudi government and its institutions would be suspended. The move is seen as a direct call for companies with regional offices in Dubai, the West-friendly financial hub of the UAE, to set up and locate in Riyadh.

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Associated Press writer Isabel Debre contributed to this report.

Follow Aya Batrawy on twitter at https://twitter.com/ayaelb



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