'Empowered': UAE's exit from Opec appeases Trump, delivers blow to Saudi Arabia
The UAE’s exit from Opec next month is a shot across the bows to Saudi Arabia and a potential offering to US President Donald Trump, in the latest sign the war on Iran is exacerbating old tensions in the Gulf instead of uniting the region.
On the surface, the UAE’s exit from the Organization of Petroleum Exporting Countries (Opec) is a culmination of its long-running spat with Saudi Arabia over how much oil member states should be allowed to pump.
Until recently, Riyadh wanted to limit supply to support prices while the UAE favoured looser production.
“The UAE has always been on the side of volume strategy, and the Saudis have been on the side of price strategy,” Arne Lohmann Rasmussen, chief analyst and head of research at Global Risk Management, told Middle East Eye.
This difference goes back to how the economies of Saudi Arabia and the UAE function. The former is home to 35 million people and holds more than double the UAE’s proven oil reserves.
The UAE has only one million citizens, and therefore fewer nationals share the oil profits pie. Meanwhile, the UAE has invested heavily in infrastructure that will allow it to pump and export more oil, which analysts call boosting production capacity.
“The UAE is the Opec country with the largest amount of spare capacity compared to production,” Rasmussen said. “You can argue that this is the right economic calculus because what's inside the ground might not have the same value that it will in five or ten years".
But experts say that before the US-Israeli war on Iran, Saudi Arabia had actually moved closer to the UAE’s position.
Riyadh, which once warned oil traders they would be “ouching like hell” if they doubted the kingdom’s dedication to curb oil supplies, threw in the towel and backed massive increases in production.
'This is political'
“The policy differences between the UAE and Saudi Arabia have been there for a long time, but Saudi Arabia has pivoted to taking back market share, and the war has actually made their old argument less salient. This exit is much more political,” Greg Priddy, a senior fellow for the Middle East at the Center for the National Interest, told MEE.
'It is possible that this break could also be [the] result of some sort of ‘deal’ between the UAE and Israel and [the] US'
- Ellen Wald, Atlantic Council
The departure of Opec’s third-largest producer comes at a time when Abu Dhabi is lobbying the US to continue its war on Iran and nudging closer to Israel.
Axios reported this week that Israel sent an Iron Dome air-defence system and technicians to the UAE, when the small Gulf state was under Iranian drone and missile attack.
The Gulf states are home to thousands of US troops and are joined at the hip to US weapons systems. The region has generally rallied behind the US despite frustration that it ignored their pleas not to attack Iran.
Saudi Arabia has helped the US wage war on Iran by providing enhanced basing access and overflights, but it has also backstopped mediation efforts by its close partner, Pakistan.
In contrast, the UAE has lobbied publicly and privately for the US to continue attacking Iran and tried to prevent Pakistan from bringing the US and Iran together for talks.
Leaving Opec for a US defence deal?
Leaving Opec as the US weighs whether to cut a deal with Iran or continue the war could be seen as a bid to court Trump, who long accused the Opec cartel of “ripping off the rest of the world”.
"It is possible that this break could also be [the] result of some sort of ‘deal’ between [the] UAE and Israel [and the] US, wherein they helped defend the UAE from Iran in exchange for delivering a major blow to Opec, which Trump has long sought,” Ellen Wald, a senior fellow at the Atlantic Council and author of Saudi Inc, a history of Aramco, wrote in a LinkedIn post.
'The UAE finally did it, probably because of the war. There is an opportunity to make dramatic decisions'
- Bernard Haykel, Princeton University
“I would not be surprised if we see some sort of defense agreement announced in the near future,” Wald said.
There are signs that the UAE is hedging for a long spell of volatility and doubling down on its partnership with the US.
MEE previously reported that UAE Foreign Minister Sheikh Abdullah bin Zayed told US Secretary of State Marco Rubio that Abu Dhabi is prepared for the war to last up to nine months.
Earlier this month, the UAE approached the Trump administration for a currency swap line, which would ensure the Emirates' access to US dollars if its reserves run dry.
The UAE’s decision to leave Opec is part of its wider rivalry with Saudi Arabia, analysts say. The Saudis dominate the group, and a looser cartel that includes Russia, dubbed Opec+.
“This will piss off the Saudis,” a western diplomat in the region told MEE. “It seems like the UAE has something bigger in mind.”
Saudi Arabia is the largest country in the region, and like the UAE, it has ambitions to project power abroad. In fact, Saudi Arabia attacked the UAE’s allies in Yemen just before the war on Iran erupted. The two countries are backing opposing sides in Sudan’s civil war.
Iran’s attacks on the Gulf sparked some speculation that the war would bring the region’s two erstwhile friends back together, but as the conflict drags on, it appears that Abu Dhabi and Riyadh are accelerating their competition.
For example, MEE revealed that weapons shipments from Pakistan paid for by Saudi Arabia started arriving in eastern Libya to Khalifa Haftar in March, whose army Riyadh is trying to pull away from the UAE.
'The UAE empowered'
UAE Energy Minister Suhail al-Mazrouei said in an interview that leaving Opec, a long-term UAE objective, was actually made easier by the conflict: “The timing in our view is right because it has a minimum impact on all of the producers."
“The UAE has a profoundly different view on energy production than Saudi Arabia, and this means they no longer have to listen to the Saudis, who set the terms in Opec,” Bernard Haykel, a professor of Near Eastern studies at Princeton University, told MEE, who added that the UAE has weighed leaving Opec for years.
“They finally did it, probably because of the war. Everything is up in the air, and there is an opportunity to make dramatic decisions,” Haykel added.
“In practical terms, the Emiratis have very considerable spare capacity. If they want to play the role of market regulator like the Saudis have, they can do it. This empowers them in a big way.”
Energy analysts agree that the move is well-timed.
Iran and the US’s competing blockades over the Strait of Hormuz mean energy flows through the Gulf have all but ceased. The UAE, which was exporting around 3.5 million barrels per day (bpd) of oil before the war, is now sending around 1.9 million bpd via a pipeline terminating at Fujairah port, bypassing the Strait of Hormuz.
Theoretically, the UAE has around one million spare bpd of capacity.
“If the UAE exited Opec before the war, it would have been a big deal,” Priddy, at the Center for the National Interest, said.
“But any extra capacity is not going to come onto the market right now because of the war. Even if the war ends, there is going to be enough of a hole in global inventory levels that their higher exports can be absorbed," he added.
But longer term, experts say, the UAE will be sounding a death knell to the 65-year-old energy alliance started by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
“This is a big blow to Opec,” Rasmussen said. “We could be writing its obituary.”
This article was sourced from Middle East Eye.
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