UAE boost a sweetener for strained Saudi relations

A new Opec accommodation for UAE production follows signs of strategic divergence with Saudi Arabia, writes Bachar Halabi

The Opec+ decision on 4 June that granted the UAE a higher level of production from 2024 reflected a Saudi-Emirati ability to compartmentalise their growing differences, a point often overlooked in media reports.

Saudi Arabia's energy minister, prince Abdulaziz bin Salman, and Emirati energy minister Suhail al-Mazrouei exited the Opec secretariat in Vienna hand-in-hand on 3 June, a day ahead of the Opec+ ministerial meeting, a gesture that set the scene for the ensuing decision. A discussion at the top level had taken place prior to last weekend's meeting regarding the UAE's production level within the coalition, a source with knowledge of the matter informed Argus. The UAE has been producing well below its now 4.2mn b/d capacity — it plans to expand capacity to 5mn b/d by 2027, or even earlier.

The door was opened last week for a conversation on quotas and a new deal with new baselines that are more in line with the realities on the ground as Opec+ looked to discuss what happens beyond 2023, when its October 2022 production cut agreement ends. The UAE previously secured a revision of its production baseline in July 2021. Riyadh, meanwhile, understood the need for sweeteners to push through a deal. More "fairness" in terms of production baselines was one, including Saudi flexibility to accommodate the UAE's demands.

Opec+ revised the UAE's production quota for 2024 up to 3.219mn b/d, from the 3.019mn b/d agreed under its October 2022 agreement. The UAE is producing 2.875mn b/d under a pledge to cut an extra volume of 2023 output from May.

But away from Opec's Vienna headquarters, Abu Dhabi and Riyadh face strategic divergences on several fronts. The Saudi quest to overhaul and diversify its economy by moving away from dependency on oil revenues has created regional competition for foreign investment. The Saudi decision to push foreign companies to move their regional headquarters to the kingdom was seen as a challenge to Dubai, which is the UAE's international financial and business hub.

Geopolitically, the neighbours have a diverging view on the war in Yemen, where their interests are not aligned, a regional diplomatic source tells Argus. Riyadh is unilaterally pursuing peace talks with Yemen's Houthis as part both of a push to end the nine-year war and a wider effort for detente with Iran.

Summit's up

Other diplomatic clues lend credence to what appears to be a cooling of relations between the countries' leaderships. The absence of UAE president Mohammed bin Zayed al-Nahyan from recent major summits hosted by Saudi Arabia was notable. Mohammed did not travel to Jeddah to attend last month's Arab League summit, nor to Riyadh last December for a historic China-Arab states summit hosting Chinese president Xi Jinping. Meanwhile, Saudi Arabia's prime minister and crown prince, Mohammed bin Salman, was absent from Abu Dhabi's summit in March, which hosted rulers of Jordan, Egypt, Qatar, Oman and Bahrain.

The outcome of the Vienna meeting and the display of fraternity between the two Gulf heavyweights, however, could have a spillover effect. "Relations [between Saudi Arabia and the UAE] are strategic and any two countries sometimes pass through rough patches," the diplomatic source says. But with the group becoming increasingly dominated by its key producers, expectations will mount as well. Abu Dhabi's rising crude capacity is likely to maintain its pressure for a longer-term rise in its quota."The UAE will always support this group and we will always stay together," al-Mazrouei told the Opec+ meeting's press conference, "and I think… we will be elaborating more in the future toward a more transparent and fair way of looking [at things]."