Oil Price: the UAE managed to elevate its baseline; production rises by 400,000 bpd
The OPEC+ finally managed to overcome the weeks of
uncertainty over the direction that the group is supposed to move in the
post-pandemic world, on Sunday.
Hailing the agreement, Prince Abdulaziz bin Salman,
the Saudi Energy Minister, said “consensus building is an art,” having reached
the collective agreement.
The disagreement between the two Arab neighbours,
the UAE and Saudi Arabia that spilled into the open shocked the nations beyond
the OPEC+: they used to see eye to eye on many Middle Eastern issues; they are
Sunni Muslim Arab nations; they were almost like inseparable twins.
They may have had their differences before as well.
More often than not, the UAE and Saudi Arabia managed to settle them amicably
behind the closed doors – the palace walls; the military involvement in Yemen, lifting
the embargo against Qatar and starting diplomatic ties with Israel, to name but
a few.
As a shadow of misplaced anxiety about the onset of
a world-without-fossil fuels casts over the oil producers, an inevitable competition
in diversifying their oil-dependent economies has broken out among the oil producers,
while being stuck in the stampede of searching for alternatives for revenue
generation.
Two critical moves by Saudi Arabia recently against
its traditional – and loyal – ally show how the years of ‘brotherhood’ can
disappear overnight when economic worries start to bite: Saudis banned
construction companies from operating on its soil, unless the headquarters of
them are based in the Kingdom; on top of that, Saudis banned the imports from
the UAE, if the products in question come from the so-called free trade zones
or Israel.
The UAE, at least on the surface, does not appear to
be retaliating. It, however, insisted that the baseline for its crude oil production
must be increased from the current 3.2 million bpd to 3.8 million, from which
the OPEC+ production cuts are calculated.
With the hastily arranged OPEC+ meeting on Sunday,
the group managed to reach the long-awaited agreement; with that, UAE, managed
to raise the disputed baseline to 3.5 million bpd, not 3.8 million bpd that it
demanded; Russia appeared to have helped bridging the gap of disagreement
between the two countries.
The changes are going to take effect from May, 2022.
Up until then, the OPEC+ agreed to increase the output by 400,000 bpd; the
group hopes to get the output to the pre-pandemic level before the said date;
the group still pumps 5.8 million less than what it used to be.
After May, 2022, the UAE is not the only beneficiary
of the increased production quota: Kuwait, Iraq, Russia and Saudi Arabia are
going to benefit from the deal too.
There is a lingering concern, though. The new
administration of Iran is going to take office in early August and everyone
hopes that the stalled talks on the JCPOA, 2015 Iranian nuclear deal, will
resume in earnest.
The newly-elected president of Iran, who is branded
as a pragmatist, will not be able to put his vision into practice without
restoring its main revenue earner – crude oil. Iranian oil sector appears to be
in full swing in the hope that the sanctions will be lifted sooner rather than
later.
In Iran, meanwhile, the severe drought in many parts
and frequent power outages have caused havoc; in some instances, the public
anger has spilled out into the open, leading to mass protests.
If Iran managed to reach a deal with the West over
the JCPOA, the former will undoubtedly demand an increased quota from the OPEC+
in order to compensate for the losses it suffered from 2018 to 2021 due to
sanctions; on Sunday, Iranian oil minister implied that could be the case in
the event of the sanctions being lifted.
If Iran gets its way, the markets are going to get a
substantial increase in crude oil and the uneasy calm that the OPEC+ earned on
Sunday could be in jeopardy again; a precipitous drop in the price of crude
oil, in the end, is in nobody’s interest.
