OPEC+ Impasse: a severe collective blow to producers, consumers and investors - in the long run!
In retrospect, the oil spat between the UAE and Saudi
Arabia laid bare something we had been suspecting for long: oil production – or
supply – cuts had been grudgingly brought about by the members of the OPEC+
despite the apparent connotations of unity stemming from a common front.
More often than not, it was Prince Abdulaziz bin
Salman, the Saudi Energy Minister, who was at the forefront in defending the
moves by the OPEC+, especially when it came to curtailing the production in order
to maintain the price of crude oil.
Not only did he use to exercise caution about the ‘health’
of the sector, but also rushed to point out the ‘sacrifices’ made by the
Kingdom to achieve the desired goal – its own voluntary production cuts,
perhaps to set an example to the rest of the OPEC+.
Judging by the news that comes in dribs and drabs, it
is clear that the baseline issue has not just been a problem for the UAE; a few
other members have also raised the same issue with regard to individual
country-specific baselines – and got a patient hearing, behind the closed
doors, of course.
The UAE says it did not get a fair response from the
OPEC+ to its own grievances.
The baseline is a production level from which the cuts
are calculated. As for the UAE, this has been 3.16 million bpd; it wants the
latter to be raised to 3.8 million bbd, something that both Russia and Saudi
Arabia opposed to.
If agreed, the UAE is prepared to extend the
production cuts beyond the current deadline – April, 2022 – to December, 2022,
while agreeing to increase the OPEC+ productions by 400,000 bpd to ease off the
supply constraint and maintain the price of crude oil at a sustainable level.
The fact that the talks reached a deadlock on Monday
clearly shows that internal discussions to resolve the issue have not worked.
Analysts believe that only the US can bring together
the two factions, which are at the loggerheads, to facilitate the process of
hammering out a deal. So far, the US appears to be a passive spectator.
The rising oil price, however, may compel the Biden
administration to take a more proactive role in the unpredictable oil equation.
The rare spat between the most influential Arabic
nations in the Middle East reflects something that has been simmering in the
cauldron of regional politics for some time: getting into the stampede to
diversify their oil-dependent economies, the two countries are following
diverging paths at the expense of warm relations that existed for decades.
The moves against the UAE by the Saudis in
retaliation in the aftermath of the collapsed talks could just make matters
worse, not just for the countries in question, but also for the whole region –
and of course, the OPEC+.
Saudi Arabia did fall out with a few countries in
recent times: Turkey, Qatar and India, to name but a few. On a positive note, it,
however, takes the initiative to offer the olive branch after a certain period
of time and then move on as if nothing happened.
Although the economic measures taken against the UAE
are harsh, the Saudis may reverse these decisions in due course too, when the
mutual damage to both countries on many fronts becomes clear.
For that to come about, more often than not, there
had been a catalyst, though. The US is the only country that can provide the
two nations with what they desperately need right now.
