Did the UAE win points from Saudi Arabia in the petroleum game?

The focus on Russia and Saudi Arabia has disguised the great victories that the United Arab Emirates (UAE) has won in the petroleum world at the same time as Abu Dhabi’s growing geopolitical and economic rivalry with Riyadh heats up.

While Saudi Arabia continues to cut petroleum production and Russia maintains petroleum exports to finance its war in Ukraine, the UAE is quietly making gains in the petroleum market.

But in June, when the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia and its allies led by Russia, met in the form of the OPEC+ group to determine production policy, the UAE achieved its long-term goal of increasing its allowed amount of production.

The revision of the production quota of the UAE will increase the country’s production ceiling by 200 thousand barrels per day in 2024 and bring it to 3.2 million barrels per day. This upward revision happened while the price of petroleum, this summer, returned to the upward trend and Brent oil, which is the global market price index, climbed above $80 per barrel.

Ellen Wald, the founder of the energy consulting company “Transversal Consulting” told the "Middle East Eye" news website: “The increase in the production quota of the UAE was not noticed by the market to some extent, but it was a big victory for this country. Wald, the author of the book "Saudi Inc" - a book about the state petroleum company Saudi Aramco - added: “Among all OPEC+ members, the UAE has placed itself in a very good position.”

In the same meeting, the UAE ruled out reducing its production even as Saudi Arabia reduced its production in an effort to raise petroleum prices.

Two weeks ago, Saudi Arabia announced that it will continue to voluntarily reduce the production of one million barrels of petroleum per day in September. Riyadh has significantly reduced its production, and at the same time, Russia says it will reduce its production. Victor Katona, head of the petroleum analysis unit of the Kepler energy consulting company, told "Middle East Eye" that the UAE has had a minimal production decrease. The result is that Saudi Arabia is doing the work and the UAE offers petroleum prices that are 15% higher than a month ago. Either way, the UAE is the big winner of this summer.

Saudi Arabia has borne the brunt of production cuts in order to boost petroleum prices. It was previously reported how Riyadh is unhappy that Russia has flooded the market with supplies, but the quiet growth of the UAE within this group is another challenge for Saudi Arabia. This time, Riyadh sees an ally in front of it that has increasingly turned into a geopolitical and economic rival.

UAE richer than Saudi Arabia

For years, Saudi Arabia and the UAE had similar positions on the most sensitive issues of their Middle East foreign policy. When the Arab Spring took place in the region a decade ago, these two countries, which were America’s security partners, united against this protest movement that they saw as a threat to their rule. These two countries joined hands, boycotted Qatar, supported General Khalifa Haftar in Libya and supported the opposition against Bashar al-Assad in Syria. Both countries sent troops to fight in Yemen.

But now, gaps have emerged between the heads of the two countries, namely Mohammed bin Salman, the Crown Prince of Saudi Arabia, and Sheikh Mohammed bin Zayed Al Nahyan, the president of the UAE. The Wall Street Journal reported in December that the Saudi prince had threatened to surround the UAE.

The UAE withdrew from the war in Yemen in 2019 but continues to support a separatist group in southern Yemen that has clashed with Saudi-backed forces.

Greg Priddy, consultant of the American consulting group Spout, told Middle East Eye: “Yemen is only one political dispute between the UAE and Saudi Arabia; energy is another one.”

The dispute over petroleum policy between Riyadh and Abu Dhabi first arose in 2021, when the UAE disrupted the OPEC+ meeting by protesting the low production base level used to calculate the country’s production quota.

The UAE, like Saudi Arabia, has invested heavily in its energy industry to produce more petroleum. The country wants to increase its production capacity from 4.5 million barrels per day to five million barrels per day by 2027.

But Saudi Arabia wants to keep its supply limited to raise prices. On the other hand, the UAE, which has a more private and advanced sector, wants to produce more petroleum when there is high demand, considering the energy transition.

After Russia’s military attack on Ukraine, the UAE’s ambassador to the US said in March 2022 that the UAE wanted to boost petroleum production and had worked for this within OPEC.

The UAE is wealthier than Saudi Arabia on a per capita basis, so Saudi Arabia is more concerned about short-term prices that could hit government spending, Priddy said. Saudi Arabia, whose population is about 18 times that of the UAE, is more sensitive to the rising petroleum prices.

There is concern that if petroleum prices fall, public trust in Mohammed bin Salman may be lost, but Emiratis need not worry so much.

Difference between petroleum ministers

Energy managers in the UAE and analysts say that these two countries, which are now competing for geopolitical supremacy in the Middle East, also differ on how to manage OPEC+.

The UAE sees OPEC as a force to stabilize the petroleum market. Emiratis have a serious problem with the reckless style of Saudi Arabia. According to a Dubai-based energy executive, this specifically refers to Abdulaziz bin Salman, who is Saudi Arabia’s energy minister and the half-brother of the country’s crown prince.

Experts say that Abdulaziz bin Salman has warned petroleum market speculators about the consequences of their behavior. The manner of this 63-year-old prince is in stark contrast to the manner of his Emirati counterpart, Sohail Al Mazrouei.

According to Wald, when Mazrouei was first elected as the UAE’s energy minister in 2013, he was seen as a capable person, but he was very efficient and gained a lot of influence in OPEC, and his skills helped the UAE to increase its production quota this summer.

Another point of contention between the two countries of the Persian Gulf region is the success of the UAE in attracting Russian petroleum traders who escaped Western sanctions. The UAE’s Fujairah port has become a Russian petroleum transfer hub, and Russian energy traders have come to Dubai on a daily basis. Although this has created tensions with the United States, it has boosted the economy of Dubai, which is one of the seven emirates of the UAE.

Meanwhile, Saudi Arabia is pushing social reforms to make itself a more attractive business hub than Dubai.

According to Wald, Saudis need to understand that fewer people want to do business in Saudi Arabia, and that includes Russians.

One area where Saudi Arabia is ahead of the UAE, analysts say, is the various purchases of Aramco has made in refineries and downstream production such as petrochemicals from Europe to China.

ADNOC, Abu Dhabi’s state-owned petroleum company, is now looking to strengthen its global influence and has proposed to buy European chemicals producer Covestro. ADNOC announced last week that it has bought 30% of shares in an Azerbaijani gas field.

According to the report of the "Middle East Eye" news site, although the UAE has won victories in OPEC+ due to the reduction of Saudi Arabia’s production, analysts say that Riyadh is likely to maintain its superiority in the energy market over its friend and rival. The country is planning to increase petroleum production capacity to 13 million barrels per day by 2027.