DIVERGING GULF PRIORITIES
The UAE has been signalling a potential split for at least five years, when differences of opinion with Saudi Arabia on how to manage oil policy emerged ahead of a November 2020 OPEC+ summit. The rift became openly visible during a subsequent meeting of OPEC+ countries in July 2021.
In both cases, the UAE wished to increase oil production – which had been sharply curtailed by OPEC members during the COVID-19 pandemic – while the Saudis sought to maintain high prices by keeping output lower and prices higher.
In part, this reflects the different circumstances of the two Gulf nations. The Saudis are reliant on higher oil prices to drive the revenues needed to fund its lavish budget and pay for massive infrastructure projects like its Vision 2030 project. The Emirati economy, on the other hand, is more diversified and less directly dependent on oil revenues.
Instead, Abu Dhabi has invested heavily in recent years to expand capacity to be able to increase oil production from 3.4 million barrels a day before the US-Israel war against Iran to 5 million barrels a day by 2027 – and potentially higher later on.
This reflects a desire to monetise its reserves and move the oil to market to avoid the risk of stranded assets should global demand fall in any future transition away from fossil fuels.
Shorn of the constraints of OPEC quotas, which the Emiratis have chafed against for years, officials in Abu Dhabi will be able to increase production should it wish to do so once the impasse with Iran is broken and the Strait of Hormuz fully reopens.