OPEC Reaches Compromise With U.A.E. Over Oil Production

Note4Students

From UPSC perspective, the following things are important :

Prelims level : OPEC+

Mains level : Paper 2- Tension in bilateral relations of oil producing companies and its implications for the world

Context

The end to the UAE’s weeks-long impasse with Saudi Arabia and Russia, a non-OPEC state, was brought about by Sunday’s deal.

What was the deal about?

  • United Arab Emirates (UAE), said to hold the world’s largest untapped crude reserves, had demanded an increase in its oil output quotas.
  • The end to the UAE’s weeks-long impasse with Saudi Arabia, one of the world’s biggest crude exporters, and Russia, a non-OPEC state, was brought about by Sunday’s deal.
  • Under its terms, the UAE’s demand for an increase in its oil output quotas, in recognition of its higher production capacity, has been conceded.
  • The baselines have also been raised for Saudi Arabia, Russia, Iraq, and Kuwait.
  • The bloc will now step up crude production by 400,000 barrels a day starting in August.
  • The output boost is in response to rising oil prices in the wake of the rebound in economic activity.
  • The cartel had cut oil production by 9.7 million barrels a day (mbd) as oil demand fell from 100 mbd to 91.1 mbd and prices plummeted from $70 in January 2020 to around $20 in April.

Strain in Saudi Arabia-UAE relations

  • The UAE has played hardball during the bloc’s attempts to deal with the pandemic-induced price volatility.
  • Thus, while the internal rift has been resolved for now, the danger cannot be ruled out of an increasingly economically and politically assertive UAE flexing its muscle.
  • Bilateral relations between the traditional allies, Saudi Arabia and the UAE, have been especially strained since the UAE established diplomatic ties with Israel last year and withdrew troops from the Saudi-spearheaded war in Yemen the year before.
  • A more recent arena of tension is the tariffs Riyadh has imposed on imports from the six-nation Gulf Cooperation Council.
  • Saudi Arabia will now exclude from the GCC tariff agreement goods made by companies with a workforce of less than 25% of locals and industrial products with less than 40% of the added value after their transformation process.
  • Home to a predominantly migrant population, the move could hit the UAE especially hard.

OPEC’s concerns

  • The OPEC, forecast in 2016 that a strict implementation of the Paris climate accord could see the demand for oil peak by 2030.
  • There is an eagerness to maximise the returns on their substantial hydrocarbon resources, amid growing speculation of a peak in oil demand within sight.
  • The International Energy Agency (IEA), which in 2016 forecast a continued rise in oil consumption until the 2040s, has more recently hinted at about a 5% rise or fall relative to the demand before the pandemic within a decade.
  • OPEC’s other concerns are the stabilization of world oil prices without jeopardizing national expenditure programs, and the diversification of economies in anticipation of the unfolding global energy transition.

Conclusion

The latest OPEC compromise echoes growing recognition of the delicate balance between competing domestic and global priorities.

B2BASICS

OPEC

  • The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental organization, created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
  • It aims to manage the supply of oil in an effort to set the price of oil in the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.
  • It is headquartered in Vienna, Austria.
  • OPEC membership is open to any country that is a substantial exporter of oil and which shares the ideals of the organization.
  • Gabon terminated its membership in January 1995. However, it rejoined the Organization in July 2016.
  • As of 2019, OPEC has a total of 14 Member Countries viz. Iran, Iraq, Kuwait, United Arab Emirates(UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, Republic of Congo, Angola, Ecuador, and Venezuela are members of OPEC.

 

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