[Global Focus] Behind the Saudi-UAE Oil Clash: "Diplomatic and Security Discord Are the Main Factors"

UAE Withdraws from Yemen Houthi War, Causing Tension
"Growing Anxiety over US's Rapid Middle East Exit Strategy"
Concerns over Losing Oil Price Control to US... "Relations Expected to Recover Soon"

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Since the conflict between the major oil-producing countries in the Middle East, Saudi Arabia and the United Arab Emirates (UAE), surfaced, international oil prices have shown unstable trends, repeatedly fluctuating sharply. On the surface, the conflict between the two countries appears to be driven by economic issues such as differing outlooks on the international oil market and competition in revenue diversification strategies. However, complex diplomatic relations lie beneath.

If the dispute between the two countries continues, there is a prospect that the United States, the world's largest oil producer, could take control of international oil prices. The international community is closely watching how long the conflict between the UAE and Saudi Arabia will last.

◆From Oil Cartel Allies to the Biggest Competitors in the Post-Oil Era

According to local media including AFP on the 12th (local time), the OPEC+ (Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC consultative group) meeting failed to reach an agreement on production quotas due to the public dispute between Saudi Arabia and the UAE on the 5th, and has yet to schedule a follow-up meeting. Mediation efforts by OPEC+ members such as Russia have also been unsuccessful.

Amid growing anxiety, international oil prices have fluctuated sharply between $70 and $75 per barrel this month. The apparent reason for the conflict between the two countries seems to be differences in oil market strategies. The UAE opposes Saudi Arabia's proposal to extend production cuts, citing significant losses for itself.

According to CNN, Saudi Arabia is pushing for an eight-month extension of the existing production cut agreement, which was originally set to last until April next year, until December. The UAE continues to oppose Saudi Arabia's claim, arguing that extending the cut period would cause about 30% of its oil production facilities to halt operations, resulting in substantial damage.

The similarity in Saudi Arabia and the UAE's post-oil industry strategies is also analyzed as a cause of conflict. Adel Hamaiziya, a Middle East expert at the Royal Institute of International Affairs (Chatham House) in the UK, told CNBC, "The reason these two countries, which had not openly clashed before, are now in conflict over the oil production cut plan is that their revenue diversification strategies are very similar, making it highly likely that they will clash as competitors rather than allies in price-fixing in the future."

While the UAE aims to develop Dubai as a tourism and financial hub, Saudi Arabia is trying to cultivate its capital Riyadh as the central city of the Middle East instead of Dubai. Earlier, the Saudi government announced in February that it would stop doing business from 2024 with global companies that do not relocate their Middle East headquarters to Riyadh, worsening relations between the two countries. According to CNBC, over 90% of global companies have their Middle East headquarters in Dubai, UAE.

◆"Oil Price Dispute Is Easy to Resolve... Diplomatic Conflict Is the Core"

[Image source=EPA Yonhap News]

Some analysts argue that the issues of oil policy and revenue diversification strategies between Saudi Arabia and the UAE are minor, and that the real obstacle to progress in negotiations is unresolved diplomatic and security issues.

The rift in the alliance between the two countries is said to have begun in July 2019 when the UAE withdrew from the Saudi-led Arab coalition's war against the Yemeni Houthi rebels. According to the British weekly magazine The Economist, the UAE had been fighting alongside Saudi Arabia against the Yemeni Houthi rebels since 2015. However, due to the prolonged war caused by Saudi military shortcomings and worsening public opinion from frequent civilian casualties, the UAE unilaterally announced troop withdrawal from Saudi Arabia. Subsequently, other Arab League countries also declared their withdrawal from the Yemeni front, leaving the Saudi military virtually alone in continuing the war against the Houthi rebels. Middle East experts analyze that this caused cracks in the alliance between the two countries.

Saudi Arabia's unilateral normalization of relations with Qatar in January this year without consulting the UAE is also seen as a major factor worsening bilateral relations. According to AP News, Abu Dhabi, the largest emirate in the UAE, still strongly opposes Saudi Arabia's normalization of diplomatic ties with Qatar without prior agreement. Since June 2017, Saudi Arabia and the UAE jointly imposed economic sanctions and blockades on Qatar, accusing it of being a pro-Iranian state supporting Islamic terrorist organizations alongside Iran.

Some attribute the deeper cause of the diplomatic clashes between the two countries to security concerns arising from the United States' rapid withdrawal from Middle East policies. Bader Al-Saif, a researcher at the Carnegie Middle East Center in Lebanon, told Al Jazeera, "The UAE's opposition to the extension of production cuts is not something Saudi Arabia would find unacceptable," adding, "The core issue is that the entire Middle East has become a tinderbox amid the absence of U.S. forces responsible for regional security." He further explained, "Both Saudi Arabia and the UAE judge that it is difficult to protect their national security with traditional diplomatic policies alone, leading to discord in various fields."

◆International Oil Prices Could Be Taken Over by the U.S.

[Image source=Reuters Yonhap News]

However, as the dispute between the two countries prolongs, there is a growing possibility that the United States, which has emerged as the world's number one oil producer, could seize control of oil price determination. Therefore, the prevailing view is that the conflict between the two countries will not last long.

According to data from the U.S. Energy Information Administration (EIA), the United States produced 18.6 million barrels of crude oil per day last year, ranking first in the world. This figure is roughly equivalent to the combined production of the largest Middle Eastern oil producers: Saudi Arabia (11.01 million barrels), the UAE (3.79 million barrels), and Iraq (4.16 million barrels) during the same period.

Ali Sihabi, Secretary-General of the Arabia Foundation, a U.S.-based Middle East think tank, told the BBC, "The UAE's defiance certainly shocked Saudi Arabia, but this rift is unlikely to completely destroy the relationship between these two countries, which must cooperate in the oil market." He added, "There have been several disputes in the past, and like the relationship between the U.S. and the UK, there have always been ups and downs, but it is not at a level that damages the traditional alliance between the two countries."