How the UAE has quietly slimmed Saudi Arabia’s lead in the oil game

While Saudi Arabia charges ahead with oil production cuts and Russia keeps crude flowing to fund its invasion of Ukraine, one country is quietly chalking up wins in the oil market: the United Arab Emirates.

In June, when the Saudi-led Organisation of the Petroleum Exporting Countries (Opec) and an alliance of oil producers headed by Russia, known as Opec+, met to determine energy policy, the UAE pulled off a long-term goal of increasing the amount of crude it is allowed to pump.

The upward revision of the UAE’s quota will take the Emirates’ production up by 200,000 barrels per day (bpd) in 2024 to 3.2 million barrels. It comes as oil prices mount a strong comeback this summer, with Brent crude, the international benchmark, hitting safely above the symbolic $80 per barrel threshold.

“The UAE’s production quota increase was somewhat overlooked, but it was a huge win for the Emirates,” Ellen Wald, the founder of energy consulting firm, Transversal Consulting, told Middle East Eye.

“Of all the Opec+ members, the UAE has put itself in a very good position,” added Wald, who is the author of Saudi Inc, a book on the Saudi state-owned oil company, Aramco.

During the same meeting, the UAE ruled out output cuts, even as Saudi Arabia slashed production in a bid to boost crude prices. Last week, Saudi Arabia doubled down on its commitment to choke supply, extending its one million barrels of oil a day production cut into September.

“Saudi Arabia is cutting massively. At least Russia says it’s cutting. The UAE has cut to the bare minimum,” Viktor Katona, the head of crude analysis at Kpler, an energy consulting firm, told MEE. 

“The end result is that Saudi Arabia is doing all the work and the UAE has oil prices 15 percent higher than they were a month ago. By any means, the UAE is the big winner this summer.”

Saudi Arabia is bearing the brunt of oil cuts, in a bid to lift prices. Middle East Eye previously reported how Riyadh had to contend with Russia flooding the market with oil, as it muscles in on its crude sales to Asia and inches towards the top spot as the biggest Opec+ producer.

But the UAE’s quiet gains within the oil cartel underscore another challenge for Saudi Arabia, this time with a supposed ally that is increasingly becoming a geopolitical and economic competitor. 

'The UAE is just richer than Saudi Arabia'

For years, Saudi Arabia and the UAE found themselves on the same side of the Middle East’s thorniest foreign policy issues.

When the Arab Spring struck the region a decade ago, the two US security partners teamed up to push back against protest movements they saw as a threat to their rule. They joined forces to blockade their Gulf neighbour, Qatar, backed renegade general Khalifa Haftar in Libya, and threw their support behind militants seeking to remove Bashar al-Assad in Syria. Both sent troops to fight a bloody war in Yemen against Iran-aligned rebels.

But fissures are now erupting between the two countries' authoritarian leaders: Crown Prince Mohammed Bin Salman and Emirati President Sheikh Mohamed bin Zayed al-Nahyan. According to a Wall Street Journal report in December, the Saudi crown prince threatened to blockade the UAE.

'The public could lose confidence in MBS if oil prices drop' 

- Greg Priddy, Spout Run Advisory

The UAE pulled out of Yemen’s war in 2019 but continues to back a separatist group in Yemen’s south that has clashed with Saudi Arabia’s favoured forces, the Saudi-backed internationally recognised government of Yemen.

“Yemen is just one policy difference breaking loose between the UAE and Saudi Arabia. Energy is another,” Greg Priddy, a consultant at the US-based Spout Run Advisory and senior fellow at the Center for the National Interest in Washington, DC, told MEE.

Differences between Riyadh and Abu Dhabi over oil policy broke out into the open in 2021, when the UAE held up an Opec+ meeting over complaints that it had a low baseline to calculate its permitted oil production.

The UAE, like Saudi Arabia, has been investing heavily in its energy industry to churn out more crude. By 2027 it wants to take its production capacity - the amount of oil it is able to pump - from 4.5 million bpd to 5 million.

But Saudi Arabia wants to keep supplies tight to lift prices, particularly as it looks to plow oil revenue into mega-projects like Neom and Red Sea island developments, to wean itself off of long-term fossil fuel dependency.

The UAE on the other hand, which has a more developed private sector, wants to pump crude now when demand is high, with an eye towards the energy transition.

After Russia invaded Ukraine, Emirati ambassador to the US Yousef al-Otaiba said in March 2022 that the UAE wanted to boost oil production and would push for it within Opec.

“The UAE is richer than Saudi Arabia on a per capita basis, so Saudi Arabia is more worried about short-term prices that could hit government spending," Priddy said. 

Crown Prince Mohammed Bin Salman has overseen a severe crackdown on dissent at home, but is pursuing some once-in-a-generation social reforms and an economic makeover that has been welcomed by many young Saudi Arabians.

Priddy said the crown prince - whose country has about 18 times the number of citizens as the UAE - is more sensitive to day-to-day oil prices. 

“There is a concern that the public could lose confidence in MBS if oil prices drop. The Emirates don’t need to worry about that as much," Priddy added. 

The clash of oil ministers

The two countries, which are now competing to be geopolitical leaders in the region, have also diverged over how Opec+ is managed, two energy executives based in the UAE and analysts tell MEE.

“The UAE sees Opec as a force for stability in the oil market. They have a real issue with Saudi Arabia’s abrasive style. That specifically means Abdulaziz bin Salman,” a Dubai-based energy executive told MEE, referring to the kingdom’s energy minister and half-brother of the crown prince.

'The Saudis have to realise people don’t want to do their business in Saudi Arabia'

- Ellen Wald, author, Saudi Inc

Abdulaziz Bin Salman has earned a combative reputation. He warned market speculators they would be “ouching like hell” if they doubted his willingness to choke global oil supplies and once used a poker analogy to keep market watchers guessing about the future direction of the kingdom’s energy policy ahead of an Opec meeting.

The 63-year-old's style contrasts sharply with that of his affable 40-year-old Emirati counterpart, Suhail al-Mazrouei, experts say.

“Mazrouei was seen as a young hot-shot when he first took the minister position in 2013, but he has been very effective and gained a lot of clout in Opec,” Wald told MEE, crediting the energy minister’s skill in helping the UAE win its quota increase this summer.

Both the UAE and Saudi Arabia are monarchies that tolerate no political dissent and maintain an overbearing security presence. But the UAE has carved out a position for itself as a neutral and safe hub for business. “The Emiratis don’t want to be seen as unreliable,” Wald said.

'Saudi snub'

Another sore point between the two Gulf states has been the UAE’s success at attracting Russian oil traders fleeing western sanctions. The Emirati port of Fujairah has become a key transshipment hub for Russian oil, and Russian energy traders have flocked to Dubai.

Although this has created tensions with the US, which called the UAE a "country of focus" as it looks to crack down on sanctions evasion, it has boosted Dubai's economy, one of seven emirates within the UAE. 

Meanwhile, Saudi Arabia, which is pushing social reforms to make itself more attractive as a business hub to rival Dubai, has seen a scant influx of foreigners.

“The Saudis have to realise people don’t want to do their business in Saudi Arabia because no one wants to live there. That includes Russians,” Wald said. “You want to tell the Russians they can’t have vodka?" she asked rhetorically, noting Saudi Arabia's prohibition on alcohol.

“But the Saudis take it as a snub,” she added.

One arena where Saudi Arabia has pulled ahead of the UAE analysts say, is with its national oil company, Aramco, which has vigorously pursued acquisitions from Europe to China in oil refineries and downstream production, such as petrochemicals.

The refined polymers and compounds of oil and gas are found in everything from fertilisers and plastics to laundry detergents, paper and clothing. The world's appetite for petrochemicals is expected to remain strong even as traditional fuel demand wanes.

“Saudi Arabia has made a big push into downstream oil and gas production,” Katona said.

The UAE’s state-owned oil company, Adnoc, is now working to boost its own global footprint. It made an offer to buy out European chemical maker, Covestro, and reportedly Brazilian petrochemical giant, Braskem. On Friday, Adnoc said it acquired a 30 percent stake in an Azerbaijani gas field.

“Adnoc is splashing the cash because they realise they are late to the party compared to Aramco,” Katona said.

Even as the UAE chalks up wins in Opec+ and benefits from Saudi Arabia’s production cuts, analysts say Riyadh is likely to maintain its edge in the energy market over its friend, and increasing competitor. The kingdom is planning its own massive increase in oil production capacity to 13 million barrels per day by 2027.

“That gives them huge leverage,” Wald said. “At a moment's notice, they can flood the oil market. That’s something no one - not the UAE and not even the US - can do.”