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SAUDI ARABIA AND THE UAE BEYOND OPEC: A RACE FOR DIVERSIFICATION |
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The MED This Week newsletter provides expert
analysis and informed insights on the most significant developments in the MENA
region, bringing together unique opinions on the topic and reliable foresight
on future scenarios. Today, we focus on the Saudi-Emirates relationship, as
Riyadh's and Abu Dhabi's recent disagreements within the OPEC Plus cartel may
indicate a possible fault line in one of the region’s most long-lasting
alliances.
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On the 19th of July, OPEC Plus cartel
nations agreed to boost their oil production to reduce oil prices and stabilize
the global market. The final goal was to restore their pre-pandemic oil output
by September 2022, which was cut by about 10 million barrels per day last
year due to worldwide restrictions and the disruption of economic activities.
The decision came after weeks of confrontation within OPEC Plus, which saw
Saudi Arabia and the United Arab Emirates (UAE) in an unusual dispute.
It is not the first time the two allies show divergences, giving airtime to
rumours about the solidity of the traditional Riyadh-Abu Dhabi axis. In fact,
oil production is not the only bone of contention between the two allies: the war in Yemen
and their economic competition are also causing
friction. As regards Yemen, Riyadh and Abu Dhabi’s respective support for
different factions undermines the Riyadh Agreement, which were an attempt to
unify the southern factions under one government. Meanwhile, on the
economic front, an-intra Gulf rivalry
may be a likely scenario as Saudi Arabia and the UAE, as well as the other gulf
economies, are dealing with structural reforms aimed at economic
diversification to reduce their reliance upon oil exports. These plans are pushing
the two countries to compete in several strategic fields, such as the
airline industry, which could further complicate the cohesion among the Gulf
Cooperation Council (GCC) with important implications for the region.
Experts
from the ISPI MED network react to Riyadh's and Abu Dhabi's recent disagreements within the OPEC Plus cartel.
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Not
only a political competition
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"Diverging economic interests add to the political
strains in their bilateral relationship (e.g., the war in Yemen, the Abraham
accords, the spat about Qatar). The UAE has larger oil endowments per capita;
it is more advanced in diversifying its economy and can count on revenues from
its well-established sovereign wealth funds (SWFs). Saudi Arabia, on the other
hand, has a much larger population to cater to and is new to the SWF and the
diversification game. As a peak in global oil demand looms by the mid-2030s,
the UAE is in a hurry to monetize its oil reserves, while Saudi Arabia prefers
to push back the day of reckoning. Economic competition intensifies as Saudi
Arabia invests in Dubai look-alike projects in logistics, aviation, tourism,
and real estate and tries to lure international companies’ regional
headquarters to Riyadh."
Eckart
Woertz, Director, Institute for Middle East Studies, GIGA
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Both economies can benefit
from more rivalry
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"The UAE has been a primary beneficiary of Saudi's
challenging social and business environment for decades. Ask companies and
entrepreneurs in the UAE about their critical regional market, and most will
mention Saudi. The Thursday evening Emirates flights from Riyadh to Dubai tell
the story. They are filled with lawyers, consultants, and investors, all making
their way home to their regional headquarters for the weekend. As Saudi inches
closer to achieving its Vision 2030, we should expect more competitive tension
between it and the UAE. This is not necessarily negative as long as both
countries realize it is not a zero-sum game. Both economies can benefit from a
more open and dynamic regional economy."
Amjad Ahmad, Director, EmpowerME Initiative; and Resident Senior Fellow, Rafik Hariri Centre for the Middle East, Atlantic Council
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Despite their differences,
cooperation will survive
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"The rift between Saudi Arabia and the United
Arab Emirates is not new, nor is it unusual. GCC countries have diverged in the
past on different issues. Competition is likely to increase as countries in the
region are on similar trajectories to implement post-oil diversification plans.
While the recent disagreement has highlighted this trend, it does not imply a
breakdown in cooperation, which has always existed between GCC member states in
various fields and to varying degrees. The economy will continue to be a key
determinant of developments in the region, including intra-GCC relations.
However, shared interests will ensure that ties between Gulf countries will
remain intact despite differences and rising competition."
Eman Alhussein, Non-Resident Fellow, The Arab Gulf
States Institute in Washington
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“The Emirati-Saudi rift is
likely to benefit the Houthis alone”
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"The re-emergence of the Emirati-Saudi rivalry
is not of good omen for Yemen. Aden and many Southern cities and governorates
are still internally divided among competing armed groups: pro-Saudi Yemeni
forces (supporting president Hadi) against pro-Emirati Yemeni secessionists
(backing the Southern Transitional Council). The new Emirati-Saudi rift risks,
once again, igniting military clashes as the security annex of the “Riyadh
Agreement” is yet to be implemented. Or, at least, it could generate further
obstacles on the road towards power-sharing. In both cases, the competition can
negatively affect the internationally recognized government in terms of
institutional capacity, territorial strength, and diplomatic voice: as such,
the Emirati-Saudi rift might only benefit the Houthis."
Eleonora Ardemagni,
Associate
Research Fellow, ISPI
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The Saudi-Emirati spat:
not an American game
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“The United States does not have much of a role
to play in managing or resolving the current tension in the Saudi-Emirati
relationship. Spats between Gulf states are fairly common occurrences. Yet,
these countries have long, close relationships and are capable of working out
their differences when they emerge. The current friction is a natural outcome following
disagreements over how to modify their previously united —
yet problematic —
policy approach to the
region, as well as economically-driven competition therein. There is little
chance, however, that it will develop into anything resembling the recently ended
Qatar blockade. The UAE and Saudi Arabia are each other’s closest ally and they
certainly realize that long-term discord serves neither’s interests.”
Omar Rahman, Visiting Fellow, Brookings Doha
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ISPI - Italian Institute for International Political Studies Subscribe to the MED Newsletter
MED – MEDITERRANEAN DIALOGUES is the annual high-level
initiative promoted by the Italian Ministry of Foreign Affairs and
International Cooperation and ISPI (Italian Institute for International
Political Studies) in Rome with the aim to rethink traditional approaches to
the area complementing analyses of current challenges with new ideas and
suggestions and to draft a new “positive agenda”, addressing shared
challenges at both the regional and the international level. The opinions expressed in this newsletter are solely those of the authors and do not necessarily reflect the opinions of the Ministry of Foreign Affairs and International Cooperation and ISPI.
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Via Clerici, 5 - 20121 Milano
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ispi.segreteria@ispionline.it
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