The future of oil cartel OPEC and its allies like Russia (OPEC+) is under pressure as the United Arab Emirates refused to sign a new deal on production restrictions. The diplomatic battle that is being waged will determine next year’s oil price and the future of the global energy industry, experts in the market say.
The UAE on Friday blocked an OPEC+ deal to increase production. This puts Abu Dhabi in a difficult position for its allies. Either the country’s demands are met, or the alliance is unravelled. Failure to reach an agreement would put further pressure on the already tight market, likely leading to significant price increases.
But it can also stand out the other way. If OPEC+ breaks up, it could be every man for himself, with countries potentially flooding the markets with oil again. This could cause prices to crash, just like a year earlier, leading to another crisis in the sector.
As with all negotiations, there can be a bluff. At the end of last year, Abu Dhabi suggested the idea of leaving OPEC. The country has so far not threatened to do so. An exit would almost certainly spark a price war, and in that scenario, everyone loses, it sounds like. Negotiations between OPEC+ countries are expected to resume on Monday.
The UAE has been known to want to pump more oil after spending billions on increasing production capacity. So at some point, the other alliance members will probably have to recognize Abu Dhabi’s new status.
OPEC+’s current production agreement expires in April 2022. Saudi Arabia and Russia, with the support of all other OPEC+ countries, want to extend the agreement until the end of next year. However, the UAE has excluded the idea of extending the broader agreement unless their so-called baseline, the maximum oil production per day, is increased. That attitude has effectively left the proposal that Moscow and Riyadh negotiated in the trash.
