Saudi Arabia and UAE's Disputes Went Public; Political Conflict or Economic Competition?

Public and underlying disputes triggered a crisis between the UAE and Saudi Arabia after a long time, particularly during the Gulf crisis that ended with a Saudi-Qatari rapprochement in January 2021, after a break of nearly four years, Abu Dhabi played a key role in pricing its fire.

The disputes, the first of their kind between two allied countries in decades, have opened widespread questions about the origin of the crisis between the two sides, their impact on the future relationship between Riyadh and Abu Dhabi, and where the escalation between the two Gulf neighbors could reach.

 

Point of Contention

Public tension between Saudi Arabia and its ally the UAE, sparked by the export of oil, as Saudi Energy Minister Abdulaziz bin Salman, UAE, called for a little "rationality and concessions" to reach an agreement on increasing oil production in the OPEC Plus alliance.

The Saudi minister's remarks on July 4, 2021, came after the UAE objected to linking the increase in production to the extension of the OPEC Plus agreement, which it considered "unfair."

The Saudi Energy Minister, referring to the UAE's rejection, said that all members of the coalition accepted the Saudi-Russian initiative except "one country.”

He added that little of what he described as "rationality and concessions" contributed to an agreement to increase production after previous efforts had failed.

"I represent a balanced country that takes into account the interests of all in its role as president of OPEC Plus, Saudi Arabia, the biggest donor, and without its leadership, the oil market would not have improved," he said.

The Saudi minister questioned the "silence" of countries with reservations about the agreement in the past.

He stressed that the (Saudi-Russian) initiative contains an explicit text on "extending the agreement," explaining that the process of increasing production is an additional point not stipulated in the agreement.

He said an increase in production of "400,000 barrels" per month would not be enough to end the cuts in April 2022 (the date of the agreement's expiry).

Abdulaziz bin Salman also said: "We and Russia are partners in proposing an extension of the OPEC Plus agreement and increased production, and there is a mechanism for grievances, but selectivity is difficult, and I do not know that any country objected to its share at the March 2020 meeting."

"The UAE's demand is just only with the new post-April 2020 agreement," UAE Minister of Energy and Infrastructure Suhail al-Mazroui said in a press statement on July 4, 2021.

"This is our sovereign right to ask for reciprocity with other countries," he said.

When global oil demand fell due to the Covid-19 pandemic, OPEC Plus held an emergency meeting in April 2020, aimed at reducing black gold production to prevent its price from collapsing, and then gradually increasing production.

The agreement then reached a two-month cut in OPEC plus oil production by 10 million barrels per day, starting in May 2020, for two months, then 8 million barrels per day for six months to the end of December 2020, and then 6 million barrels from 2021 to April 2022.

The agreement also reached that the reductions would be calculated compared to the production of each country in October 2018, with the exception of Russia and Saudi Arabia, which calculated the reduction rate from 11 million barrels.

 

Rift Alliance

In a reading of the current crisis and its implications for the relationship between the two countries, oil expert Mamdouh Salamah said in a press statement on July 5, 2021, that before the Corona pandemic, the UAE's share of OPEC plus oil production exceeded 3 million barrels per day, and after the decision to reduce it produced only 600,000 barrels.

Salamah said that if the UAE were given the number it claimed from the share of oil production, other countries such as Iraq and Nigeria would also demand a larger share, a major point of contention, he said.

But the oil expert downplayed the problem, describing it as a "rift between brothers,” expecting to be resolved as soon as possible, but noted that this dispute will lead to a rise in the price of a barrel of oil, whether it is resolved today or not.

"Any new agreement is offset by a rise in prices as the global market expects OPEC Plus to increase its production slightly, because the hike reveals OPEC's confidence in rising global demand and therefore higher prices," he said.

"There have been accumulations in Saudi-UAE relations for nearly two years and they are beginning to appear publicly in the final phase, as economic competition and contradictions between the two countries intensify in strategic options," political analyst Joe Macaron said in a press statement on July 7, 2021.

"This dispute will remain in order, but the competition will continue in the foreseeable future, and the challenge for the two countries is to manage their dispute more smoothly and to rebuild confidence between the leadership of the two countries," Macaron said.

"The alliance between the two countries has been fractured by what happened in Yemen, Saudi-Qatari reconciliation, and UAE-Israeli normalization," he said.

"Their strategic interests are therefore no longer shared, sometimes contradictory, and in the next phase they will each have a separate policy on key issues," he said.

"This does not mean that communication or alliance between the two parties Macaron suggested that their differences "will not go beyond the red lines, and will remain set in rhythm, but the solidity of this alliance has been shaken, and will not return to the way it was."

"Saudi Arabia is currently calming its regional opponents, including Turkey," he said, suggesting that it will continue this approach in the foreseeable future, regardless of what happens in its relations with the UAE.

 

Deep Competition

Meanwhile, the Financial Times said in an analysis on July 5, 2021, that the dispute is a sign of the depth of competition between the two countries to secure their oil profitability targets over the next 10 years.

"The strong conflict between OPEC members now threatens the organization's long-term ability to unite and stabilize oil prices," the paper said.

Analysts told The Economist that this is the first dispute between the UAE and Saudi Arabia within the organization in 40 years.

The newspaper noted that the dispute was part of economic competition between the two countries, which had been embodied in other forms in the past.

It spoke of Saudi Arabia's decision to deny multinational companies access to lucrative government contracts if they did not move their headquarters to Riyadh.

It described the decision as an "implicit attack" on Dubai, the UAE's commercial capital, according to the newspaper.

Marwan al-Balushi, a former adviser to the UAE Prime Minister's Office, told the Financial Times on July 5, 2021, that while the UAE and Saudi Arabia have formed a "strategic consensus" in the past decade, "economic competition is escalating among the Gulf states."

"The economic competition that is in the relationship between the two largest Arab economies is strongly candidates for intensification," said Emirati academic Abdul Khaleq Abdullah.

Abdullah, former advisor to UAE Crown Prince Mohammed bin Zayed, said in a press statement on July 6, 2021, that "the UAE speaks out... But the relationship is strong, and leadership knows how to solve issues."

"While economic issues may see further public disagreements, Riyadh and Abu Dhabi are expected to continue to deal more cautiously with political issues to preserve the image of unity," British academic and Gulf expert Christopher Davidson said in a press statement on July 6, 2021.

 

Further Disagreement

As the crisis erupted between the two countries, Saudi Arabia warned foreign companies against losing government contracts if they did not establish regional headquarters in their territory by 2024.

In another challenge to the UAE's status as a trade and business hub in the region, on July 1, 2021, it amended import rules from Gulf countries to exclude goods made in free zones, a major driver of Dubai's economy.

The crisis also appears not only to have been blown up by oil, as Reuters published an analysis report on February 16, 2021, entitled "Saudi Arabia looks forward to snatching the crown from Dubai through a headquarters relocation alert."

"Saudi Arabia has increased its stakes in a competition with Dubai, which is launching as quickly as possible to attract foreign talent and money," it said.

As of 2024, the Saudi government will stop awarding government contracts to any foreign business or enterprise with a regional headquarters in the Middle East in any country other than the kingdom, the agency quoted the Saudi Finance Minister as saying.

The measure is the latest attempt by the kingdom, a religiously conservative state, to reshape itself as a financial and tourist hub under the de facto ruler, Crown Prince Mohammed bin Salman.

But it will not be easy to challenge Dubai's dominance in the neighboring UAE as the region's commercial and financial capital, Reuters reports.

With little oil wealth from its neighbors, Dubai has built its economy on its qualifications as an open space for business and a promise of a glamorous lifestyle for wealthy expatriates.

"It's a new business challenge in the UAE, particularly Dubai, although the high operating environment, legal environment and facilities (there) suggest that companies may continue to have offices across the region," Rachel Zimba of the New U.S. Security Research Center was quoted by Reuters as saying.

But the UAE takes seriously the threat from Saudi Arabia, the world's largest Arab economy and the world's largest oil exporter.

The UAE has already moved to make the country more attractive to foreign companies, including allowing expatriates to divorce, living together in accommodation, and drinking alcohol without a license.

Nasser al-Sheikh, former director general of Dubai’s financial department, said Riyadh's move contradicted the principles of the Gulf single market.

"Global experiences and history have proven that forced attraction is unsustainable," he wrote on Twitter after the Saudi announcement in February 2021.

In addition to the warning, Saudi Arabia also provides companies with regional headquarters in Riyadh with full corporate tax exemption for 50 years.

It is a conditional exemption for the employment of Saudis for at least 10 years, and a possible preference in tenders and contracts of government entities, according to the Saudi Investment Ministry-supervised Investment Ministry.)

The bulletin showed that companies would receive faster repositioning and licensing services and easy work permit rules.

Saudi Finance Minister Mohammed Abdullah al-Jadaan told Reuters that some sectors will also be exempt from the decision to link government contracts to the establishment of regional headquarters. Detailed rules are scheduled to be issued before the end of 2021.

Foreign banks based at the Dubai World Financial Centre (DIFC) such as HSBC, JP Morgan and Citigroup declined to comment.

But opening an office in Riyadh will have strategic significance for technology companies competing for business, while the Saudi crown prince is moving forward with plans for a $500 billion business district on the Red Sea.

"Expanding in Saudi Arabia is a way to move chess pieces for a company in the Middle East," Sam Plattis, former head of government relations at Google for the Gulf region, and CEO of “MENA Catalysts” Consulting, was quoted by Reuters as saying. “It's a strategy.”