The silent treatment: Saudi Arabia’s long game for managing Opec

{"text":[[{"start":9.9,"text":"The silence from Riyadh tells its own story. Days after the United Arab Emirates stunned its neighbours by announcing its immediate exit from Opec, neither the oil cartel nor its de facto leader Saudi Arabia has offered any public response. "}],[{"start":24.65,"text":"The vacuum reflects both the shock of the decision and the position that Saudi Arabia, the world’s top oil exporter, has found itself in. While the country’s rift with the UAE has been simmering for several years, the timing of the announcement, in the middle of a regional war, caught many off-guard. "}],[{"start":41.25,"text":"Several people familiar with the situation said Riyadh received little warning and no opportunity to negotiate before a formal letter was delivered to Prince Abdulaziz bin Salman, the Saudi oil minister. "}],[{"start":52.85,"text":"“They knew this was coming, but some people are upset that they were not given a heads-up,” said one person close to officials in the kingdom. "}],[{"start":61.5,"text":"Helima Croft, an oil analyst at RBC Capital, said it was “an interesting moment to do it in the middle of the war”."}],[{"start":69,"text":"Ali Shihabi, a Saudi commentator close to the royal court, said the UAE’s move appeared “more politically motivated than economically persuasive”."}],[{"start":79.85,"text":"“It may be aimed at escaping Saudi-dominated decision-making, but the UAE faces the same basic dilemma as Saudi Arabia: maximising output can erode prices,” he said. “And by distancing itself from its natural Gulf producer bloc, the UAE risks gaining autonomy at the cost of influence.”"}],[{"start":99.69999999999999,"text":"For now, Saudi Arabia’s priority is to contain the fallout. Officials are acutely aware that any public show of anger could unsettle already turbulent oil markets or affect the 21 other members of Opec and the wider Opec+ alliance as they consider their own position. "}],[{"start":null,"text":"

"}],[{"start":115.44999999999999,"text":"Instead, Riyadh is projecting calm and reassuring its allies that its ability to manage the market has not been weakened ahead of a meeting of seven Opec members on Sunday to discuss production increases. “They have to show stability now,” said the person close to Saudi officials. “We will be closely watching for cohesion optics coming out of Sunday’s meeting,” added Croft. "}],[{"start":138.54999999999998,"text":"Mohamed Ramady, author of OPEC in a Shale Oil World: Where to Next?, predicted that Prince Abdulaziz would avoid burning any bridges with the UAE. “His response will be that all doors will be left open to the UAE to have an association with Opec,” he said. He added that he expected Saudi Arabia to reduce its quota slightly on Sunday to bring its limit closer in line to Russia’s."}],[{"start":164.89999999999998,"text":"Behind the scenes, Opec’s secretary-general, the Kuwaiti diplomat Haitham Al Ghais, has sought to reassure market watchers that other member states are not looking to exit and the group remains intact despite the UAE’s departure. Opec did not respond to a request for comment."}],[{"start":182.45,"text":"The UAE’s move may have been abrupt, but it was also carefully timed. The country has for many years made clear that it wanted to produce more oil than its Opec quota would allow. "}],[{"start":192.89999999999998,"text":"But by acting while Gulf oil flows are already disrupted by war, Abu Dhabi has minimised the immediate market impact and reduced the chances of retaliation. "}],[{"start":202.09999999999997,"text":"“They were very worried that the Saudis would surge their oil production to crash prices and punish them,” the person close to Saudi officials said. “Doing it now takes all the risk away.”  "}],[{"start":213.29999999999995,"text":"Jim Krane, a Middle East energy expert at Rice University’s Baker Institute, said Saudi Arabia had few good options to respond while oil shipments through the Strait of Hormuz remain constrained. "}],[{"start":225.54999999999995,"text":"He noted that the way Saudi Arabia, the only oil producer with significant spare capacity, traditionally enforced discipline in Opec was to raise the threat of a price war, since its ability to pump more oil dwarfs that of any other member. “That’s not [currently] on the cards,” he said. "}],[{"start":243.59999999999997,"text":"Even so, Krane and others expect consequences over time. "}],[{"start":247.69999999999996,"text":"One potential pressure point is the extensive land border between the two countries, a vital artery for trade. “It is a super busy border crossing, and the UAE is really dependent on Saudi for food, particularly dairy, especially now the strait is closed,” he noted. But he cautioned that any disruption would amount to a “pretty serious escalation”. "}],[{"start":null,"text":""}],[{"start":269.59999999999997,"text":"Krane, who estimated in 2023 that the UAE could earn an additional $50bn a year in oil revenues outside Opec by selling freely, said the country did not pose an immediate threat to the cartel. Expanding production will take time, and Abu Dhabi might opt to retain spare capacity for strategic reasons. "}],[{"start":288.24999999999994,"text":"In the near term, Saudi Arabia may face more disruption within Opec itself. The departure of the UAE may encourage other members to press for looser production limits, especially in the wake of the Iran conflict, when Gulf members will want to regain market share. "}],[{"start":302.74999999999994,"text":"“They are going to use this as a source of leverage,” said one long-term Opec watcher. “They will say, we love you Saudi but can we just revisit the question of our quota? Saudi is expecting everyone to be unruly for a while.”"}],[{"start":315.49999999999994,"text":"Frederic Lasserre, head of research at oil-trading group Gunvor, said the “real challenge” would be to restrain Russia, Iraq, Kazakhstan and others that have been accused of sometimes pumping above their official quota. But he noted that Saudi Arabia had a long history of managing the group. “We should not underestimate their ability,” he said. "}],[{"start":335.44999999999993,"text":"A second former Saudi official said it was currently impossible to judge the impact of the UAE’s decision. “We are in turmoil with the war. There are lots of uncertainties after the war. In a normal situation we would know if this would be bad, but until the Strait of Hormuz reopens we are just groping in the dark,” he said. "}],[{"start":354.04999999999995,"text":"Nevertheless, he said Riyadh was confident that Opec will endure. “They are not going to change now because one country withdraws. Opec will continue.”"}],[{"start":363.4,"text":"Data visualisation by Alan Smith"}],[{"start":374.74999999999994,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1777691231_7718.mp3"}