The United Arab Emirates’ refusal to agree to a Saudi-backed plan to boost oil output is the latest in an emerging rivalry playing out between the two traditional Gulf allies as both countries seek to diversify their economies and manage a long-term transition away from the petroleum industry.
The unusually public spat between the UAE and Saudi Arabia over output increases by the Organization of the Petroleum Exporting Countries (OPEC) has kept oil prices volatile. Monday’s OPEC meeting was cancelled and has yet to be rescheduled, leading to market uncertainty.
Saudi Arabia supports a plan for OPEC producers to increase oil output in stages by a total of two million barrels per day (bpd) from August through December 2021 and extend remaining cuts until the end of 2022 instead of letting them expire as planned next April.
But OPEC, which relies on unanimous decision-making, saw that plan unravel Monday when the UAE demanded that its own production quota be revised upward, a move that would allow it to increase output further.
While the UAE said it could support raising production to two million bpd through the end of the year, it said extending a cut in output beyond April would be “unfair to the UAE”.
The UAE hopes that by ratcheting up supply now, on the back of the global economic recovery, it can increase revenue needed to support its economic diversification plans.
Saudi Arabia is cautious that too large an increase could put downward pressure on prices, stifling investment and leading to supply issues later on.
For now, the OPEC rift continues — but it is just one in a series of events that show the growing competition between the two Gulf allies.
“It’s not so much about handling a one-year output extension in the oil cartel, but how Saudi Arabia and the UAE manage to work together,” Bader Mousa Al-Saif, a nonresident fellow at the Malcolm H Kerr Carnegie Middle East Center in Beirut, told Al Jazeera.
The Gulf’s two leading economies were hit particularly hard by the COVID-19 pandemic. The UAE’s economy shrunk around 6 percent in 2020, while Saudi Arabia experienced a 4.1 percent contraction, according to the World Bank.
The collapse in oil prices accompanying lockdowns was a reminder of how much Gulf states still depend on petrodollars. And with OPEC forecasting that peak oil demand could plateau and begin to decline by the late 2030s, countries are under increasing pressure to diversify their economic models.
Adel Hamaizia, an associate fellow with the Middle East and North Africa Programme at Chatham House in London, said that while the OPEC dispute put Saudi-Emirati differences into public view, competition has been simmering for a number of years.
“They have been vying for similar investor profiles for some time,” Hamaizia told Al Jazeera. “It’s only more recently that the Saudis have become more assertive and proactive through implementing measures and policies that support their plans and ambitions.” He points to similar blueprints laid out in the two countries’ economic transformation plans.
“If you look at the GCC [Gulf Cooperation Council] Vision programmes, they are for the most part all looking at very similar sectors,” he explained.
Saudi Arabia’s Crown Prince Mohammed bin Salman introduced his Vision 2030 programme five years ago. It aims to increase private sector investment and promote industries like tourism, renewable energy and technology — all similar themes underpinning other Gulf plans, like Dubai’s Vision 2030.
The competition may partly be so obvious because Saudi Arabia finds itself playing catch-up with its ally.
“The UAE and even Qatar are miles ahead in diversification because they started earlier,” Al-Saif said.
Although it is the Middle East’s only Group of 20 member, in the past, Saudi Arabia was content with dominating the oil market and maintaining a conservative society at home. This insulated the desert kingdom and led to a dearth of investment in industries outside of oil and gas.
In contrast, the UAE made more allowances for Western lifestyles. Dubai lured multinational corporations and emerged as a hub for business, tourism and manufacturing.
Since the rise of Mohammed bin Salman — known by his initials, MBS — Riyadh has sought to move beyond its old image.
“The Saudi Arabia of King Salman and his son is not the Saudi Arabia of the past. They are open to the world and now want a piece of the pie,” Al-Saif said.
The 35-year-old MBS has put liberalising social reforms, such as allowing women to drive and permitting the mixing of men and women in public places, at the centre of his rule, even as he continues to clamp down on domestic political dissent.
The reforms, which have generally been welcomed by Saudi’s large urban youth, are aimed at spurring economic growth, opening up the economy and attracting foreign investment.
The concern now is that Saudi Arabia and the UAE are racing against one another with redundant visions for the same industries and development projects.
“Intra-GCC competition is a good thing but so is communication, coordination and complementarity,” Hamaizia explained.
That competition includes a race to secure a reputation as the region’s main business hub. In February, Saudi Arabia took a jab at Dubai’s claim as the region’s economic centre when it announced that companies seeking to participate in government contracts will have to be headquartered in the kingdom.
Riyadh also came out with plans to start a second national airline, which it says will double the country’s air cargo capacity and allow it to emerge as a logistics hub. It will likely offer new competition to the UAE’s two flagship carriers, Etihad and Emirates, as well.
The competition is beyond economic. Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed Al Nayan, known by his initials MBZ, is looking to increase the UAE’s regional clout by charting an independent path from Saudi Arabia on some foreign policy issues.
In 2019, the UAE announced it was pulling its forces from a Saudi-led coalition fighting in Yemen and went so far as to conduct air strikes on forces loyal to the Saudi-backed government there.
The two countries have also diverged on Israel. When the UAE normalised relations with Tel Aviv in 2020 as part of the United States-brokered Abraham Accords, it was seen by many analysts as a sign of Riyadh’s willingness to tacitly approve a thawing of ties between the UAE and Israel.
But on Tuesday, Saudi Arabia amended its tariff rules, singling out items produced in Israel as well as manufacturers linked to Israeli investors in a move that could pose a challenge to Emirati and Israeli efforts to use the Abraham Accords as a springboard for business opportunities in the wider region.
Riyadh’s move also targeted goods and industrial products made in GCC countries with foreign workers and said it will label items produced in free zones within the region as not locally made, opening them up to new tariffs.
The decision may not have been a direct assault on the UAE, but it has the potential to hit the country’s manufacturing model as free zones are a major driver of the Emirati economy.
“The most successful free zones are in the UAE and a lot of the capacity comes from the Emirates,” Hamaizia explained.
Riyadh’s decision has repercussions for the Saudi economy, too, as Saudi data shows the UAE is its second-largest trading partner after China in terms of import value.
While many are eager to play up the risks of the rivalry between the two allies, Al-Saif said it’s not necessarily an unwelcome development.
“I think the competition is healthy and Gulf citizens can benefit from this openness,” he said.
However, Al-Saif warns against deepening rivalries that could hurt all sides. He explained the manner in which the Emiratis and Saudis aired differences at OPEC underscores the need to manage differences within stronger frameworks.
“It reaffirms the need for strengthening governance structures not just for Saudi and the UAE, but the entire GCC,” he stated.
If Gulf states undermine one another in the race to diversify, they could put the future of OPEC and the GCC at risk. This could have significant political ramifications for a region that has been a bastion of relative stability in the Middle East since the first Gulf War.
Hamaizia believes the more likely outcome is that Saudi Arabia and the UAE will find ways to manage their differences, and he warns against discounting the resilience of organisations like OPEC and the GCC.
“Politically, there is still a lot that unifies the Gulf member states, not to mention family, tribal and business ties,” Hamaizia said.
Al-Saif said the economic competition is real but dispels notions of a wider fissure akin to the one that emerged between several Gulf states and Qatar when political tensions led the UAE and Saudi Arabia to impose a nearly three-year blockade on Doha.
“Saudi Arabia and the UAE are both changing and realise that they are not the same countries they were when they formed the strong alliance,” Al-Saif said. “But it doesn’t make sense for either one of them to let go of the other.”