No sustainable good can ever come out of deceptive oil price wars
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By Bheki Gila
OPEC IS AT it again – or to be exact, two of its eminent constituent members are.
The Kingdom of Saudi Arabia, the de facto owners of Opec and the United Arab Emirates, the third-largest producing power in that group, are mulling over the possibility of a discord.
At its conclusion, yet uncertain, it must permit for the recognition of the UAE as a powerful broker within the brotherhood without wresting the reins of control from Riyadh.
The inevitable consequence of so much sabre-rattling has been the sharp increase in the oil price.
From the depressed West Texas Intermediate oil contracts priced below zero in early 2020 to a staggering $75 per barrel in mid-July, so many questions are bound to follow.
The reasons for the stand-off, rhyming quite close to the ones advanced during the last oil price wars of May last year are various, we are told.
The Saudis didn’t approve of the UAE peace pact with Israel.
Equally, the recent launching of the Murban Index of the Abu Dhabi oil barrel was not in their contemplation as a complement to the Opec normative compact. And, to whatever extent of extremity, the diminution of the UAE’s force deployment in Yemen irritated them visibly.
Predictably, the kingdom unfurled a set of premeditated measures that were strategically calculated to remind the Gulf Co-operation Council (GCC) of the importance of its leadership in the region.
Accordingly, these measures and their cumulative impact started piling up with a telling effect on the Emiratis.
For the UAE, seeing the changing of guard at the White House, they plotted to endear themselves to the new president, Joe Biden, and his foreign policy at the expense of a Riyadh busy contemplating its next political move.
Abu Dhabi had a few prominent things on their list that fanned their umbrage.
The removal of the blockade against Qatar found them ill-prepared.
Of late, the Saudis have determined that companies not domiciled in their jurisdiction can no longer participate in construction contracts in the kingdom.
Besides, the most coveted tariff concessions on goods emanating from UAE Free Zones have been removed.
Furthermore, all flights from the UAE have been proscribed from landing in the kingdom, ostensibly on account of the rising cases of Covid-19 infections in the UAE.
Based on reported sources, the kingdom proposed the phasing in of 400 000 barrels per month until April 2022.
The UAE considered it opportune to remind its assembled audience that its basic quota threshold needed to be revised upward.
Prince Abdulaziz bin Salman, Minister of Petroleum of the Kingdom of Saudi Arabia, weighed in on the side of rationality and compromise.
However, the Minister of Energy and Infrastructure of the UAE, Sheikh Suhail A Mazrouei, asked for fairness.
So many concerned observers, including Ghadi Francis of the West Asia Post, are in deep reflection on the possibility of failure of negotiations and so, on the future of the unity of Opec.
And so the battle lines were drawn, or so it seemed.
Stripped of all artifice, various pieces of the feuding puzzle do not cohere into defining a war, neither of these allies nor about Opec oil prices. Something does not add up.
It may be that there’s a war after all. And if Sun Tzu is correct, all warfare is based on deception.
With the vantage of seeing so many moving parts from outside looking in, there is a perturbing pervasiveness of guile throughout this prose. Or as the Arabs would coin it, “muruna”.
Perhaps from some prism of a looking glass, it is possible to behold glimpses of a disconnect that cognitively enfeebles this oil price war narrative.
First, it is possible that the muchvaunted fuss will thud out in a disappointing wimp after a few rounds of negotiations.
Second, after the scheduled August Opec meeting, their relationship will flourish again as if nothing dark ever habited the bottom of the pond.
Above all, no matter the reading of the reasons of the discord, none of them jointly or severally, can ever coax these old-time allies to a meaningful conflict, least of all accounting to differences of approach to the production quotas inside Opec.
After all, they would be well served to remember the iconic words of admonition from Lawrence of Arabia, that “as long as the Arabs fight tribe against tribe, so long will they be a little people, a silly people”.
Empirically, however, there are parties that are poised to benefit supremely from this stand-off, as in all wars, real or perceived.
For as long as the stand-off persists, the oil price, resulting from this and other chance contributory factors, is bound to rise, fulfilling as it does, the prophecy of a $100 per barrel before the end of the year.
There is no doubt that the Opec brotherhood stand to recoup some of the losses suffered during the oil prices collapse of yesteryear.
The US is another. They have a perverse incentive for seeing oil prices rise beyond certain price ranges.
Considering their largest export is the greenback, any significant uptick in oil price indices, may just conveniently sequester the excessive liquid overhang resulting from the US Federal Reserve’s latest quantitative easing interventions.
Besides, the current pricing levels are conducive for shale exploration and production reawakening.
With the US silently content, the feuding allies would both and simultaneously be endeared to the foreign policy juggernaut of the Biden realpolitik, which is as urgent as it is unstoppable.
The backdrop against which this political theatre is playing out is noticeably haphazard and constantly in flux. The lifting of the wide-reaching sanctions against Iran may soon come into effect, possibly as early as September.
The calculus of Tehran’s return to the productive and exporting organisation may portend an attenuation of the combined production leverage enjoyed by the Saudis and Emiratis, and whatever deriving political advantage they enjoyed.
With the Mullahs untethered from technical export bridles and back in the fold, the tensile sinews holding the cartel in lock step compliance will be severely strained by other extraneous considerations. And in that wise, the UAE’s desire to shore up its baseline production threshold may suffer substantially, at least at first.
While the deflationary tell-tale signs are beginning to factor themselves in the future pricing of commodities, the reported development of the US supplying liquefied petroleum gas to Venezuela must worry some parts of Opec even more, beholding this unexpected spectre with consternation and dismay.
Perhaps not so much for missing out on the economic potential it portends, but more for the inscrutability of its symbolism. Would this gesture be preparatory ground for lifting sanctions against Venezuela?
There are too many variables to contend with in deciphering this political riddle.
In the end, no sustainable common good can ever derive from high oil prices or deceptive wars for that matter designed to lift prices by skilful contrivance.
Ambassador Bheki Gila is a barrister-at-law
*The views expressed here are not necessarily those of IOL or of title sites