ISPI MED This Week

ISPI MED This Week | Saudi Arabia and the United Arab Emirates Beyond OPEC: A Race for Diversification

The MED This Week newsletter provides expert analysis and informed insights on the most significant developments in the MENA region, bringing together unique opinions on the topic and reliable foresight on future scenarios. Today, we focus on the Saudi-Emirates relationship, as Riyadh’s and Abu Dhabi’s recent disagreements within the OPEC Plus cartel may indicate a possible fault line in one of the region’s most long-lasting alliances.

On the 19th of July, OPEC Plus cartel nations agreed to boost their oil production to reduce oil prices and stabilize the global market. The final goal was to restore their pre-pandemic oil output by September 2022, which was cut by about 10 million barrels per day last year due to worldwide restrictions and the disruption of economic activities. The decision came after weeks of confrontation within OPEC Plus, which saw Saudi Arabia and the United Arab Emirates (UAE) in an unusual dispute. It is not the first time the two allies show divergences, giving airtime to rumours about the solidity of the traditional Riyadh-Abu Dhabi axis. In fact, oil production is not the only bone of contention between the two allies: the war in Yemen and their economic competition are also causing friction. As regards Yemen, Riyadh and Abu Dhabi’s respective support for different factions undermines the Riyadh Agreement, which were an attempt to unify the southern factions under one government. Meanwhile, on the economic front, an-intra Gulf rivalry may be a likely scenario as Saudi Arabia and the UAE, as well as the other gulf economies, are dealing with structural reforms aimed at economic diversification to reduce their reliance upon oil exports. These plans are pushing the two countries to compete in several strategic fields, such as the airline industry, which could further complicate the cohesion among the Gulf Cooperation Council (GCC) with important implications for the region.

Experts from the ISPI MED network react to Riyadh’s and Abu Dhabi’s recent disagreements within the OPEC Plus cartel.


Not only a political competition

Diverging economic interests add to the political strains in their bilateral relationship (e.g., the war in Yemen, the Abraham accords, the spat about Qatar). The UAE has larger oil endowments per capita; it is more advanced in diversifying its economy and can count on revenues from its well-established sovereign wealth funds (SWFs). Saudi Arabia, on the other hand, has a much larger population to cater to and is new to the SWF and the diversification game. As a peak in global oil demand looms by the mid-2030s, the UAE is in a hurry to monetize its oil reserves, while Saudi Arabia prefers to push back the day of reckoning. Economic competition intensifies as Saudi Arabia invests in Dubai look-alike projects in logistics, aviation, tourism, and real estate and tries to lure international companies’ regional headquarters to Riyadh.

Eckart WoertzDirector, Institute for Middle East Studies, GIGA


Both economies can benefit from more rivalry

The UAE has been a primary beneficiary of Saudi’s challenging social and business environment for decades. Ask companies and entrepreneurs in the UAE about their critical regional market, and most will mention Saudi. The Thursday evening Emirates flights from Riyadh to Dubai tell the story. They are filled with lawyers, consultants, and investors, all making their way home to their regional headquarters for the weekend. As Saudi inches closer to achieving its Vision 2030, we should expect more competitive tension between it and the UAE. This is not necessarily negative as long as both countries realize it is not a zero-sum game. Both economies can benefit from a more open and dynamic regional economy.

Amjad Ahmad, Director, EmpowerME Initiative; and Resident Senior Fellow, Rafik Hariri Centre for the Middle East, Atlantic Council


Despite their differences, cooperation will survive

The rift between Saudi Arabia and the United Arab Emirates is not new, nor is it unusual. GCC countries have diverged in the past on different issues. Competition is likely to increase as countries in the region are on similar trajectories to implement post-oil diversification plans. While the recent disagreement has highlighted this trend, it does not imply a breakdown in cooperation, which has always existed between GCC member states in various fields and to varying degrees. The economy will continue to be a key determinant of developments in the region, including intra-GCC relations. However, shared interests will ensure that ties between Gulf countries will remain intact despite differences and rising competition.

Eman Alhussein, Non-Resident Fellow, The Arab Gulf States Institute in Washington


“The Emirati-Saudi rift is likely to benefit the Houthis alone”

The re-emergence of the Emirati-Saudi rivalry is not of good omen for Yemen. Aden and many Southern cities and governorates are still internally divided among competing armed groups: pro-Saudi Yemeni forces (supporting president Hadi) against pro-Emirati Yemeni secessionists (backing the Southern Transitional Council). The new Emirati-Saudi rift risks, once again, igniting military clashes as the security annex of the “Riyadh Agreement” is yet to be implemented. Or, at least, it could generate further obstacles on the road towards power-sharing. In both cases, the competition can negatively affect the internationally recognized government in terms of institutional capacity, territorial strength, and diplomatic voice: as such, the Emirati-Saudi rift might only benefit the Houthis.

Eleonora ArdemagniAssociate Research Fellow, ISPI


The Saudi-Emirati spat: not an American game

“The United States does not have much of a role to play in managing or resolving the current tension in the Saudi-Emirati relationship. Spats between Gulf states are fairly common occurrences. Yet, these countries have long, close relationships and are capable of working out their differences when they emerge. The current friction is a natural outcome following disagreements over how to modify their previously united — yet problematic — policy approach to the region, as well as economically-driven competition therein. There is little chance, however, that it will develop into anything resembling the recently ended Qatar blockade. The UAE and Saudi Arabia are each other’s closest ally and they certainly realize that long-term discord serves neither’s interests.”

Omar RahmanVisiting Fellow, Brookings Doha


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