The Organisation of Arab Petroleum Exporting Countries’ (OAPEC) held its 101st meeting in Kuwait on December 23.
The United Arab Emirates (UAE) energy minister Suhail al-Mazrouei said that the OPEC and other oil producing allies will do whatever is needed to 'balance' the markets next year following its decision to cut down the oil output by 1.2 million barrels per day.
“What if the 1.2 million barrels of cuts are not enough? I am telling you that if it is not, we will meet and see what is enough and we will do it,” Mazrouei said.
"The plan (to cut oil production) is well studied but if it does not work, we always have the power in OPEC to call for an extraordinary meeting,” he added.
On December 7, the OPEC and its Russia-led allies agreed to cut oil production by more than the market had expected despite pressure exerted by the US President Donald Trump to reduce the price of crude exports.
According to the agreement, the OPEC will cut oil production by 0.8 million barrel per day while non-OPEC allies will cut the supply by 0.4 million.
Mithat Rende, Turkey's former ambassador to Qatar, spoke to TRT World to explain why the Arab OPEC members are resisting US president Donald Trump's policy of decreasing the oil prices.
As a result Trump's policy, Rende said Saudi Arabia and the UAE have faced budget deficits. From 2014 onward, the oil prices went down from $ 110 to 35 per oil barrel.
Saudi Arabia had made its budget calculation on the basis of $70-73 per barrel. As the country lost a major chunk of revenue, Riyadh postponed many of its infrastructure projects.
“Because of Saudi Arabia’s lack of economic diversification, the country’s economy hugely relies on petroleum export,” Rende said. "Oil export constitutes 80 percent of the total income of Saudi Arabia."
The UAE experienced similar struggles due to low oil price, even though it's economy is slightly diverse and driven by the mix of commerce, tourism and oil revenue.
Rende emphasised that Qatar siege by Saudi-led Arab countries also hurt the UAE's economy because of Qatari businessmen delaying major investments in the country.
The US President Donald Trump asked Saudi Arabia, OPEC’s de-facto leader, this summer to raise oil production to compensate for lower crude exports from Iran after sanctions and to ensure no spike in oil prices before midterm elections.
The OPEC is a consortium of 14 oil exporter countries: Saudi Arabia, the United Arab Emirates, Iran, Iraq, Kuwait, Qatar, Libya, Nigeria, Algeria, Angola, Ecuador, Equatorial Guinea, Gabon and Venezuela that holds 81.89 percent of total world crude oil reserves. The organisation sets production volume to meet the demand for oil in negotiation with countries outside OPEC, such as the US and Russia.
And the OAPEC comprises of Arab countries that dominate global oil production. The Arab members of the OPEC have strong monopoly over oil economy because of their 55 percent of proven oil reserves and cost effective production capacity.
Experts argue that the US believes that Iran benefitted from high oil prices amid the US-imposed sanctions on the country in the past. Therefore, the new round of sanctions imposed on Tehran by Trump administration will mete the same fate if the Arab countries jacked up the prices.
"But despite [the US pressure] OPEC lowered output at the Vienna meeting because all of a sudden prices went down from $86 to $56 [a barrel]. It was a big drop, which of course didn’t work for Saudi Arabia," Rende said.
Saudi Arabia raised oil production to a record high in November, pumping 11.1 million to 11.3 million barrels per day.
Rende said the Saudi-led coalition's participation in Yemen war since 2015 turned out to be a high-cost military adventure for Riyadh.
Besides that, Saudi Arabia's youth population of 30 million, which is partially or completely dependent on the country's welfare policies, has burdened the state exchequer.
Rende is doubtful to what extent the Saudi Vision 2030 is now realisable. The flagship project of was a part of the crown prince Mohamed bin Salman's policy to reduce the country's economic dependency on petroleum and diversify to other fields.
Another major infrastructure project named Neom, which needs $500 billion for completion, has fallen short of funding due to falling oil prices. .
Five percent of the $2 trillion worth Aramco, Saudi oil company, was planned to initial public offers in recent years. However, it has been postponed due to rising budget gap.
Professor Oktay Tanrisever from the Middle East Technical University said that despite of the Arab countries waning influence in OPEC, they can still disrupt international markets by changing oil prices.
That might change with time since non-OPEC countries are increasing oil production and also transitioning from fossil fuels to renewable energy. And then diplomatic grip the US and Russia has over oil producing nations in the Middle East always gives them an advantage to negotiate oil economy.
“Actually, the US and Russia has become one of the most influential countries on oil pricing because of their political effects on the main oil exporter countries such as Iran, Iraq, Saudi Arabia and the UAE,” Tanrisever said.