Page 7 - NorthAmOil Week 14 2023

NorthAmOil COMMENTARY NorthAmOil

This renewed row over production levels The UAE has already threatened to leave
could make the US less willing to provide secu- OPEC+ twice and it was rumoured to be
rity guarantees that Crown Prince Mohamed strongly against the Saudi-led decision to
bin Salman has asked for and deter Western cut OPEC+ oil output quotas by 2mn bpd in
investment into the Kingdom, which Saudi has October.
long courted to help diversify its economy and “For now, it appears as though the UAE is
aid its Vision 2030 reforms. willing to cooperate, and it could be that they
The US has argued that the world needs lower have been guaranteed less stringent production
prices to support economic growth and prevent quotas when the current deal ends in December.
Russian President Vladimir Putin from earning But if the OPEC+ strategy of lower oil produc-
more revenue to fund the Ukraine war. tion persists, then tensions could escalate, and
In addition to weakening relations with the UAE could ultimately opt to leave OPEC+,”
the US, Riyadh’s relations with Moscow have says Swanston.
noticeably improved in recent years as Saudi But the biggest losers will be the international
Arabia seeks to diversify its foreign relations and net importers of oil that will see energy prices
find counterweights to Washington. rise again that will stoke inflation at a time when
global growth is already slowing. Inflation is
Consequences already near all-time highs in Egypt and mul-
The production cut will slow Gulf economies by ti-decade highs in Morocco and Tunisia and In addition
about 1-2% this year, but will improve national these levels are likely to be elevated for longer,
finances by pushing up oil revenues, for Saudi says Capital Economics. to weakening
Arabia and the UAE in particular. The extra “This will prolong the squeeze on household relations with
income will allow those governments to loosen real incomes and adds to our view that mone-
policy to support the non-oil sectors. tary policy needs to be tightened. There is also the US, Riyadh’s
The consequences for North Africa will be a risk that the cost-of-living crisis fuels social
harsher as the rising prices will fuel inflation and unrest and prompts officials to loosen fiscal relations with
could lead to instability in the local currencies, policy to quell instability, which could add to
which is already a problem there, says James sovereign default worries in Egypt and Tunisia,” Moscow have
Swanston, a Middle East and North Africa econ- says Swanston. noticeably
omist with Capital Economics. With energy import bills set to rise yet again,
The decision may also introduce more ten- that will hurt many countries’ balance of pay- improved in
sion into the OPEC+ cartel, as UAE has been ments positions, increasing the strain on their
unhappy with the tight production volumes balance sheets. Balance of payments prob- recent years.
limits and has been toying with the idea of leav- lems have already forced Egypt, Morocco, and
ing the group. Tunisia to turn to the IMF to secure external
“The UAE wants to increase oil output sooner financing. Larger external shortfalls will add to
rather than later as shown by its move to bring pressure on currencies, particularly the Tuni-
forward its oil production capacity target from sian dinar, says Swanston. “This would reinforce
3.1mn bpd currently to 5mn bpd by 2027 (pre- our view that a messy sovereign default could lie
viously set for 2030),” says Swanston. in store later this year.”™

Week 14 06•April•2023 www. NEWSBASE .com P7