\n<\/p>\n
T<\/span>he conflict in the Middle East has claimed Opec as the latest casualty of war. The United Arab Emirates\u2019 shock exit from the oil cartel on Tuesday after 60 years is expected to weaken the alliance, which under the leadership of Saudi Arabia has helped to soothe volatility in the global oil market for decades.<\/p>\n Global oil prices reached the highest level in four years on Thursday, rising above $126 a barrel. But as the region grapples with the continuing conflict, a fresh war may be brewing in the international oil markets, which could lead to greater market volatility for years to come.<\/p>\n For now, the UAE\u2019s intention to ignore Opec production quotas and pump as much crude as it wants is notional, owing to Iran\u2019s blockade on the strait of Hormuz. So too is Riyadh\u2019s ability to weaponise its vast oil reserves in response.<\/p>\n But in a postwar standoff between the two Gulf oil heavyweights, there lies the real risk of a price war in which global energy markets could plunge, with unpredictable economic consequences.<\/p>\n \u201cSaudi Arabia will fight back with a vengeance,\u201d said Michael Tamvakis, a commodities professor at Bayes Business School in London. \u201cThis decision flies in the face of the kingdom\u2019s authority, and the Saudis will want to teach them a lesson.<\/p>\n \u201cIn a world where oil starts flowing again through Hormuz and oil prices start deflating, there will be a race to maximise oil export volumes to keep revenues.\u201d<\/p>\n <\/span>An oil refinery in Saudi Arabia. <\/span> Photograph: Patrick Hertzog\/AFP\/Getty Images<\/p>\n In this race, the Saudi kingdom is expected to \u201caggressively market\u201d its oil to Asian buyers, which also rely on the UAE, by offering discounts on its crude and fuels. While the UAE had typically held the upper hand in marketing refined oil products to Europe, Saudi Arabia may \u201cfight back and try to capture market share\u201d, Tamvakis said.<\/p>\n Saudi Arabia is the world\u2019s largest oil exporter, but in the UAE it has a formidable market rival. The cartel\u2019s third-largest producer held its production at below 3m barrels a day in 2024 at the behest of Opec, but it could raise its production to between 4.5m to 6m barrels a day once flows resume through the strait of Hormuz.<\/p>\n Both countries have some of the lowest production costs in the world, and a fiscal imperative to generate the state revenues needed to prepare their economies for a low-carbon future.<\/p>\n Dieter Helm, a professor of economic policy at the University of Oxford, likened the looming price war to the oil market crashes in the 1980s and 2014, which led to hundreds of thousands of job losses and political instability in oil-rich economies.<\/p>\n \u201cOil prices are likely to fall further and faster as the war ends,\u201d Helm said. \u201cHigher prices encourage more output and the world is awash with both oil and gas reserves.\u201d<\/p>\n The surge in market prices triggered by the war in Iran is expected to fuel the rise of new oil market challengers in the Americas. The longer the Gulf\u2019s exports are throttled by the conflict, the greater the opportunity for the US, Brazil and Guyana to increase their share of the global market at the expense of the Middle East.<\/p>\n A graph showing the rise in the oil price since 28 February. <\/p>\n Meanwhile, economies are accelerating plans to reduce their reliance on fossil fuels, which could hasten the start of the market\u2019s decline.<\/p>\n A postwar market defined by new oil supplies and uncertain demand would be less than ideal for Gulf states as they resume exports. They are likely to pump as much crude as possible to help repair the war-ravaged economies in the region and reclaim their place in the market, so lower prices over the long term are likely.<\/p>\n The scenario represents the antithesis of Opec\u2019s stated agenda. Since the 1960s the cartel\u2019s power has rested in its ability to respond as a united group to the ebb and flow of the oil market to help stabilise prices.<\/p>\n When oil supplies become tight, Saudi Arabia and its allies have been able to open their taps to cool rising prices. When an oversupply of crude causes prices to plunge, Opec stands ready to curtail its output to prevent a market crash.<\/p>\n But signs that the alliance was beginning to fray had become more apparent in recent years as upheavals in the global market challenged Saudi Arabia\u2019s grip and led to bitter price wars in retaliation.<\/p>\n <\/span>Engineers and journalists at the Hawiyah natural gas liquids recovery plant in Saudi Arabia. <\/span> Photograph: Amr Nabil\/AP<\/p>\n In 2020, Opec executed its deepest production cuts months after the Covid-19 pandemic forced the global economy into an unprecedented shutdown that erased millions of barrels of oil demand in a matter of weeks.<\/p>\n The group\u2019s decision to withhold 9.7m barrels of oil a day represented a 10% cut to global oil demand. But the deal was struck only after Saudi Arabia waged a short-lived price war in response to Russia\u2019s refusal to trim its own output, causing prices to collapse to a 20-year low and compounding the economic pain of the pandemic.<\/p>\n It was not the first time that Riyadh had sacrificed market prices to restore its market dominance. In 2014, as the unrestrained flow of oil from the US shale boom threatened to overwhelm the market, Saudi ministers became increasingly frustrated with Opec members that flouted the agreement to hold production in check to steady the market price.<\/p>\n The kingdom responded by increasing its own production, triggering one of the deepest and longest oil price routs in history to drive its higher-cost rivals to the edges of the market. Smaller members of the Opec cartel were collateral damage, and the economic scars could mean some are wary of any postwar limits on their output.<\/p>\n Kim Fustier, a senior analyst at HSBC Investment, said: \u201cThe loss of a core Gulf member weakens Opec\u2019s credibility. If the remaining group is unable to compensate for UAE volumes through collective discipline, price management could become harder to enforce.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" The conflict in the Middle East has claimed Opec as the latest casualty of war. The United Arab Emirates\u2019 shock exit from the oil cartel on Tuesday after 60 years is expected to weaken the alliance, which under the leadership of Saudi Arabia has helped to soothe volatility in the global oil market for decades.<\/p>\n","protected":false},"author":1,"featured_media":49022,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[3668,268,24359,1319,2328,24405,261],"class_list":{"0":"post-49021","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-exit","9":"tag-oil","10":"tag-opec","11":"tag-price","12":"tag-shock","13":"tag-uaes","14":"tag-war"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/49021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=49021"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/49021\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/49022"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=49021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=49021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=49021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}