May 1: the verdict

A standoff between Gulf oil giants Saudi Arabia and the UAE could cause greater market volatility for years to come. May 1 has emerged this Saturday as one of the stories drawing attention in UAE.

Key facts

• A standoff between Gulf oil giants Saudi Arabia and the UAE could cause greater market volatility for years to come.
• 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.
• While the UAE had typically held the upper hand in marketing refined oil products to Europe, Saudi Arabia may “fight back and try to capture market share”, Tamvakis said.
• The United Arab Emirates’ 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.
• Global oil prices reached the highest level in four years on Thursday, rising above $126 a barrel.

What we know

Going deeper, 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.

On the substance, while the UAE had typically held the upper hand in marketing refined oil products to Europe, Saudi Arabia may “fight back and try to capture market share”, Tamvakis said.

Beyond the headlines, the United Arab Emirates’ 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.

More precisely, Global oil prices reached the highest level in four years on Thursday, rising above $126 a barrel.

It is worth noting that the cartel’s 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.

By the numbers

At this stage, 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.

On a related note, since the 1960s the cartel’s 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.

Going deeper, 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.

On the substance, the group’s decision to withhold 9.7m barrels of oil a day represented a 10% cut to global oil demand.

What they're saying

“Saudi Arabia will fight back with a vengeance,” said Michael Tamvakis, a commodities professor at Bayes Business School in London. “This decision flies in the face of the kingdom’s authority, and the Saudis will want to teach them a lesson.

“In 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.”

“Oil prices are likely to fall further and faster as the war ends,” Helm said. “Higher prices encourage more output and the world is awash with both oil and gas reserves.”

The wider context

On a related note, But the deal was struck only after Saudi Arabia waged a short-lived price war in response to Russia’s refusal to trim its own output, causing prices to collapse to a 20-year low and compounding the economic pain of the pandemic.

Going deeper, 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.

On the substance, the conflict in the Middle East has claimed Opec as the latest casualty of war.

Beyond the headlines, For now, the UAE’s intention to ignore Opec production quotas and pump as much crude as it wants is notional, owing to Iran’s blockade on the strait of Hormuz.

More precisely, So too is Riyadh’s ability to weaponise its vast oil reserves in response.

The bottom line

• While the UAE had typically held the upper hand in marketing refined oil products to Europe, Saudi Arabia may “fight back and try to capture market share”, Tamvakis said.
• The United Arab Emirates’ 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.
• The cartel’s 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.