UAE Leaves OPEC Cartel

By Henry Srebrnik, Fredericton Daily Gleaner

The United Arab Emirates, the world’s third-largest oil producer, quit the Organization of the Petroleum Exporting Countries (OPEC) at the end of April. And that’s a very big deal.

The UAE has been a member of OPEC since 1967, first through Abu Dhabi, the most oil-producing Emirate, and then since 1971 as the seven-emirate federation it is today.

Apart from its effect on the cartel’s ability to control oil prices, the move reflects a widening confrontation with Saudi Arabia and a fundamental realignment of alliances as a result of the current Middle East war over Iran, as well as the ongoing civil war in Yemen.

The scenario represents the antithesis of OPEC’s stated agenda. 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.

But the UAE has chafed for years at OPEC’s per-country production quotas that are intended to limit global supply and push up oil prices. Saudi Arabia and the UAE are the cartel’s two swing producers that have excess capacity to ramp up output.

Indeed it is precisely this that led to long-term reconsiderations of the UAE’s position. Put simply, the UAE wanted to use the considerable capacity it has invested in. OPEC quotas limited its production to 3-3.5 million barrels per day. OPEC membership sacrifices, in terms of lost revenues, were being made disproportionately by the UAE.

Remaining within OPEC under an architecture effectively controlled by Riyadh would have meant accepting institutional subordination at the precise moment when the bilateral relationship was hardening into open rivalry. The exit is also an act of sovereign disengagement from that tutelage.

The exit resolves the long-standing tension between the UAE’s rapidly expanding production capacity and restrictive OPEC quotas that forced the nation to operate roughly 30 per cent below its capability. This is reflective of a fundamental difference in interests: Saudi Arabia requires more than $80US per barrel to balance its national budget and fund Crown Prince Mohammed bin Salman’s ambitious plans for the country.

Conversely, the UAE possesses a vastly more diversified economy and massive sovereign wealth funds. The UAE’s overall economic health is tied more closely to global macroeconomic growth than to the nominal price of a barrel of oil. By exiting OPEC and actively increasing global supply to lower energy costs, the UAE can deliberately stimulate the global economy, curb Western inflation, and thereby bolster the returns of its own massive international investment portfolios.

“Saudi Arabia will fight back with a vengeance,” remarked 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.”

The tension is rooted in what had once been a close relationship between Saudi Crown Prince Mohammed bin Salman and UAE President Mohamed bin Zayed al-Nahyan, known by their initials “MBS” and “MBZ.” The Emirati leader mentored the young Saudi in 2015 and 2016 about how to modernize his conservative kingdom. Friends of both men describe the rivalrous relationship as somewhere between father and son and an older and younger sibling.

As MBS succeeded in consolidating power, he began to chafe against UAE tutelage. The Saudi didn’t want instruction anymore from a smaller and less powerful country, and the Emiratis didn’t want to take orders from a regional hegemon in Riyadh. Like many family feuds, it was partly about money and power but also, at a deeper level, jealousy and resentment.

Although the two nations have long clashed through proxies in Yemen, Sudan, and elsewhere, the UAE is now charting a more permanent, independent course. Emirati president Mohamed bin Zayed Al Nahyan has grown increasingly vocal about his disappointment with the Arab League and the Gulf Cooperation Council.

The UAE’s economic independence cannot be decoupled from the immediate security crisis that catalyzed its political break from its neighbours. On February 28, the shadow war in the Middle East exploded into open conflict when the U.S. and Israel launched massive pre-emptive strikes against Iranian military and nuclear infrastructure. Iran’s retaliation was unprecedented, unleashing a barrage of thousands of ballistic missiles, cruise missiles, and suicide drones not just at Israel and U.S. bases, but directly at Gulf states hosting American forces.

On May 3, an Iranian drone struck the Fujairah Petroleum Industries Zone, a particularly sensitive target for the UAE: It is the eastern terminus of the Abu Dhabi Crude Oil Pipeline, which is the UAE’s only means of exporting oil without transiting the Strait of Hormuz. Because it is just across the sea, Tehran gets to use its cheaper, less valuable short-range rockets and drones to make its point.

But even when the relationship with its other neighbours isn’t overtly adversarial, the UAE is clearly finished with regional conformity.

The UAE has been building a new crude pipeline bypassing the Strait of Hormuz, which is now almost 50 per cent complete. When it is finished, and when the tankers flow through the Strait of Hormuz again, Emirati oil will flow like never before, unconstrained by OPEC commitments.

The UAE will emerge completely unbound by quotas, ready to flood the market with a secure market share in the world, directly undercutting its former OPEC allies.

 

 

Alberta Isn’t Pleased With Carney’s Choice for Governor-General

 By Henry Srebrnik, Saint John Telegraph-Journal

Is Prime Minister Mark Carney, born in the Northwest Territories and raised in Edmonton, secretly an Albertan “Trojan Horse” on behalf of central Canadian elites? (See Homer’s Iliad if that term puzzles you.)

 Because selecting left-wing Québécoise Louise Arbour as Canada’s next governor general is bound to increase support for separatism in that already very angry western province. And it comes at a time when Canada faces an America under Donald Trump that is no longer perceived as a benign neighbour and a taken-for-granted ally. 

A governor general is supposed to be a figure above politics. But as a former Supreme Court justice, a former United Nations High Commissioner for Human Rights, and a former chief prosecutor of international war crimes tribunals, Montreal-born Arbour is, as writer Stephen Taylor pointed out in “Governor General Louise Arbour: the Laurentian Default,” on his Canadian Politics and Commentary website May 5, “the most ideologically loaded appointment to Rideau Hall in living memory.”

There is no doubt that she fits the stereotype of a Laurentian liberal insider who holds all the left’s progressive views. From the earliest days of Arbour’s legal career at the Law Reform Commission of Canada, a left-wing activist group, through to her time at the Supreme Court and the United Nations, one thing has been consistent -- her activism.

As someone who spent two years at the United Nations building an international framework to normalize mass migration, she will be the Crown’s representative “in a Canada where the previous government’s immigration policy is widely regarded as a catastrophe,” Taylor adds.

Her views are standard fare among central Canadian political elites. Despite all that, at other times, Arbour might be less of a lightning rod or someone adding fuel to a fire. But it’s not just about her -- the appointment is seen as yet another example of disregard for the west, in a country already under strain.

About 13 million people live west of Ontario and for them to have had no representation in the governor general’s office in more than two decades is indeed noteworthy. The last time the region had a governor general was more than 20 years ago, when Ray Hnatyshyn of Saskatchewan held the post. Subsequent governors general were, originally, from New Brunswick, Hong Kong, Haiti, Ontario and, twice, Quebec. Given the length of the drought since there was a governor general from the west, this current choice deserved extra consideration.

“Not Choosing an Albertan to be GG is an Alarmingly Obvious Missed Opportunity,” suggested journalist Matt Gurney on his May 7 Line Substack. “Because the next governor general should have been from western Canada. Alberta, specifically. The actual physical embodiment of the Canadian state could have been from a part of the country that feels, rightly or wrongly, largely alienated from the Canadian state. He has appointed someone who will confirm a lot of the suspicions the Alberta separatists already had about him, his worldview, the people around him, and the country in general.” It adds insult to injury.

Alberta hasn’t had much respect for years. The oil industry was seen under Justin Trudeau as a source of shame rather than an economic resource. The memorandum of understanding signed by Carney and Alberta Premier Danielle Smith last year promised a deal to approve a new pipeline, but until now it had placed onerous burdens on any plan to build one. Have the recent negotiations between Carney and Smith improved things? Maybe there’s finally been some progress.

Recently, reports have been published suggesting that American and Russian actors are exploiting these regional grievances. “Both Russian and pro-Trump U.S. actors are amplifying and spreading misinformation about Alberta separatism in the hope of fraying Canadian unity and sowing distrust in key institutions and authorities,” according to a May 6 article on the CBC’s website.

Even if this is true, it’s hardly been necessary. The Alberta separatist movement has its roots in western alienation, the belief that the interests of the province are often overlooked by decision-makers in Ottawa. It long precedes Vladimir Putin and Trump.

In his new book The Republic of Alberta: An Idea That Won’t Go Away, journalist Tyler Dawson examines the long history of Alberta separatism. “The grievances and tensions have simmered for decades, occasionally boiling over; subsequent premiers of Alberta fought with Ottawa over banking rules and pushed to wrest control of Alberta’s resources from the federal government,” he notes. Independence advocates claim that Alberta has been systematically undermined by the Canadian federation that created it.

The fact that support for separation hovers in the polls around 30 per cent is hardly surprising. Indeed, if Albertans were ethnically or linguistically different from other Canadians, it would be far higher.

A proposed independence referendum could face a vote as soon as this autumn. Every time the Liberals dismiss Alberta or bring in new policies to control its resources, it motivates the separatists. One of these days, smoldering resentment may turn into a fire hard to extinguish.

As for Arbour, she was asked to respond to her critics who see her as too political, too partisan to occupy a role that should represent all Canadians. “I will reach out, not only to those who agree with me,” she replied. Let’s hope she means it.