The United Arab Emirates (UAE) recently voiced opposition to the Organization of the Petroleum Exporting Countries (OPEC+) Plus group’s decision to prolong the global pact to reduce oil production beyond April 2022.
The Dynamics of Output Pact and the Fluctuating Oil Price
In order to counteract the severe price drop due to the Covid-19 pandemic, OPEC+ nations adopted a two-year Output Pact in April 2020. This plan required a substantial reduction in oil production. The cost of Brent crude plummeted to less than USD 20 per barrel in April 2020, marking its lowest point in 18 years as the pandemic brought economies to a standstill.
Although the rollout of vaccination programs around the world began to push up prices in November 2020, the OPEC+ group persisted with lower production levels despite reaching pre-Covid figures. Saudi Arabia, in particular, declared a further cut in oil production of 1 million barrels per day between February and April, which further fueled the rising prices.
UAE’s Disagreement with OPEC+ Pact
UAE acknowledged the necessity of increasing crude oil production from August 2021, but disagreed to a provision by the OPEC Joint Ministerial Monitoring Committee that required a six-month extension to the existing two-year production agreement.
The country’s primary issue with the agreement is the use of reference output to ascertain each oil-exporting nation’s production share. UAE contends that the baseline production level reference within the current agreement fails to accurately represent its manufacturing capacity, resulting in a lesser share of total crude oil production.
Impact of OPEC+ Conflict on Indian Economy
The disagreement might have various repercussions for India. If an agreement to increase production in August cannot be reached, relief in the form of lower crude oil prices may be postponed. This could lead to high domestic prices and slow recovery, given that India is currently grappling with record-high petrol and diesel prices.
The crude oil price hike has resulted in Indian oil marketing companies increasing petrol prices by roughly 19.3% and diesel prices by about 21% since the start of 2021. This surge in oil prices has also added to the inflationary pressure on the Indian economy.
What is OPEC?
The Organization of the Petroleum Exporting Countries is a permanent intergovernmental entity formed in 1960 at the Baghdad Conference by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. The organization, headquartered in Vienna, Austria, strives to manage global oil supply to stabilize prices and prevent fluctuations that can harm both producing and purchasing nations’ economies.
What is OPEC+?
OPEC+ is an affiliated entity comprising OPEC members and 10 other major non-OPEC oil-exporting countries, including Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan, and Sudan.
