English version is followed by a Persian, then a long written analysis within US “Energy Dominance” strategy.
| One problem with giving a quick take on breaking news is that one can forget something. In the interview, I forgot about the US dollar swap line that the UAE had cajoled out of the USA –Trump and Bessent – just before it decided to quit OPEC. Below is the post I immediately wrote with many, IMHO, relevant issues underlying this move. These include national economic and geostrategic differences of an often rather sharp sort between the UAE and Saudis. However, the swap line issue is now included as point “Zero”. |
-0.a- Regarding the swap line: As readers here know, my analysis is that the Trump administrations sharp moves against, first Russian energy together with the Ukrainians was at a point where it began threatening to take Russian oil offline, forcing Russia to shut in delicate, old West Siberian fields, much like the USA had now openly said it intends to do to Iran by blocking oil exports from its Kharg Island export terminal, likely ruining the productivity of these fields for the long term.
-0.b- You will recall that Trump constrained and/or convinced India’s Modi to halt Russian oil imports as part of this larger anti-Russian oil campaign to press Putin to end the Ukraine war.
-0.c- However, before the USA proceeded to the next step vs. Russian exports, it went to Venezuela and took control of its oil sector, beginning a comprehensive and very rapid campaign there to bring Venezuelan oil back online rapidly. This both shut off an approximately 2 million battels per day (mbd) stream of oil to China, but, moreover, diverted that oil principally to India, and that stream is now part of the USA effort to take care of India during the Iran crisis, so that it does not revert to taking Russian oil.
-0.d- And, the USA also then attacked Iran. IMHO, this has nothing to do with any urge to control Iran itself, which is very similar to the USA’s lack of interest in control and/or regime change in Venezuela either. In Iran, the issue is regional hegemony. A country such are Iran, which had been seen as seeking Gulf and MENA regional hegemony for decades, is to be prevented from obtaining the tools required, such as nuclear weapons, proxies and a comprehensive drone and missile offensive capacity. The core reason the USA will not allow Iranian hegemony in the Region is clearly the role of the Gulf and the Straight of Hormuz in the flow of roughly 20% of the world’s crude oil and refined products to global markets..
-0.e- In this situation, the UAE has been taking a much more sharp stance vs. Iran than has, for example the Saudis. The Saudis seem to be more interested in negotiations and smoothing over differences with Iran and getting on with business. The UAE, which says it was actually hit by more Iranian missiles and drones than Israel only has interest now in defeating Iran, from all reports.
-0.f- However, it has sufrered damage and is upset that the USA got it in this situation *of course, it would be more upset, later if the USA, like the Europeans, had refused to stand up to the Iranians and remove their threat. In any case, the UAE is in a position to \cry a bit and demand some benefits from the USA in return for its resolute anti-Iran stand. So the USA agreed to the currency swaps the UAE asked for. There is no way the UAE really needed these. It is one of the richest states on earth. However, this means it won’t have to sell its own bonds in the market to raise cash or won’t its USA bonds for cash – if it even would have to. So, this cements the UAE-Washington ties like never before.
-0.g- And, in return, apparently the USA wanted some demonstrative move by the UAE in the direction of its energy geostrategy. So, the UAE quit OPEC and in doing so asserts it intends to put now ca. 2.5 but more like 5 mbd online after the war. This, according to Treasury Secretary Bessent, pleases the USA, as the USA wants the maximum amount of ol online ASAP after the war with Iran and to push prices lower for longer. I should point out that this will also allow it to very credibly show Mr. Putin that, together with many other new oil sources, such as from Venezuela, it controls, it would be no problem to take from, say 3.5 to 4.5 mbd of Russian oil exports offline, and absolutely ruin Russia’s West Siberian fields for the long term. (There are advantages in keeping the UAE very close to the USA in its oil relations with China too.)
So, that is my take on the role of the currency swap deal as a prozimate trigger of the UAE decision to leave OPEC, something it has long threatened and has had its own reasons to do. Following is my take on those economic and strategic points. …
-1- First are differences in their oil market strategies and home economies.
The KSA needs a higher oil price as it has not succeeded in diversifying its budget as much as has the UAE.
This sort of thing was always a key division of the price hawks vs. KSA/GCC OPEC members. The “price hawks” had many more citizens to support with their petrodollars (what the USA termed “the Axis of evil”) vs. the market-oriented states (which were USA allies), such as the Saudis and UAE. The latter have always had an order of magnitude more oil revenues and many less citizens to support. The latter could afford to be “business like,” to optimize price and output to meet market conditions while the first group were geoeconomically desperate.
What is interesting to me here is that now a similar geo-economic and market-strategy divide has opened up within the rich OPEC members with small populations, within the GCC itself.
The UAE has less oil than the Saudis but, with a lower population, less than one-third that of KSA, has a higher per capita oil income, and they have diversified their economy much more. MbS of Saudi Arabia has plans to do the same. Grandiose plans. Will he ever really succeed at his plans for diversifying the economy? IMHO, if one relies on McKensie (and similar) to make your economic development strategy, you’ll keep building white elephants like the Neom.
To quote Wikipedia:”NEOM is a massive $500 billion+ futuristic, renewable-energy-powered region in northwest Saudi Arabia, launched by Crown Prince Mohammed bin Salman in 2017 to diversify the economy. Originally featuring the 170-km mirrored city “The Line,” the project is being scaled back due to financial and logistical challenges, with plans for a much smaller development than initially envisioned. …”
IMHO, MbS should have stuck to oil and gas, added nuclear, and focused on education, R&D, inviting start ups, etc. or being a financial, trading and transport hub, like the UAE.
Aside: This UAE move somewhat reminds me of late-1990’s push by much of PDVSA’s board to quit OPEC from resentment of KSA over quotas. That’s why specs for the Faja upgraders in the internationalization were to be profitable at $20’s per barrel. If the USA puts them back in charge, they may go back to this policy. But not all are/were on board. And, it was always sketchy how producing much more at much less would benefit them. Many different takes, but resentment of KSA & falling revenues consistent.
-2- The other factor is the current, very sharp UAE-KSA differences on geo-policy.
The UAE is very upset at the incapacities of the GCC for years to deter Iran, is ready to fight alongside the USA and upset at KSA’s tendency to negotiate and appease, as they see it.
So too, the UAE and Saudis have quite different visions for Yemen, consistent with their different national geo’economic and geostrategic postures.So too to Israel, with the UAE being much closer.
Meanwhile, in my view, the USA under the Trump administration enticed both countries with the prospects of regaining and expanding their traditional Indian & Chinese oil export market shares since early-2025, in order to get them onboard the administrations larger anti-RU (to press Putin to get out of Ukraine) & anti-Iran policies, pushing both the UAE and KSA to put the then-offline-since-Corona OPEC and OPEC+ production capacities back online. This process created more favorable conditions of a marker-supply excess before the administration’s Iran war, and in order to sanction more harshly Russia and, in my view, aim to start seriously taking Russian barrels offline after US control of Hormuz and taming of Iran is secured.
The Global Barrel 