Remember that Abu Dhabi doesn’t make its energy policies to suit India

KP Nayar

THE exit of the United Arab Emirates (UAE) from the Organisation of Petroleum Exporting Countries (OPEC) has a long and chequered history. It renders the rejoicing in India over Abu Dhabi’s decision premature and simplistic. Abu Dhabi joined OPEC as an individual emirate in 1967 and continued as a member after the UAE was formed in 1971. The UAE seldom stuck to its OPEC production ceiling from the early years of its membership of the cartel.

Unlike today, Dubai was not a tourism destination in the 1970s and oil produced by the Dubai Petroleum Company was an important source of income for the emirate. Dubai sold most of its oil in the spot market and refused to adhere to OPEC quotas imposed on the UAE. The nascent federation was not strong enough then to enforce its collective will on constituent emirates.

Therefore, it is important for those who make India’s oil policy to note that within OPEC — or now outside it — the UAE’s membership has seldom made much difference to the cartel. Rankings, production percentages and similar parameters are irrelevant in this context. That is why India’s notion that OPEC will be crippled because of last week’s UAE decision to quit the organisation is not founded in fact.

In 1982, when Mana Saeed Al Otaiba, the UAE’s first Minister for Petroleum and Mineral Resources, returned home from Vienna after presiding over the 63rd OPEC Ministerial Conference, he called this writer and two other Dubai-based journalists for a conversation. When we asked about the meeting, he made a shrug-like gesture with both palms open upward, indicating that if the conference had any outcome, he did not comprehend it.

He then took out two sheets of the OPEC note paper, which had doodles on both pages. Otaiba, who was a prolific poet even before he became a minister at the age of 25, was known to doodle or write poetry during the OPEC meetings to idle away his time in attendance. Otaiba has to his credit a vast repertoire of poetry, fiction and scholarly books on Arabia’s petroleum industry.

A year later, returning from the London OPEC Ministerial Conference, Otaiba showed us, the same three journalists, a poem he had written during that long meeting. The poem, in part, read as follows:

These anecdotes are important now because Otaiba’s doodling and poetry reflected disdain for OPEC. Oil industry historians will aver that the UAE nearly quit the cartel on several occasions.

The path for OPEC was never smooth. It faced bitter break-ups many times. In the first five months of 1986, OPEC held four contentious ministerial meetings to discuss production ceilings for its members. In the preceding 12 months, OPEC ministers met eight times. Otaiba walked out of at least one of these meetings in Geneva. According to records maintained by the US government’s Energy Information Administration, OPEC’s disagreements pushed down oil prices to $9.25 a barrel that year from a high of $24.51 in 1985.

But OPEC did not fold up. There is no reason to believe that the UAE’s departure will be a fatal blow for the cartel. And it is unreasonable to expect that unless a day dawns when viable alternatives to oil are in currency, crude prices will ever again go down to $9.25 because OPEC is at war with itself.

Last week, in the evolving global energy scenario, India appeared to be setting much store by its close friendship with the UAE. Public discourse must dispel any impression that Abu Dhabi makes its energy policies to suit India. It crafts policies that are meant to protect its vital interests. Everything else is secondary.

There is also insufficient understanding in India that Abu Dhabi’s energy organisation sector is not a monolith. It has not been since the mid-1970s, when the Ministry for Petroleum and the Abu Dhabi National Oil Company (ADNOC) were separated. The ADNOC became responsible for oil and gas operations while the ministry decided oil policies.

In a rare interview in the 1980s, Mahmoud Hamra Krouha, a self-effacing Algerian who set up the ADNOC and was its first General Manager, told me that his mission was to double Abu Dhabi’s oil production through new drilling. This did not exactly square with the thinking within the ministry, which worried about overcapacity.

The bifurcation exists to this day. Krouha’s successor now is technocrat Sultan Al Jaber, who has the dual titles of Group CEO and Managing Director of the ADNOC. India engages with Al Jaber regularly, but it is imperative that India should be clear about what it now wants from the UAE in the context of its post-OPEC energy policies.

What are the emerging contours of these policies? Until the ongoing military standoff between the US and Iran ends and solutions to sticking points between them are found, the UAE’s goodbye to OPEC will not make an iota of difference to energy-consuming countries like India. How long that will take is anyone’s guess.

Hardly any crude passes through the Strait of Hormuz now because of the standoff. The only outlet for the UAE’s oil exports now is through its constituent emirate of Fujairah that bypasses the Strait of Hormuz. But the pipeline to Fujairah port can handle only 1.8 million barrels per day. How much of this volume will the UAE export to India, which is only one of its global customers? Has India factored this critical limitation into its calculations about the UAE?

Ultimately, the Emiratis and Saudis are “brothers” while the Indians, Chinese or Japanese are their “friends.” Despite brotherly bickering, the UAE and Saudi Arabia are conjoined twins. Their latest annual non-oil trade totalled $41.3 billion, according to UAE government figures.

The UAE is the second biggest foreign direct investor in the kingdom while Saudi investments in the UAE are worth $4.3 billion. Like a sudden boycott of Qatar by three Gulf countries ended unexpectedly, the UAE-Saudi rift will also heal at some point. India must bear that in mind while making its policies.