Stress is running high at the OPEC Summit 2018 in Vienna, Austria, where OPEC members and officials are meeting in preparation of the oil cartel’s official meeting today this week. Key-players in the current production volume game are hiding in their hotel rooms or are not approaching each other not in public. The last two days of bilateral or official meetings have shown that the opinions are showing no relaxation. The stakes are high, as an official crisis within OPEC, as some predict, would be a major blow to the existing Russia-OPEC production volume agreement which has stabilized the oil market the last months.
North Africa’s largest economy Egypt is still battling high inflation rates and a weak economy. Even that the North African gas producer has been very successful lately, looking forward to a re-entrance as an LNG exporter soon, the underlying fundamentals of its economy are still weak. Since the start of the Arab Spring, which brought not only the Muslim Brotherhood to power, resulting in Egypt’s military taking over soon, the economy has been hit by large scale unemployment, extremely high inflation rates and a total shutdown of tourism. Still, some light is at the end of the tunnel.
The heated discussions on the outcome of the upcoming OPEC meeting in Vienna in two weeks should be taken with a grain of salt. Even that possible rifts are expected, due to the internal strife with Iran, Venezuela and Qatar, the overall picture should be decided on fundamentals. The Saudi oil production strategy should be based on these presumptions. At the same time, Russian officials are supporting some of the doubts and worries in the media. Current statements made by Russian oil companies’ officials could indicate a rift within the country’s energy elite with regards to the future of the Russia-OPEC (ROPEC) deal.
During a meeting between Saudi Crown Prince Mohammed bin Salman and Abu Dhabi’s sheikh Mohammed bin Zayed, known as two brothers-in-arms, a new intricate military and trade partnership has been set up, possibly splitting or ending the Gulf Cooperation Council (GCC). The two countries have decided to form a kind of Arab Benelux (Belgium-Netherlands-Luxemburg), combining the economic and military powers of both countries. In practice, it could be that it also will include Bahrain, as the latter holds very strong legal and economic links with Saudi Arabia already.
The last weeks the Saudi defense industry has been boosted, with specific interest for the implementation of the Vision 2030 pre-requisites such as localization of production, technology transfer and investments. Without any doubt the immense value of the deals announced during the visit of Saudi Crown Prince Mohammed bin Salman, and his entourage, to the UK, USA and now France, still will need to materialize and be implemented, but the Saudi red-line that instigates “no more one-way high value transfer of money outside of the Kingdom, but full reciprocity and investments In-Kingdom” has been followed through.