Saudi Arabia and Kuwait cannot solve output issue

Saudi Arabia and Kuwait cannot solve output issue

The two oil-exporting countries were on a collision course when it came to oil and a border dispute. Recently, the Minister of Oil, Electricity and Water of Kuwait, Bakhit al-Rashidi, discussed these issues with his Saudi counterpart, Khalid al-Falih, who came to Kuwait on a delegation of Saudi Arabian Crown Prince Mohammed bin Salman al Saud.

Asia Times in the article Saudi, Kuwait fail to reach oil output deal writes that  Saudi Arabia has been silent, while Kuwait was flooded by rumors and accusations in the wake of a shortened visit by Crown Prince Mohammed Bin Salman that left the Kuwaitis wondering whether the two neighbors can maintain positive relations. Crown Prince Mohammed Bin Salman was supposed to land in Kuwait and meets its ruler Emir Sheikh Sabah Al-Ahmed Al-Sabah last Saturday for a two-day visit, but instead arrived to Kuwait late Sunday. The visit was reduced to a matter of hours, according to multiple political and media sources, amid speculation that the two oil-exporting countries were on a collision course when it came to oil and a border dispute.

Kuwait has succeeded in keeping its army away from being dragged into the Saudi-led war in Yemen and at the same time has managed to balance diplomatic relations with Qatar, under a tight political and economic blockade from Saudi Arabia, the United Arab Emirates, Bahrain and Egypt since June 2017. Although King Salman of Saudi Arabia, and his son Crown Prince Mohammed, have not publicly criticized the Kuwaiti policies concerning Yemen and Qatar, a number of senior Saudi officials including prominent advisors to the crown prince have expressed their frustration.

Trouble in the Neutral Zone

Against this backdrop, Saudi Arabia and Kuwait failed to reach a deal on exploiting shared oil fields during the latest visit, according to several informed sources in Kuwait. Two sources, Saudi and Kuwaiti, said Crown Prince Bin Salman had sought to gain concessions from the Kuwaiti emir on Khafji and Wafra, two jointly-owned border fields that together have the capacity to produce about 500,000 bpd of crude oil. The two oil fields are subject to a 50-year-old agreement between the two counties in what is called the Neutral Zone. Producing oil from Khafji and Wafra was halted three years ago, after a gradual deadlock in negotiations. Bin Salman was hoping to resolve the dispute, but demanding hard concessions from the Kuwaiti Emir, according to several Kuwaiti and Saudi sources.

Reuters also reported that Bin Salman was planning to discuss the resumption of oil output from the Neutral Zone with the Emir of Kuwait when they met late Sunday. But several sources have summarized the meeting as a “total failure.”

Abdol Hamid Dashti, a former Kuwaiti member of parliament, said on Twitter he expects Saudi Arabia to restart pumping oil from the Khafji field very soon, without consulting Kuwait.

Fares, a Saudi Twitter account with a wide following, claimed that Bin Salman had demanded the annexation of the divided area, Wafra, al-Khairan and port al-Zour, and the signing of the concession by the Emir of Kuwait, or that Kuwait should pay 20 billion Kuwaiti dinar (US$60 billion) to Riyadh.

No official announcement was made by either Kuwait or Saudi Arabia about any signed agreements.

After rumors of disagreement spread, the foreign ministry of Kuwait reaffirmed the importance of “brotherly relations” with Saudi Arabia and denied the “false information on social media.”

The Emir and the crown prince exchanged cables of thanks after the end of the visit. Notably, Bin Salman made no public statement during his shortened visit or even after leaving Kuwait.

Preventing an oil shortfall

The visit was held as Saudi Arabia faces embarrassing pressure from US President Donald Trump to lower oil prices and prevent a global shortfall, even as American sanctions on Iranian petroleum are set to kick in on Nov. 5. Speaking at a West Virginia rally last Saturday, Trump criticized the kingdom. “When you have wealthy countries like Saudi Arabia, like Japan, like South Korea, why are we subsidizing their military?” asked Trump. “They’ll pay us. The problem is nobody ever asks.”

The American president said he spoke to King Salman the same day: “I spoke with him this morning. I said, king, you have got trillions of dollars. Without us, who knows what’s going to happen … With us they are totally safe. But we don’t get what we should be getting,” he said. The official media reported that Trump and Salman discussed efforts to maintain supplies to ensure the stability of the oil market and growth of the global economy, plus the strategic partnership between the two countries.

Helping Trump control oil prices demands much higher production, even as the kingdom, the world’s top crude exporter, works to reach full production capacity. According to Arabian Business, a Dubai-based business website, Saudi Arabia has posted budget deficits totaling more than $260 billion since the 2014 crash in oil prices.

An OPEC source told Reuters on Friday that Saudi oil production in August rose to more than 10.4 million barrels per day.

While Brent crude has surged above $83 a barrel, the imminent second round of US sanctions on Iran is adding tension to the oil markets.

The shared oil fields between Saudi Arabia and Kuwait may have helped ease an oil shortfall, which OPEC sources have said the kingdom will not do on its own, but a deal between the two neighbors now appears further off than ever.

In his speech at the United Nations on Sept. 25, Trump said: “OPEC and OPEC nations, are, as usual, ripping off the rest of the world, and I don’t like it … We want them to stop raising prices. We want them to start lowering prices and they must contribute substantially to military protection from now on.”

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