BAKU, Azerbaijan, July 9
By Leman Zeynalova - Trend:
The failure of OPEC+ to reach an agreement over new output quotas has raised the risk that the deal collapses and the Gulf states ramp up production, Trend reports with reference to the UK-based Capital Economics research and consulting company.
This would mechanically lift GDP growth this year and next, but the resulting slump in oil prices would probably rule out any fiscal loosening, according to the company.
“The latest OPEC+ meeting was called off after officials failed to reach an agreement over new output quotas following opposition from the UAE. We outline three possible scenarios for where things could go from here. First, no new deal is reached and July’s quotas remain in place until April 2022. Second, and our central scenario, a new agreement is thrashed out in the coming weeks that is similar to that proposed by Saudi and Russia, but with the UAE’s baseline quota being raised. This would improve the near-term outlook for the UAE via the mechanical effect of higher output in the mining sector on GDP. And in the third (and most extreme) scenario, the entire OPEC+ deal falls apart and member states ramp up output,” reads the latest report released by Capital Economics.
The UAE could even leave OPEC, according to the company. “Stronger oil production would provide a boost GDP growth in the Gulf economies by around 3-10 percent per year over this year and next (assuming that output jumped to its maximum in the past three years from August). At the same time, though, oil prices could slump to $40-50pb effectively rule out any possible moves by governments to loosen fiscal policy.”
Capital Economics notes that the fallout from the OPEC+ meeting highlighted the growing public spat between Saudi Arabia and the UAE. “Saudi Arabia has launched several programs to challenge the UAE’s position as the region’s logistics and transport hub recently. On top of this, Saudi announced a readjustment of its import tariffs within the region that effectively targets goods re-exported from the UAE – prior to the pandemic, 12.5 percent of the UAE’s re-exports went to Saudi Arabia, making it the largest recipient.”
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