How Midnight OPEC Dealmaking Won Gulf Unity at Africa’s Expense
(Bloomberg) -- As they stepped hand in hand from OPEC’s headquarters into the Vienna sun on Saturday, the group’s two Gulf heavyweights signaled that a long rift was over.
Saudi Arabia had reached an understanding to let the United Arab Emirates pump more crude next year, resolving a divide that two years ago almost shattered the OPEC+ alliance.
For some of the group’s poorest African members, however, this accord was the prelude to many hours of tense negotiations and unpalatable choices. The bargain struck by the two men at the cartel’s secretariat building in Vienna required exporters like Angola and Nigeria to hand some of their own unused production quotas to the wealthy Gulf emirates.
The display of fraternity between Prince Abdulaziz bin Salman, the Saudi energy minister, and his Emirati counterpart Suhail Al Mazrouei was an illustration of how OPEC+ has become increasingly dominated by key producers that make the big decisions among themselves and enforce their will on smaller members.
The deal between the two men set off a marathon of late-night talks in the Austrian capital, at which the African members of the Organization of Petroleum Exporting Countries were pushed to accept reduced output targets to offset the gains being handed to Abu Dhabi.
This account is based on comments from numerous officials involved in the talks leading up to Sunday’s OPEC+ agreement, all of whom spoke on condition of anonymity.
The pressure on the African countries to accept the deal was immense, and it often seemed like it could slip away entirely.
Angola’s top official at the talks abruptly exited OPEC’s first day of talks on Saturday afternoon, saying he needed to catch a flight. Congo’s delegation departed the group’s secretariat soon after, only to be coaxed back by a Saudi official to re-join delegations.
With no resolution in sight, delegations headed that afternoon to the luxurious Park Hyatt hotel for a series of side-meetings with Prince Abdulaziz and another pivotal figure in the 23-nation OPEC+ network, Russian Deputy Prime Minister Alexander Novak. The deliberations stretched into the early hours of Sunday morning.
One African delegate was warned that the OPEC+ ministerial meeting could be canceled if his country didn’t acquiesce.
By the time the alliance was due to hold its final conference at 10 a.m. on Sunday a deal was still elusive. Ministers had all gathered in the OPEC headquarters, but the starting time of the meeting was repeatedly pushed back as officials tried to thrash out production baseline levels — which OPEC uses to calculate quotas — that would be acceptable to all.
As this process dragged on, officials in the delegations of several OPEC+ member nations found themselves with little access to the information and updates they normally receive through the course of a meeting. Secretariat staff were largely blocked from the building’s first floor, where ministers held their closed session.
Delegates even offered differing views on whether a key committee meeting that oversees the OPEC+ deal had actually started.
The communications blackout was compounded by OPEC blocking access to the event and closing press conference to three media organizations: Bloomberg, the Wall Street Journal and Reuters. The cartel gave no explanation for its decision.
What was clear is that considerable pressure was being applied to the holdouts, which were led by Nigeria. In an effort to break the deadlock, Saudi Arabia warned that the voluntary production cuts announced by key members in April could be reversed if the African countries didn’t compromise, according to one delegate.
The Africans had a weak hand. As one Middle Eastern official remarked privately afterward, if the market was flooded with oil, African producers would suffer the most.
“If there were a grace under pressure award for OPEC producers this weekend, we would make the case that it should go to the African nations,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC. “Given the huge economic and societal challenges that these African producers face, their willingness to compromise clearly helped.”
After five hours of back-and-forth in the secretariat, a deal was reached. The African exporters were placated with an assurance that their reduced quotas could be revised higher again if an independent review showed their production capacity was recovering.
At the final press conference, officials from Nigeria and Equatorial Guinea appeared alongside their Saudi and Emirati counterparts to extol the benefits of the agreement.
The deal came with a sweetener from Saudi Arabia that would benefit every member of OPEC+: a pledge to slash output for at least a month by 1 million barrels a day. Prince Abdulaziz described the move as a “lollipop.”
Brent crude futures rallied 1.5% to $77.26 a barrel as of 4:59 p.m. in London on Monday.
The key beneficiaries of the accord were its most powerful members. Russia, which has frustrated its OPEC partners this year by keeping output levels high despite its war in Ukraine and ensuing sanctions, doesn’t have to make any additional cuts this year.
And the day’s biggest winner was almost certainly the UAE, which finally won the right to deploy and monetize the additional production capacity it has invested in over the past few years.
Abu Dhabi’s success was captured in a single image: On his Instagram account, minister Al Mazrouei posted a selfie with his team in casual attire, smiling broadly as they strolled the elegant boulevards of the Austrian capital.
©2023 Bloomberg L.P.
KEEPING THE ENERGY INDUSTRY CONNECTED
Subscribe to our newsletter and get the best of Energy Connects directly to your inbox each week.