#UAE and #Kuwait Start Oil Output Cuts After Hormuz Blockage - Bloomberg

UAE and Kuwait Start Oil Output Cuts After Hormuz Blockage - Bloomberg

The United Arab Emirates and Kuwait started reducing oil production, as the near-closure of the crucial Strait of Hormuz ripples through energy markets and affects global supply.

Abu Dhabi National Oil Co. is “managing offshore production levels to address storage requirements,” the company said in a statement, without giving details. Kuwait Petroleum Corp. said it was lowering production at both its oil fields and refineries after “Iranian threats against safe passage of ships through the Strait of Hormuz.”

The war in the Middle East has all but closed Hormuz, the narrow waterway linking the Persian Gulf to the open seas, to maritime traffic following Iranian threats to shipping. That’s clogged up exports from the world’s top oil-producing region and helped drive prices in London to the highest close in more than two years at almost $93 a barrel, sending consumers searching for alternatives and threatening to push global inflation higher.

Kuwait’s oil cutback started with about 100,000 barrels a day as of early Saturday and is expected to almost triple on Sunday, with further gradual reductions depending on storage levels and the status of Hormuz, a person with direct knowledge of the plan said, asking not to be named because the details are private.

The UAE, which pumped more than 3.5 million barrels a day as OPEC’s third-biggest producer in January, is using export capacity that bypasses the Strait of Hormuz, and its international storage facilities, to ensure supply to global markets. Adnoc operates a 1.5 million barrel-a-day pipeline to Fujairah on the UAE’s western coast to avoid the strait. Adnoc said its onshore operations are continuing normally.

Cutbacks by the two OPEC members follow a swathe of others in the region. Iraq started holding back production earlier this week as storage tanks started filling up, while Saudi Arabia shut its biggest refinery and Qatar closed the world’s largest liquefied natural gas export plant after drone attacks.

Force Majeure
Kuwait Petroleum declared force majeure — a legal clause allowing a company not to fulfill contractual obligations because of circumstances outside its control — on sales of oil and refinery products, according to a notice seen by Bloomberg.

The country produced about 2.57 million barrels a day of oil in January, according to data compiled by Bloomberg. The only route out for the supply is through the Strait of Hormuz. Saudi Arabia, the biggest producer in the region, has diverted some of its crude away from this route toward Yanbu in the Red Sea.

Kuwait had earlier begun lowering processing rates at its refineries because of the fuller tanks. The nation’s plants — Al-Zour, Mina Al-Ahmadi and Mina Abdullah — have a combined capacity of about 1.4 million barrels a day. Al-Zour is one of the biggest oil-processing facilities in the Middle East.

US President Donald Trump said he expects crude prices to drop at the end of the war, which he called a “minor excursion” that’s likely to continue “for a little while.”

“We figured oil prices would go up, which they will,” Trump told reporters aboard Air Force One on Saturday. “They’ll also come down. They’ll come down very fast. And we will have gotten rid of a major, major cancer on the face of the Earth.”

The UAE and Kuwait, like other Gulf nations, have been heavily targeted by Iranian missiles and drones in the region’s expanding war. The US embassy in Kuwait has been hit and the US consulate in Dubai targeted, along with other infrastructure in the two countries.

We’ll always have #Dubai FT

We’ll always have Dubai

The poet Percy Bysshe Shelley wrote a sonnet called “Ozymandias”. It tells of a desert kingdom that succumbs to the ravages of time, until not much more is left than “Two vast and trunkless legs of stone” in the sand. 

Looking down at Dubai from a circling plane last month, I had a spooky vision of all its towers and highways as ruins in a not-so-distant future. I ascribed this to the melatonin-and-wine diet that I tend to observe on long flights. A few days later, Iranian ordnance struck the emirate. 

Count the ways in which Dubai is precarious. It is caught between the desert and the ever-fraught Gulf. Besides Iran, its neighbours include an ambitious Saudi Arabia and an anarchic Yemen. It relies on the hard power of the erratic US, whose Fifth Fleet patrols those unquiet waters. Dubai is not even the sovereign centre of its own state, which is Abu Dhabi. It has little oil. In the home peninsula of a world religion, it allows a degree of hedonism that some might regard as a profane incitement. 

London can withstand anything: the Great Fire, the Blitz, the films of Richard Curtis, the pandemic. Dubai is a house of cards. So why, even as expats flee it, do I expect it to keep standing?

In the end, a world of dispersed wealth and power — a “multi-polar” world — needs a convening point. It needs a node. Dubai is the likeliest candidate. Even the most open of the major western cities have a foreign-born percentage of not much more than 40 per cent (as does Singapore). With people chafing against immigration, it is hard to see how that figure can go up much. In Dubai, the foreign-born are 90 per cent. There is no competing with the Gulf’s porousness to outsiders, and little desire to try. 

It matters that Dubai is somewhere near the effective centre of the world. A large share of humankind lives within a flight time of single-digit hours. If the north Atlantic were to become the undisputed seat of economic and political power again — one can dream — Dubai would be in trouble. But the world is what it is.

There is another, bleaker point that has got somewhat lost during the past week. If the Gulf isn’t safe, where is? Western Europe is putting itself on a war footing. Singapore is well aware that it is in a contested region, tugged this way and that by the US and China. Outside of the Antipodes, havens are scarce. The US is one of them (all that protective water) but it is too powerful, too much of its own thing, to be the world’s neutral space.

And there’s the core of the issue. Dubai-knockers have it down as an airhead’s paradise. But it is the very shallowness and sterility that equips the place for node status. The newly middle-class Indian, the sanctions-avoiding Russian, the Uzbek barista, the white-collar economic migrant from a slow-growing Britain or France: none of them has to adapt to much there. A “thicker” local culture would need more navigation. It is why Istanbul, for all its pedigree as an east-west hinge, can’t really replace Dubai. Nor, despite the Saudi government’s overtures to expats, could Riyadh.

It is not quite true that Dubai was magicked out of nothing. That becomes obvious around the Creek, with its older and less polished street life. (Try Al Ustad Special Kabab.) But the bit the world tends to see might be the closest thing on Earth to a blank slate. Those who need more texture in their home of choice — I’m one — might underestimate how many people just want to forget themselves for a while. 

The room for them is growing. The emirate is building what should be a 725-metre tall skyscraper called Burj Azizi. The structure will rhyme with the existing and even loftier Burj Khalifa. Will these two vast and trunkless legs of steel still shimmer at the end of the century? Or become stumps in a landscape of almost lunar desolation? If the first scenario transpires, it will be for sheer want of alternatives to Dubai as the world’s unofficial centre: its crossroads. If the second, a poet of the future could not have a more vivid metaphor for the transience and futility of all human doings.