By Youssef Saba, Ahmed Ghaddar, and Maha Al-Dahan

May 1 (Reuters) - Saudi Energy Minister Prince Abdulaziz bin Salman faces a challenge related to the Organization of the Petroleum Exporting Countries (OPEC), adding to the challenge of the biggest disruption to global oil supplies ever.

The war with Iran not only disrupted crude oil exports from the Gulf, but also prevented Saudi Arabia and other OPEC member states from utilizing their spare production capacity, a measure usually activated during times of crisis.

Two delegates from the OPEC+ alliance, which includes allies such as Russia alongside OPEC, said that the UAE's surprise withdrawal this week, as the fourth-largest producer in OPEC last year and second only to Saudi Arabia in spare production capacity, poses a tough test for the first Saudi oil minister from the royal family, whose style has shifted from cautious diplomacy to increasingly unilateral decision-making.

Jim Crane, a fellow at Rice University's Baker Institute, said, "The UAE has been resentful within OPEC for years and has never had a fair chance to discuss its quota. Now it's time for a reckoning."

Prince Abdulaziz derives his power within OPEC+ from the kingdom's vast oil reserves and spare production capacity. Unlike previous energy ministers, he is a member of the royal family and enjoys the support of his half-brother, Crown Prince Mohammed bin Salman, the country's de facto ruler.

Prince Abdulaziz launched a price war with Russia in 2020 and won, when Moscow initially refused to cut production as demand declined, later saying in a Saudi documentary, "It was a 'to be or not to be' question... Who is the head of this sector?"

He also repeatedly defied calls from former US President Joe Biden to increase production. In 2022, OPEC granted the now 66-year-old prince unprecedented powers, entrusting him with the presidency of the organization and the authority to call meetings at any time.

Now, his demand for market discipline faces a new reality. If the Strait of Hormuz reopens and Gulf oil production returns to normal, the UAE, no longer subject to any restrictions and which accounted for 12 percent of OPEC production last year, represents a factor beyond the Saudi prince's control.

Neither the Saudi government's communications center, nor the Saudi Ministry of Energy, nor the UAE's Ministries of Energy and Foreign Affairs responded to requests for comment.

* Narrow scope for discussion

During the oil market collapse in 2020 due to the Covid pandemic, Prince Abdulaziz insisted on reaching a unanimous agreement on historic OPEC+ production cuts, leading to marathon negotiations over several days until a diplomatic settlement was reached that included the United States taking part of the cuts from Mexico, which was the only country that opposed reducing production.

But OPEC+ delegates said that this strict commitment to unity has only grown stronger since then.

The delegates added that Saudi officials typically inform the ministers of the smaller OPEC+ producing countries of the final agreement a day before the meetings. One delegate explained that in a recent meeting, they first contacted Alexander Novak, the Russian Deputy Prime Minister, and then representatives of the other six countries committed to the voluntary production cuts; the calls lasted less than half an hour.

Several delegates acknowledged that Saudi Arabia was bearing the brunt of the production cuts. However, the source added that the lack of consultation on major decisions was a troubling departure from past practices, noting that the OPEC+ alliance had also sidelined the role of its technical experts' assessments in late 2022, effectively pushing decisions directly to the ministers with little room for discussion.

The delegate, who declined to be identified, said, "We appreciate what His Royal Highness is doing for oil prices."

While recent events have raised questions about the survival of OPEC and its alliance with Russia, one delegate and another source familiar with the matter told Reuters that the crisis will ultimately strengthen cohesion, making decision-making smoother.

Competition

A geopolitical rivalry between Saudi Arabia and the UAE emerged at the beginning of the year when clashes broke out in Yemen between factions supported by Riyadh and others supported by Abu Dhabi.

A long-standing oil dispute within OPEC had already reached its peak in 2021, when Abu Dhabi demanded an increase in its production quota. An agreement guaranteeing a 300,000 barrel-per-day increase was only reached after the issue became public.

The UAE's Energy Minister, Suhail Al Mazrouei, told Sky News Arabia at the time that it was unreasonable to accept what he called further injustice and sacrifice.

Prince Abdulaziz told Al Arabiya that "a degree of rationality is needed to save OPEC+," adding, "I have been attending OPEC meetings for 34 years, and I have never witnessed a similar demand."

The UAE's share has increased by approximately 500,000 barrels per day, or 0.5 percent of global demand, since 2019, exceeding the quotas of other members of the group. This included an increase in the UAE's target in June 2023, while Angola and Nigeria reduced their quotas. Angola withdrew after months of discontent.

The Saudis had made these concessions after the UAE committed to spending $150 billion on an expansion plan to increase production capacity, but it withdrew from the group on Tuesday anyway.

Increasing losses

For oil markets, the UAE's exit and production targets are of little importance as long as the Strait of Hormuz remains effectively closed.

Iraq and Kuwait lost most of their exports, while the UAE maintained some supplies via the Gulf of Oman. Saudi Arabia managed to redirect between 60 and 70 percent of its exports to the Red Sea via a pipeline built in 1981 during the Iran-Iraq War.

On the sidelines of last year’s OPEC conference, which Reuters and other media were barred from covering, Al Mazrouei said the UAE was prepared to increase its production capacity by another 20 percent to reach six million barrels per day after 2027, half of Saudi Arabia’s production capacity, in a clear challenge to Prince Abdulaziz’s efforts to curb overproduction.