Middle East Oil Eyes Global Benchmark Status
Countries like the UAE and Oman are developing local oil exchanges to push for more influence on global oil markets.
The lack of variety and volume in Middle Eastern benchmarks, such as Dubai crude may limit the influence of the benchmark.
Efforts to create a unified Middle Eastern benchmark continue to face significant political obstacles.
Two years ago, West Texas Intermediate, the U.S. benchmark crude blend, joined the most traded, most liquid contract in the world: Brent. The move was hailed as a watershed moment in oil trading. With the oil market constantly changing, there could come a time when a Middle East blend might come to rival the international benchmark.
This time, to be fair, is still quite far in the future, and there are serious challenges on the way to such rivalry, but it is a possibility, according to Energy Intelligence author Adi Imsirovic. In a recent opinion piece, Imsirovic argued that some Middle Eastern producers already have a well-established trade in local benchmarks—made possible by the local oil exchanges.
“The [Abu Dhabi] exchange is not just a matter of national pride and some vain quest for an illusory Middle East benchmark traded electronically in the region, but a strategic instrument that can ensure continued crude oil exports under extreme market circumstances,” Imsirovic wrote, suggesting the UAE may at some point decide to leave OPEC.
This is neither the first nor the last time such a suggestion has been made. OPEC is made up of countries with their own political agendas, and these agendas sometimes differ from one another, which is why there have been exits and re-entries by some members of the group. The UAE has, in recent years, indicated that it does not fully subscribe to Saud Arabia’s strategy of withholding supply to boost prices and has stated ambitions to boost its production capacity from 4.5 million barrels daily to 5 million barrels daily over the next three years.
Imsirovic writes that the exchange in Abu Dhabi could be instrumental in the UAE's development of its own oil market, essentially, if it ever decides to strike out on its own. Another Middle Eastern producer that could benefit from its oil exchange is Oman, the commentator continued, with its DME exchange. Last year, the operator of the Saudi stock exchange, Tadawul, bought a stake of almost one-third in the Oman exchange but said Saudi crude would not be traded on the DME with a view to avoiding conflict of interests.
Speaking of Saudi Arabia, it appears the biggest Middle Eastern oil producer is an illustration of the challenges that lie ahead of a Mideast oil contract becoming a global benchmark. Energy Intelligence’s Imsirovic noted the 2020 flood tactic the Saudis used to deal with rival Russia at the time, which presented some serious logistical problems when physical delivery time came for all those additional volumes. Finding storage for the unsold volumes was also problematic, highlighting the flaws of the Saudi tactic.
There is also another obstacle on the path of Middle Eastern crude oil becoming a truly international contract: lack of variety. The Brent crude benchmark is made up of five different crudes now: Forties, Ekofisk, Oseberg, Troll, and, since 2023, WTI Midland. The Dubai benchmark is the most similar to Brent crude, incorporating four crudes: Upper Zakum, Al Shaheen, Oman, and Murban. Yet it appears to be the only such benchmark in the Middle East, which is not enough to go global—because these constituent grades are not being produced in large enough volumes.
So, with a long-term view to boosting the liquidity and popularity of local crude oil grades, Middle Eastern producers might consider joining forces and setting up a benchmark made up of similar-quality grades to trade globally. Alas, such a long-term plan faces serious political challenges in addition to the ones already present. Suffice it to say such a benchmark would have to include both Saudi and Iranian crude.
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