Saudi Arabia and Kuwait on verge of Neutral Zone oil deal

In possible boost to GCC ties, formal agreement expected this week on ending dispute over oil production in border area

Kuwaiti Oil Minister Khaled al-Fadhel attends a meeting of members of the Organization of Arab Petroleum Exporting Countries (OAPEC) in Kuwait City on December 22, 2019.  / AFP / YASSER AL-ZAYYAT

Saudi Arabia and Kuwait took a major step toward further enhancing ties within the Gulf Cooperation Council, reaching a reported final agreement to solve a dispute over oil production in the jointly-run fields in the so-called Neutral Zone.

Industry sources told Reuters and the Wall Street Journal that a formal deal on the zone is expected to be signed in Kuwait on Tuesday, but delays have marred past efforts. The two countries stopped output in 2014.

The zone, a specially demarcated area, is as big as the combined areas of Dubai and Sharjah and its oil output is more oil than Australia.

The dispute contributed to the halt since 2014 of the zone’s joint 500,000 barrels per day production, a significant volume considering the relatively tight oil market because of Opec cuts and US sanctions on Iran. That amount represents 0.5 per cent of global oil supply.

The zone was formally partitioned between Saudi Arabia and Kuwait in 1970. They have since continued to share its resources, with differences over production rights periodically flaring up.

An oil concession Saudi Arabia unilaterally renewed for US company Chevron in 2009 has been a major factor in the lingering disputes.

A statement by Chevron said its Saudi subsidiary “remains committed to the region and is focused on supporting operational activities to maintain readiness for a production restart when the time comes.”

But resumption of output from the zone, once the two Opec countries decide to do so, would not be immediate and it could take months to return it to full capacity.

Kuwait's Oil Minister Khaled Al Fadhel said on Sunday he hoped the two countries will solve the problem this month.

"We hope that by the end of the year things will be cleared out and things will go back to normal," Mr Al Fadhel told reporters in Kuwait.

In October, Kuwait's Deputy Foreign Minister Khaled Al Jarallah said talks between Kuwait and Riyadh on the issue were "very positive" and an agreement has been reached.

Saudi Arabia has sought to bolster ties within the GCC to present a united front against Iranian threats after the September attack on Saudi Aramco’s oil plants, claimed by the Iran-backed Houthi militia.

Despite the dispute over the zone, the two countries have enjoyed good ties, with Kuwait acting as a mediator in the spat between Saudi Arabia and Qatar since June 2017 when Riyadh, the UAE, Bahrain and Egypt cut transport and trade links with Doha over its support for terrorist organisations.