Kuwait And Saudi Arabia To Resume Oil Production In Neutral Zone “At Earliest Opportunity”

Kuwait and Saudi Arabia have put more than five years of differences behind them by signing a new deal for an oil-rich area known as the Neutral Zone that both have territorial claims to.

On 24 December, the countries signed a new agreement to divide the area between them and a memorandum of understanding to resume oil production from shared fields in the zone, following the suspension of activity in 2014.

The agreements were signed by Saudi energy minister Prince Abdulaziz bin Salman, his Kuwaiti counterpart Khaled Ali Al-Fadhil and Kuwait’s foreign affairs minister Dr. Ahmed Nasser Al-Mohammed Al-Sabah.

Prince Abdulaziz indicated that production at the offshore Al-Khafji field will resume gradually but should reach 325,000 barrels a day (b/d) by the end of 2020. Production at the onshore Wafra field should also soon restart. However, both sides have also said this will not lead to them increasing their overall production levels, as set out in agreements with other members of the Opec oil cartel.

Saudi Arabia’s national oil company Saudi Aramco welcomed the development, with its chief executive Amin Nasser saying “Both parties have reached consensus that now is the right time to resume production in this zone. Both sides will work to ensure production resumption at the earliest opportunity.”

The agreement could pave the way for further developments too. Prince Abdulaziz said on 25 December that plans to develop the Dorra gas field may also soon move forward, after many years of dispute. The official Saudi Press Agency cited him saying there were companies “that have the ability to start these projects.”

The Neutral Zone – sometimes also called the Divided Zone – covers some 5,770 square km and its shared history dates back nearly 100 years. It covers a block of land running south from Kuwait along the Gulf coast. Under the Uqair Convention of 1922 sovereignty of the area was shared between the two countries.

With the discovery of oil in Kuwait and the Eastern Province of Saudi Arabia in the late 1930s, territory became a more valuable commodity and exploration concessions were granted to international oil companies in the zone in the following decade. By the mid-1960s, Kuwait and Saudi Arabia had agreed to partition the zone, setting a more definite border which took effect in December 1969.

However, there have been tensions between the neighboring countries in the years since then. Production at Al-Khafji was halted in 2014 and the following year the onshore Wafra field suffered the same fate. Together these two fields produced around 500,000 b/d, or around 0.5% of global oil supply. The reason for their shutdown was never entirely clear. Saudi Arabia had cited some unspecified environmental concerns, but the issue may have been wrapped up in other disputes, such as the location of a new Kuwaiti refinery in its part of the zone.

There have been previous attempts to resolve the differences and restart production, but despite some optimistic statements from some officials they did not result in any oil being pumped.