by Christie Maike

Qatar is set to leave the Organization of Petroleum Exporting Countries (OPEC) in January 2019, becoming the first country to pull out since joining, more than half century ago. Qatar plans to expand its role as the number one exporter of Liquefied Natural Gas (LNG) and boost production by more than 50% to 110 million tons per year. The decision to quit OPEC comes just days before a crucial meeting of members in Vienna to discuss cutting supplies. So why now? And, what does it mean for the global energy market?

Founded in 1960, OPEC’s role was to help its members benefit from a steady rise in oil prices. At present, the 15 OPEC members hold 82% of global oil reserves. Oil prices reached a four-year high of more than $80 a barrel a couple of months ago, and now have dropped to about $60.  

Qatar’s role in the energy market: 

Qatar, with a population of 1.6 million people, is one of the smallest oil producers, but the world’s biggest exporter of liquefied natural gas. Since 2013, the amount of oil Qatar produced has steadily declined from about 728,000 barrels per day to about 607,000 barrels per day in 2017, ranking Qatar at the 11th place amongst the 15 OPEC members, with a total output of only 2%.  

With its vast gas fields, Qatar is the richest emirate per head in the Middle East. It holds almost 14% of world natural gas reserves, making it the world’s third largest natural gas reserve following Russia and Iran. On the global market, Qatar has been expanding its grasp, veering towards the Asia Pacific region, and focusing on China which has been aggressively moving from coal to gas. Qatari Minister of State for Energy Affairs, Saad Sherida al-Kaabi, has reaffirmed that the decision taken is aligned with strategic objectives and not political motivations. Nevertheless, the various political hints cannot be overlooked when analysing this decision.  

OPEC Internal Rifts: 

Since 2016, OPEC’s de facto leader, Saudi Arabia, has been leading the cartel’s landmark efforts to cooperate with a Russia-led group of 11 non-OPEC oil producers labelled as OPEC+. That move left Qatar feeling its interests were being marginalized by the bigger players. Other members’ interests have not always aligned with those of the Saudi-Russian axis, growing contentions inside OPEC. For example, Iraq, while agreeing to extend OPEC+ cuts into 2018, noted that it was doing so at personal cost, given the country’s dire fiscal passages. Smaller OPEC members, including Venezuela, Kuwait, Nigeria, and Algeria, have also reported feeling marginalized by the Saudi-Russian decisions.  

Members’ discontent has reinforced OPEC’s sinking reputation in Washington, fuelled by perceptions that its actions have raised costs on American consumers. The Department of Justice began formally reviewing antitrust legislation against OPEC. The measure would make it illegal to set oil prices or curb its production, remove the sovereign immunity that has safeguarded OPEC members from US legal action, and enable the attorney general to sue the cartel for price fixing. Saudi Crown Prince Mohammed bin Salman cannot afford to alienate President Trump, perhaps his best and only western defender, but neither can afford to distance himself from Russia, after the tremendous collaboration efforts made through OPEC+. That being said, Saudi Arabia’s decision-making process has been neglecting the overall benefit of the organization by prioritizing the Saudi political agenda. 

Qatar-GCC Diplomatic Crisis Escalation: 

Qatar’s exit may further fracture OPEC’s most powerful bloc, the Gulf States, which can alienate any prospects for reconciliation between Qatar and the Gulf Cooperation Council (GCC). Known today as the Qatar Diplomatic Crisis started in June 2017 when Saudi Arabia, the United Arab Emirates, Bahrain, and other GCC countries severed diplomatic and economic relations with Qatar. The Saudi-led coalition mentioned Qatar’s alleged support for terrorist groups, such as the Muslim Brotherhood, as the main reason behind the embargo. The coalition set 13 demands on Qatar, including reducing diplomatic relations with Iran and Turkey, yet Qatar refused to comply. In fact, the blockade may have pushed Qatar into the hands of Iran and Turkey, for Qatar is now considering both countries as desirable markets for exporting LNG. 

The Future of OPEC: 

Throughout history, OPEC used to rise above Middle East tensions, and tried hard to separate politics from economy. For instance, two of OPEC’s members, Iraq and Iran, fought a bloody eight-year war in the 1980s yet both remained in OPEC throughout. Being the only Middle Eastern country to leave, Qatar’s move has not only increased tensions in the region, but has also undermined the value of OPEC as a political forum.  

Today, keeping up with changing world trends has been an ongoing weakness for OPEC. The re-emergence of the United States as an oil producing and exporting country is challenging the organisation’s traditional approach of oil management. Relying on non-members such as Russia to strengthen power is a double-edged sword, for, it is reinvigorating oil prices yet reinforcing high competitors such as the United States. OPEC’s limitations in terms of capabilities, foreign relations, wealth, are growing more visible. Qatar’s withdrawal is an inevitable indicator.  

05 February 2019
75
This text was published in Bullseye issue 75