Qatar's departure from OPEC has exposed the creaky foundations of the oil cartel.
On December 3, 2018, Qatar announced that it would withdraw from the Organization of the Petroleum Exporting Countries (OPEC) in January 2019 to focus on its natural gas production.
From a purely economic standpoint, it is evident that Qatar can no longer benefit significantly from OPEC since it is one of the smallest oil producers (ranked ninth oil producer among the members in 2017) within the organisation. Due to its enormous natural gas reserves, however, Qatar has been leading the liquefied natural gas (LNG) market for a long time.
Nevertheless, in November 2018, Australia beat Qatar and became the largest LNG exporter in the world. Thus, Qatar needs to make additional efforts to boost its LNG infrastructure and production.
On the political side, Qatar’s Energy Minister claims that this decision has nothing to do with the Saudi-led-blockade against Qatar which started in June 2017. However, many observers still make the connection, especially that in the same speech, the Minister also labelled OPEC as “an organisation managed by a country,” which is a thinly veiled criticism of Saudi Arabia.
The latter is considered the “de facto leader of OPEC” due to its large oil reserves. Riyadh's economy heavily relies on petroleum exports and ranks as the largest exporter of petroleum in the world. Since the early days of OPEC, Saudi Arabia managed not only to direct oil prices and production levels but also – and more worryingly – began using OPEC to further its political agenda.
On many occasions, OPEC has become a battleground for the rivalry between Saudi Arabia and Iran. One example from 1977: an increase in oil prices was Iran’s only hope to deal with its financial crisis, however, Saudi Arabia opposed any increase in prices, worsening Iran’s financial outlook.
Compared with Saudi Arabia, small players’ impact within OPEC was limited, to say the least. With the rise of Crown Prince Muhammed Bin Salman (MBS) Riyadh and his ensuing aggressive policies in the region, Qatar could see the storm on the horizon.
However, nothing prepared Doha for the abrupt and bellicose crisis that unfolded in the spring of 2017, when Saudi Arabia and its close allies subjected Qatar to a merciless blockade.
Subsequently, Saudi Arabia closed its border with Qatar, restricted airspace, and cut all diplomatic ties with Qatar. This caused enormous problems for Doha as the country’s entire supply chain was threatened and a food crisis was on the cards were it not for the efforts undertaken by the Qatari government with the help of its key allies, such as Turkey.
The blockade destroyed relations between Qatar on the one hand, and Saudi Arabia, the United Arab Emirates, Egypt and Bahrain on the other side.
Lately, despite the invitation from Saudi Arabia, Qatar’s Emir did not attend the 39th GCC Summit in Saudi Arabia in December last year, and just a few days before the summit, Qatar announced its decision to quit OPEC.
In short, Qatar’s decision was a clear indication that Doha’s reservoir of patience with MBS had run thin.
Moreover, the Saudi domination of oil production has been challenged in recent years. Due to increasing energy production in the US, the latter’s dependence on oil imports reduced. Consequently, the US, which is one of the world’s top oil consumers has also become one of the biggest energy producers besides Saudi Arabia and Russia.
To add insult to injury, the Saudi leadership, which was eager to make more overtures towards Russia, has made moves to please Moscow without care for differing views within OPEC. In 2018, the cooperation between Russia and Saudi Arabia reached new heights when they agreed to increase oil productionwithout informing other OPEC members.
After the murder of Jamal Khashoggi in November 2018, the Trump Administration announced that they would not let this murder affect their relations with Saudi Arabia. In return, Saudi Arabia lowered oil prices, and Trump thanked Saudi Arabia for this.
In another key development, the US Congress brought forward the bill of No Oil Producing and Exporting Cartels (NOPEC), which aims to allow the US to sue OPEC for infringing anti-trust laws in the oil market. Many experts believe that this bill puts the future of OPEC at risk.
In truth, Qatar’s decision to quit is not expected to affect the oil market due to its small production outputs, so the choice is a symbolic one. However, after Qatar’s announcement, the Iranian Oil Minister stated that the reasons for Qatar’s decision should be examined, and added, “OPEC has big problems from some oil producers which Qatar is not a part of.”
Qatar’s decision has many ramifications. Many have started to question the unilateral decisions made by Saudi Arabia in the oil market. Additionally, the NOPEC bill might seriously affect OPEC members moving forward. While Qatar’s decision is in sync with its intentions to focus more on LNG production, many questions remain whether other members will follow Qatar’s path.
By Ebrar Sahika Kucukasci
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.
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