Tuesday19 February 2019
Qatar Quitting OPEC: Reasons and Consequences
Qatar’s Energy Minister Saad Sherida al-Kaabi took part in a press conference on December 3, 2018, in the country’s capital city, Doha, saying that Qatar had decided to withdraw from the Organization of the Petroleum Exporting Countries (OPEC). Without giving any details on the political reasons behind that decision, the Qatari minister said Doha’s decision to withdraw from OPEC had nothing to do with sanctions imposed on the country by Saudi Arabia and its allies since they cut relations with Qatar in 2017. He added that the decision was merely a “strategic and technical” decision and his country aimed to put more focus on production of natural gas. What follows is a review of reasons and consequences of Qatar’s withdrawal from OPEC.
Reasons behind Qatar’s withdrawal from OPEC
During 2017, Qatar produced an average of 600,000 barrels per day of crude oil, accounting for 1.85 percent of OPEC’s total output, ranking as the smallest oil producer in the organization. According to that figure, Qatar stood as OPEC’s 11th and world’s 25th producer of crude oil.
However, as put by Qatari officials, the country’s strength is in its huge natural gas reserves and gas exports. With total reserves of about 24,000 billion cubic meters of natural gas, this country accounts for 12 percent of the world’s total gas reserves, standing right after Russia, with 25 percent of the world’s gas reserves, and Iran, which accounts for 17 percent of global gas reserves. As a result, natural gas accounts for 70 percent of Qatar’s total revenues, 60 percent of its gross domestic product, and 85 percent of its export revenues. Therefore, Qatari officials are right when they say that the country has decided to put more focus on the gas sector. However, apart from this issue, the following cases can be considered as possible reasons behind Qatar’s decision to quit OPEC:
Tensions with Saudi Arabia and the United Arab Emirates
Taking into account Qatar’s resolve to remain independent among the Persian Gulf countries is necessary for understanding the country’s decision to quit OPEC. Doha has apparently decided to quit OPEC due to long, and still ongoing, tensions with its neighboring countries; that is, Saudi Arabia and the United Arab Emirates (UAE). These two countries also happen to be the most influential members of OPEC. Therefore, one can consider extensive tensions in Qatar’s relations with Saudi Arabia and the UAE, and the escalating media war among them as a reason behind its decision to quit OPEC. This seems even truer under conditions when due to the crisis that followed the murder of dissident Saudi journalist, Jamal Khashoggi, international pressure has been mounting on Saudi Arabia, thus undermining the country’s international standing. In other words, after tensions increased between Qatar and Saudi Arabia and its allies in 2017, leading to imposition of sanctions on Qatar, it is natural for Doha to be willing to quit an organization in which Riyadh sways great influence. In the meantime, the administration of US President Donald Trump, which at first supported the embargo against Qatar, later on, asked Saudi Arabia and the UAE to change their position. Therefore, Qatar’s latest decision could be also seen as a measure to make Trump's administration put more pressure on those two countries.
Distancing from Saudi Arabia’s policies
Since the diplomatic row broke out between the UAE, Bahrain, Saudi Arabia, and Egypt, on the one hand, and Qatar, on the other, Doha has been increasingly marginalized in the OPEC bureaucratic process. Since about a year ago, Qatar has not been invited to meetings held for coordination among the Persian Gulf states, which are usually held before every OPEC session. Of course, Qatar produces only 600,000 barrels per day of crude oil and OPEC can fill its void. However, its withdrawal from OPEC will send other members the message that Qatar is not only seeking to pursue a more independent foreign policy, but also a more independent energy policy.
Focus on the “Gas OPEC”
Focusing on the Gas Exporting Countries Forum, which is known as the Gas OPEC, can be one reason why Doha decided to exit OPEC. Given the importance of the liquefied natural gas (LNG) in the gas industry and Qatar’s position in this field, focusing on the Gas OPEC can help this country compete with other major rivals, such as Australia, which currently control a large part of China’s market. In the meantime, Qatar has been trying to boost its share of the global gas market and increase Europe’s dependence on its gas. Therefore, although being under siege by Saudi Arabia and the United Arab Emirates, Qatar has not cut export of natural gas to those countries. All told, this country has powerful reasons to focus on the gas sector.
Questioning the nature of OPEC by the United States and Russia
On a larger scale, Qatar’s decision to quit OPEC can be attributed to efforts by the United States and Russia in order to influence, weaken or even dismantle this organization. Qatar feels that three countries are currently swaying control over the energy market and its current price, which include the United States, Saudi Arabia and Russia, and this issue has reduced OPEC’s effectiveness. For many years, the United States has been willing to scuttle OPEC and it seems that withdrawal of its members, especially the original members of this organization, and weakening of unity bonds among other members has been chosen as a good way by the United States to achieve this goal. On the other hand, Russia is one of those actors, which work in line with their own oil interests. This is why during recent years, Moscow has been trying to influence this organization through agreements with Saudi Arabia in order to be able to manage the global oil market. Collaboration between Russia and Saudi Arabia for the management of the global oil market has reduced efficiency of OPEC and increased lack of trust and disillusionment within this organization. On the whole, in view of the effect that external actors have on OPEC’s decisions and given the effort that they have launched to weaken this organization, it would not be unexpected if such actors as Iraq and Kuwait, who are dissatisfied with decisions made by this organization, opted for withdrawing from OPEC.
Consequences of Qatar’s withdrawal from OPEC
Impact on OPEC’s oil production:
Given Qatar’s oil output, its exit from OPEC will have no considerable effect on global oil prices, because Qatar’s significance in this regard is low and this country is not considered as an important and crucial actor in the oil market. Perhaps its withdrawal would only produce a transient psychological effect in the short term, which will not be of any major consequence. -
Creating gaps within OPEC:
Doha’s exit from OPEC is mostly a symbolic measure and will further weaken this organization taking into account that its other members, including Saudi Arabia and Iran, along with Russia, have not been very concordant with regard to the oil production level. Qatar’s decision can reduce OPEC’s influence in the oil market. Meanwhile, the political requirements of this Qatari game will inevitably act against Saudi Arabia’s political action plan at international level. On the other hand, the withdrawal of Qatar will reduce Saudi Arabia’s capacity to maintain unity within OPEC. In this way, Riyadh will have to change the management style of OPEC at least to maintain small producers within the organization.
A road map for other actors to withdraw from OPEC
During recent years, procedures governing OPEC have been enforced in such a way that small producers like Qatar have felt forced to leave the organization. The revolution in shale oil production has turned the United States into the world’s biggest producer of oil and has reduced OPEC’s clout in the oil market. At the present time, OPEC sees itself less capable of affecting the oil price unless through cooperation with Russia. In the meantime, small countries like Qatar, which produces only 600,000 barrels per day of crude oil, are no more significant. As a result, it is Saudi Arabia and Russia, which are currently running OPEC. OPEC makes official decisions on the basis of consensus among its members, but Saudi Arabia has always weighed heavily on the organization’s decision-making process. As Russia has been added to this equation, other members feel less space to act within OPEC. Regardless of the fact that the hegemony of Saudi Arabia and Russia within OPEC will finally push small producers out, the decision by Qatar to quit OPEC is more of a political nature than having anything to do with oil production. However, in view of the current course of OPEC, there is no doubt that small produces have certainly lost their influence along with other member states.
This measure by Qatar can become a model for other countries as well. In this happens OPEC’s control on the oil supply and demand as well as the role of consensus among oil market actors will be reduced. This is true because those countries that leave OPEC will see themselves under no obligation to abide by the organization’s decisions for controlling oil production and exports.
According to Qatar’s Energy Minister Saad Sherida al-Kaabi, the country has decided to leave OPEC in order to make heavier investment in the gas sector, and this assertion must be taken as an alarming statement by Iran. Iran has a joint gas field with Qatar and Doha’s plan to make more investment in this sector comes at a time that the United States has intensified its sanctions against the Islamic Republic. The US sanctions have already driven European energy firms out of the country. In this way, Iran will not be able to take a major step on its joint gas field in the foreseeable future. Doha’s production from South Pars gas field, which is called the “North Dome” in Qatar, has already been 2.5 times higher than that of Iran. Although Iran enjoys the world’s biggest gas reserves part of which is shared with Qatar, if Qatar’s decision to focus more on the gas sector becomes serious, the possibility of Doha’s leadership in the Gas OPEC and its consequences must be taken as an important development by Iran. There is no doubt that this issue will limit Iran's space to boost LNG production. Therefore, what is at stake here is Iran's position in the world’s natural gas industry, because in this case, the Islamic Republic would have to give in to the leadership of another country in this field.
When it comes to oil production, Qatar’s withdrawal from OPEC will provide Iran in the short run with an opportunity to mount pressure on Saudi Arabia and, as such, will strengthen the position of those members of OPEC that are against domination of Saudi Arabia. However, in the long run, weakening of OPEC, which is diligently pursued by the United States, will finally lead to weakening of Iran as well. The participation of the US Special Representative for Iran Brian Hook in the latest OPEC meeting can be seen as a measure to undermine Iran's standing and agenda in the global oil market.
Economics and Energy
Caucasus and Central Asia