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| Fig. 1: Production of Natural Gas in Qatar. (Source: Wikimedia Commons) |
OPEC stands for the Organization of Petroleum Exporting Countries and it a group founded by the worlds major oil-exporting nations to manage the supply of oil with the purpose of not negatively affecting the economies of producing and purchasing countries. It was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, yet they instituted for their membership to remain open to any country that is a substantial exporter of oil and that pursues the organization's ideals. [1] Qatar joined OPEC in 1961, as the first additional nation apart from the founding countries. [2] However, early this December Qatar's energy minister Sherida al Kaabi announced that Qatar will leave the organization as of the first of January in 2019, making it the first Middle Eastern country to leave. [1] Despite al Kaabi stated that the reason behind their decision to exit was to focus on the nations gas production, suspicions still exist as to whether this was the main cause. [3] Independently of Qatar's major motivation to leave the OPEC, their decision shows a pursuit of a more independent foreign policy, specifically in the energy sector.
Qatar's minister stated that the decision reflects Qatar's desire to focus its efforts to develop and increase its natural gas production from 77 million tonnes per year to 110 million tonnes in the coming years. [4] Although Qatar's ministry made it seem to the press that the decision was purely economical and with the purpose to reevaluate Qatar's role and contribution to the international energy the scene, it would be naive to think that geopolitics was not a factor in Qatar's decision given natural gas does not constitute OPEC's judgment and involves different players. [3] Over the past few decades, Qatar's involvement with OPEC has not stopped them from building its natural gas industry into an internationally renowned business and developing its resources in partnership with major oil companies including Exxon Mobil and Royal Dutch Shell. [3] Fig. 1 shows one of Qatar's natural gas plantations. Whereas the economic effects seem to provide little, if any, justifiable reason for Qatar to leave the organization, their diplomatic positioning with the organization seems to be quite more intrinsic. Since June 2017, Bahrain, Egypt, Saudi Arabia, and the United Arab Emirates cut ties to Qatar because of a proceeding political dispute and organized an economic boycott in which they also stopped Qatar Airways flights from using their airspace, closed the country's sole land border with Saudi Arabia, and blocked Qatar's ships from using their ports. [3] Although no official statement was made by the minister to signal a political motive, Qatar's decision to use their positioning in OPEC to resist their counterparts, is one that truly weakens the organization as they are trying to speak to falling oil prices and pressure to keep them low, and consequently, the countries involved.
Producing only about six hundred thousand barrels of crude oil per day, Qatar makes barely 2 percent of OPEC's daily oil output. [1] This makes Qatar OPEC's eleventh output producer as it compares with Saudi Arabia that produces more than 10 million barrels per day or with the United Arab Emirates, which produces three million barrels per day. [2] Hence, their exit is not expected to pose any economic threat nor even significant effect, in the organizations position in the market. Still, the OPEC's main objective is to set production targets in an effort to control the price of oil in the global market, and Qatar's exit questions OPEC's viability to enforce future production cuts. [1,4] Hence, although some, including Michael Lynch, president of Strategic Energy and Economic Research, dismiss the impact of small producers in OPEC, others including Helima Croft, commodities strategist at RBC Capital Markets LLC and a former analyst at the Central Intelligence Agency, emphasize how actions from small producers are quite profound and have the ability to shift the sector as they lead to an understanding of the geopolitical divisions. [2,3] The the timing of Qatar's decision is also quite impactful as Qatar is also leaving at a time when being an OPEC member carries wider political risks as the U.S. Department of Justice is formally reviewing legislation to restraint OPEC's power. [2] It is also believed that despite Qatar gave little advance notice to OPEC about their exit, they did alert officials in the United States ahead of the announcement, making the public question whether Qatar will side with the Trump administrations pursuit of lowering oil prices. [5] Were it not enough, Qatar's exit also opened the space for the smallest producers in OPEC to speak about their discomfort of having Russia, an ally country with OPEC, and Saudi Arabia, OPEC biggest producer, make most of the primordial decisions regarding their course of action. [5] Hence, Qatar leaving not only makes the global statement of their refusal to be represented by OPEC any longer, but also may serve as a catalyst in diminishing OPEC's presence in the energy sector.
Despite Qatar's decision to leave OPEC is claimed to be purely based on economic reasoning, the minuscule economic effect that is expected on both sides of the agreement point to the geopolitical significance of this issue. It adds a political component to an organization that prides itself in being nonpartisan and prioritize shared economic interests over external diplomacy. It makes us see a weakening in an organization that has led the oil industry for the last six decades, and it makes us question how nonpartisan can the energy sector truly be when the biggest players differ in opinion.
© Dania Cortes. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for non-commercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] J. Gambrell, "Qatar to Pull Out of Saudi-Dominated OPEC Amid Doha Boycott," Philadelphia Tribune, 3 Dec 18.
[2] W. Ahmed, D. Murtaugh, and J. Blas, "Qatar to Leave OPEC as Politics Finally Rupture Oil Cartel," Bloomberg, 2 Dec 18.
[3] B. Hubbard and S. Reed, "Qatar Says It Will Leave OPEC and Focus on Natural Gas," New York Times, 3 Dec 18.
[4] "Energy Markets Assess Fallout of Qatar's Exit From OPEC," Reuters, 3 Dec 18.
[5] B. Faucon and S. Said, "Qatar to Leave OPEC as Cartel Pressured to Cut Production," Wall Street Journal, 3 Dec 18.
