Bottom Line Up Front
- Qatar’s withdrawal from the Organization of Petroleum Exporting Countries (OPEC) is strongly correlated to Doha’s ongoing rift with the cartel’s dominant member, Saudi Arabia.
- The withdrawal is intended, in part, to bolster Qatar’s standing with the Trump administration, while allowing it to ‘focus efforts’ on natural gas production.
- Qatar’s exit will further reduce OPEC’s influence over world oil prices.
- A major implication of this move is that it strengthens the hand of non-OPEC producers, particularly Russia.
In advance of pivotal OPEC and non-OPEC producer meetings during December 6-7, Qatar’s Energy Minister Saad al-Kaabi announced that the country would exit the cartel in order to ‘focus efforts’ on natural gas production. The withdrawal is effective January 1, 2019, meaning that Qatar will still attend the meetings that will center on efforts to stabilize world oil prices, which have fallen more than 25% since late September. The Qatari move is not unprecedented; Gabon withdrew from the organization in 1995, although it rejoined in 2016, and Indonesia suspended its membership in 2016.
Qatar’s OPEC withdrawal is linked, first and foremost, to the ongoing rift within the Gulf Cooperation Council (GCC: Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain, and Oman). There have been few signs that Saudi Arabia and the UAE—the primary drivers of the June 2017 break with Qatar over its independent foreign policy—are ready to end their land, sea, and air embargo, or restore diplomatic relations. Saudi Arabia invited Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, to the annual GCC summit taking place in Dammam, Saudi Arabia during December 7-9, 2018, but that invitation is likely intended only to prevent an outright dissolution of the 37-year-old Gulf alliance. By withdrawing from OPEC, Qatar is signaling that it is under no pressure to resolve the intra-GCC rift on Saudi and UAE terms. Indeed, according to many Gulf analysts, Doha has successfully navigated the embargo and improvised myriad ways to thrive in spite of it. Qatar is also seeking to take advantage of the global criticism of Saudi Arabia since its October killing of U.S.-based Saudi journalist Jamal Khashoggi at the Saudi consulate in Istanbul. Its OPEC withdrawal is also an overture to President Donald Trump – demonstrating that Qatar supports a key administration priority to lower world oil prices, and helping him contrast the United States’ rise in the global oil market with OPEC’s decline. The United States is now the world’s largest oil producer, but almost all of that production is earmarked for domestic use.
Qatar’s stated rationale for the withdrawal is not without foundation. Qatar is the world’s largest exporter of liquid natural gas (LNG), whereas the country is a marginal player within OPEC and the broader global oil market. Qatar only exports about 500,000 barrels per day of crude oil, a small fraction of Saudi Arabia’s 8.5 million barrels per day. Whereas Qatar’s oil exports are smaller than any of the GCC states that are in OPEC (Bahrain and Oman are not members), it is a net supplier of natural gas to other GCC states, particularly the UAE, whose power plants are fueled by Qatari gas.
Qatar’s withdrawal from OPEC will not have an immediate and overwhelming impact on world oil prices. Even if Qatar will no longer be bound by OPEC production cuts—and a cut of over 1 million barrels per day is expected to be announced by OPEC and Russia —Qatar’s oil production is not significant enough to swing the market. However, Qatar’s withdrawal positions it to work with Russia to increase the leverage of non-OPEC producers against the cartel. Russia exports about 5 million barrels per day, making it the leading non-OPEC actor. Alternately, Qatar could work with other small non-OPEC producers such as Norway, Mexico, and fellow GCC state Oman to strengthen their influence over the current working coalition of OPEC and Russia. Whichever direction Qatar chooses to go, its withdrawal from OPEC will increase global pressure on Saudi Arabia and its beleaguered Crown Prince Mohammad bin Salman, perhaps to the point where he reconsiders Riyadh’s anti-Qatar campaign, which to date has been counterproductive for the Saudis, while at the same time failing to achieve its stated goals of altering Qatar’s independent foreign policy.