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Qatar Exiting OPEC: Understanding the Causes and Plausible Implications to Global Crude Oil

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 6, 2018 7:58 AM 5 min read

Qatar is leaving the Organization of the Petroleum Exporting Countries (OPEC) beginning Jan, 2019. It has been an OPEC member since 1961 and its exit from the bloc paints an eye-catching narrative especially since it is the first Gulf nation to do so.


OPEC is an in intergovernmental organization of 15 nations which was formed in 1960 by the five founding nations - Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. In 1961, Qatar became the first country to join OPEC after the aforementioned founding members and is now the first Gulf country to leave the bloc.


[Listen in from 20:10 onwards to learn more on the implications of Qatar's exit from the OPEC] 


As such, OPEC consists of the oil-exporting developing nations that “coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry”. OPEC member countries accounted for c. 45% of global oil production and c. 82% of world’s proven oil reserves. Consequently, OPEC has meaningful influence on global oil prices largely driven by controlling the supply side of the equation.


Given the political noise emanating in the Oil markets ranging from US President Donald Trump’s onslaughts on OPEC coupled with Qatar’s somewhat choppy relationship with Saudi Arabia (considered as the de-facto leader of OPEC) among several other geopolitical nuances, Qatar’s departure from OPEC certainly paints an eye-catching narrative, notwithstanding fairly modest economic ramifications for the world. At the very least, from a philosophical standpoint, it sets a precedent which somewhat questions issues around shared economic interest vs political motivations vs individual national interests.


Qatar is the 11th largest producer of the 15 OPEC members and accounts for less than 2% of its overall oil output. Regional politics aside, the economic ramifications on global oil market due to Qatar exit is expected to be somewhat modest.


Qatar produces around 600,000 barrels of crude oil per day. For perspective, this compares to nearly 10 million barrels of crude oil produced per day by Saudi Arabia alone. In that context, overall impact from Qatar’s OPEC exit on the global energy market might be fairly muted. Recall that the oil-centric global energy market is largely influenced by OPEC’s regulation of oil supply which in turn leads to swings in its price. For a deeper-dive into the oil markets, click here.


Despite modest positioning on the crude oil front, Qatar is a natural gas giant and was world’s largest exporter of Liquefied Natural Gas (LNG) in 2017. Exiting OPEC is somewhat tied to a heightened focus on natural gas as it aims to lift its LNG exports from 77 million tons of gas per year to 110 million tons.


Liquefied Natural Gas or LNG constitutes the largest export item for Qatar and as such constitutes nearly 60% of overall exports. Over the years, Qatari government has deployed more resources and heightened its efforts towards the development of natural gas which as an energy source is not central to OPEC's mandate. In that context,  in 2017, with 81 million tonnes in exports, Qatar was the world’s largest exporter of LNG. With the role of natural gas in meeting global energy requirements widely expected to see somewhat of an uptick, managing LNG output is a key economic and national interest subject for Qatar. The decision of leaving OPEC is perhaps tied to it from an economic standpoint as it plans to lift its LNG exports from 77 million tons of gas per year to 110 million tons. Using natural gas (and crude oil to an extent) as key economic levers, Qatar perhaps aims for heightened level of control towards its own economy and this somewhat makes intuitive sense from a national interest standpoint.


Qatar’s departure from OPEC should not have any meaningful impact on Indian energy requirements and buying patterns, largely driven by Qatar's modest impact on the overall global oil market.


Given Qatar’s somewhat modest positioning within OPEC in terms of oil supply, as alluded to earlier, the impact on Indian oil needs appear to be fairly limited. What is more important from an Indian standpoint is Qatar’s LNG production and strategy considering its dominant positioning in the space. Furthermore, Qatar is a longstanding LNG partner for India and if there are any meaningful strategic changes around LNG policies, that might have a more telling effect. However, Qatar's OPEC exit in isolation appears to not have any meaningful impact on Indian oil buying patterns. 


OPEC’s oil production narrative is riddled with complex layers of geopolitical nuances. Consequently, assessing the impact of Qatar’s exit from a political standpoint is somewhat of a strenuous task.


Getting into the nuances of middle-eastern politics is a complex endeavor. Dynamic relationships with Saudi Arabia, Turkey, Iran among others coupled with the general sway that United States and Russia tend to have in the region, combine together with several intricacies which could have consequences in terms of the overall stability of OPEC. In that context,  Qatar’s exit has a signalling effect, the ramifications of which will perhaps only get clearer with time.


OPEC’s 10 petro allies, led by Russia, appear to be heading towards a much more collaborative set-up giving rise to more potent “OPEC+” or “Vienna Group” which would consist of 24 members and such boast of c. 55% of global oil production and 90% of global proven reserves.


With the addition of 10 non-OPEC members into the mix, OPEC+ is expected to have a much more astounding control over the oil market. With Russia, Mexico and Kazakhstan as notable additions, OPEC+ can boast of c. 55% of global oil production and 90% of global proven reserves, up meaningfully from OPEC’s c. 45% of global oil production and c.82% of world’s proven oil reserves. With Russian President Vladimir Putin suggesting over the weekend’s G20 summit that Russia has agreed to go along with production cut in Vienna, there are already signs of heightened collaborative decision making. Consequently, Qatar’s exit from OPEC is perhaps overshadowed by the heightened collaborative environment being created by the 10 new additions, most significant of which appears to be the Saudi Arabia - Russia relationship which has far-reaching political repercussions. As such this OPEC could pave way fora  much more robust and potent OPEC+. How OPEC+ evolves and manages the several political moving pieces at play is probably going to be the biggest oil price driver in the near to me dium term future.   


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