OPEC’s future is once again up in the air after the decision by Qatar to leave the oil cartel on January 1 2019.
Saad Al Kaabi, Qatar’s minister of energy, stated to the press that Doha will be leaving OPEC in order to concentrate its investment and political efforts on natural gas. Qatar's decision to leave OPEC is being painted as evidence of a new rift inside of the organization. This assessment, however, is built on wrong assumptions and does not take into account the nature of OPEC.
The future of OPEC is not in doubt, it could even be argued that the future at present is brighter than it has been for the last couple of years. The oil cartel always had to deal with internal discord or even outright clashes, such as the diplomatic rift between Iranian hardliner Ahmadinejad backed by Hugo Chavez and Saudi Arabia during the 3rd OPEC Heads of State Summit in 2007. The oil cartel survived these conflicts, and recovered. The Qatari decision to leave will not put a dent in the shiny armor of the group, as Doha’s oil production is insignificant compared to some of its more influential peers within the cartel. Qatar’s future is natural gas, with a primary focus on LNG exports.
Most of Qatar’s crude oil is produced at the offshore Al-Shaheen field, developed in conjunction with Danish oil independent Maersk Petroleum. This oilfield, which for years has been a technological showcase due to its extended multilateral drilling, setting new world records, has been hit by technical challenges regarding scaling and slugging. The current owners are fighting an uphill battle, which might not yield the expected results. Qatar’s oil future was already very cloudy, and by leaving OPEC, Doha seems to be throwing in the towel. Related: Qatar Quits OPEC
Regardless of how significant one considers Qatar's decision, it is hard to view it as a very rational one. As one of OPEC’s most vocal members, Qatar had a say far beyond its real economic or military capabilities. By shaping OPEC's strategy, Doha played a pivotal role on the global stage. Leaving OPEC will immediately result in it losing this influence. Shifting focus from OPEC to maintaining its status as an LNG powerhouse is maybe economically rational, but it could end up costing Qatar geopolitical leverage. Except for Russia, ‘gas geopolitics’ is not a real power factor taken into account by global powers or military strategists. Being part of the ‘decision-making’ group within OPEC is most of the time the key to the White House, the Kremlin or Brussels. Having an insight and a say at the table of OPEC ministers grants nations a great deal of power.
Questions still remain as to why Qatar has made this decision. Until insiders give us the background and rationale for this decision, we will all be left to guess at the truth. In guessing however, we can infer certain factors that will have weighed on the decision. Since the start of the Saudi Alliance clash with Qatar, the minister of oil and his delegation have almost become outcasts at OPEC meetings. The last meeting in Vienna made it clear that the majority of OPEC ministers would not openly talk to their Qatari and Iranian counterparts. Walking through the rooms and corridors of the meeting hall in Vienna, the fallout of the clash was visible. This ongoing open conflict is most probably one of the reasons for Qatar leaving the cartel. And don’t underestimate the negative effects of cultural pride in rational decision-making processes. After a long period of prominence (Al Attiya), Qatari ministers were removed from the spotlights.
Another reason could be a totally new strategy set in place after the reshuffle of the Qatari government, including the minister of energy position. So far we have only heard the usual diplomatic Arab standard phrases that have been used in the media. A possible reshuffle and power struggle in the Qatari power structures around the Emir could well have been behind it too. Related: Oil Jumps On Trump-Xi Trade Truce
In the coming days things will become clearer. Analysts should keep an eye on the position Qatar takes in Vienna at the OPEC meeting. Doha will still be a full member, which should give it a say in all matters. One of the most interesting things will be the relationship between Qatar and Iran, and whether this is a symbiotic relationship or perhaps somethinng more. Iran and Qatar are also linked strongly in a possible global gas power structure, currently called GECF.
The Qatari decision will certainly put some pressure on Tehran too. Losing another pro-Iranian power broker in the Saudi led oil cartel, which could even expect Egypt and others to join very soon, will put Iran fully into a corner. Improving Saudi-Russian relations is another major slap in the face for Tehran. Russia’s gas power politics, combined with OPEC interests, could be a deadly threat to Qatari LNG dreams in the future.
It is an overstatement to say that OPEC’s future is threatened, it seems instead that possible destabilizing factors have removed themselves from the cartel. The Vienna meeting however will still be very interesting, with Doha still part of the proceedings. Saudi Arabia and Russia, supported by the UAE will have no problem weathering the storm.
By Cyril Widdershoven for Oilprice.com
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