On December 3, 2018, Qatar made a surprise announcement that it would leave the Organization of the Petroleum Exporting Countries (OPEC) on January 1, 2019, after 57 years of membership. The announcement came two days before an OPEC meeting in Vienna, where its members were expected to express their unity in cutting back on production to boost the price of oil. Qatar made it clear that it would honor its OPEC commitments in the interim before its withdrawal.

Qatari Energy Minister, Saad al-Kaabi, former CEO of the state-run oil and gas company Qatar Petroleum, emphasized that the decision was “100 percent not political.” However, many energy analysts and experts widely attribute the timing and the reason of this Arab peninsular nation’s withdrawal from the oil syndicate as a public rebuke of the Saudi Arabia-led trade and travel blockade in effect against Qatar for the past nineteen months. Saudi Arabia, the United Arab Emirates (UAE), Bahrain, and Egypt cut diplomatic relations with Qatar in June 2017 and imposed an economic embargo on it as punishment for its alleged support for terrorism and close ties with Iran.

While the embargo may have been a contributing factor for leaving OPEC, the implications of this decision for Qatar and OPEC go beyond regional politics.  

What it means for Qatar

Qatar’s official reasoning for its withdrawal from OPEC centers on the cartel allegedly no longer serving its interests, having no voice in the organization, and seeking to maximize its strength as one of the world’s largest natural gas producers and exporters. Ranking 11th out of 15 members, Qatar produces less than 2 percent (600,000 barrels per day, 200,000 of which is for domestic consumption) of OPEC’s total oil output. Therefore, the country’s leadership is fully aware that its withdrawal would have a minimal impact on OPEC’s collective oil production and on oil prices in general.

While it is not a large oil producer, Qatar is one the world’s leading exporters of liquefied natural gas (LNG), trailing just behind Australia and the U.S. Qatar plans to increase its domestic LNG output from 77 million to 110 million tons per year by early 2020, based on its massive natural gas reserves. Remaining in the cartel would not have hampered Qatar’s ambitions to develop its natural gas potential.

Even though the Qatari leadership appears no longer to see political value in OPEC, the withdrawal widens the rift with its neighbors and potentially isolates it further.

In fact, the OPEC membership has not hurt Qatar. Quite the contrary. Even though Qatar has been a marginal oil producer within OPEC, it did play an important role in the organization. For example, the country was one of the leading members of the oil syndicate to help improve relations with Russia in recent years and arrange an agreement to cut oil output to recover plunging prices. Once it leaves OPEC, it will no longer have any clout over global oil prices. Even though the Qatari leadership appears no longer to see political value in OPEC, the withdrawal widens the rift with its neighbors and potentially isolates it further. It is possible it will face retaliation from its regional adversaries.

Typically, however, OPEC members from the Middle East historically have risen above regional politics and confrontations. Some of them have endured serious conflict with other members and never left the organization. For example, during the bloody, eight-year war between Iraq and Iran, Saddam Hussein’s occupation of Kuwait, or the ongoing cold war between Iran and Saudi Arabia, all of them stayed in OPEC.

While Qatar’s decision to leave is mostly seen as a swipe at Saudi Arabia for its diplomatic and economic blockade and increasingly aggressive foreign policy, the more compelling reason seems to be practical—to stay on the friendly side of the U.S. for several key reasons. President Donald Trump has been increasingly critical of OPEC because of high oil prices. And there is new U.S. legislation underway, aptly titled NOPEC (No Oil Producing and Exporting Cartels Act), that would subject OPEC members to anti-trust lawsuits, if the law passes. The legislation aims to reduce the price-setting power of the cartel.

Leaving the organization would help Qatar avoid being caught in this prospective law and remove barriers to solidifying its position as the one of the world’s major LNG exporters. Importantly, the U.S. is one of the important markets for Qatar. It plans to invest nearly $20 billion in the American natural gas sector over the next five years. Qatar Petroleum owns the majority interest in the Golden Pass LNG facility in Texas, which has the potential to export close to 2.21 billion cubic feet of LNG per day. Cultivating relations with the U.S. is important for this small Arab sheikhdom, not the least because the U.S. State Department had reportedly prevented a full-blown invasion of Qatar by Saudi Arabia and the UAE before the onset of their June 2017 blockade.

To further capitalize on its role in the global energy market, Qatar began ramping up investments in energy projects abroad shortly after its announcement to leave OPEC. On December 8, 2018, Qatar Petroleum bought a 10-percent interest from ExxonMobil’s three offshore oil exploration blocks in Mozambique. A week later, it acquired a 35-percent stake from Eni’s interest in three offshore oil fields in Mexico. Qatar Petroleum is already involved in oil and gas projects in Cyprus, South Africa, Brazil, Argentina, Morocco, and other countries. Qatar is trying to cement its role in global energy markets as it prepares to leave OPEC.

What it means for OPEC

Qatar’s withdrawal may improve the bargaining position of some OPEC members and strengthen their positions in the organization.

Qatar’s surprise announcement has had no effect on OPEC’s total oil supplies and prices. Qatar’s exit in January 2019 will likely have next to no impact on global oil prices either. Even if Qatar fully curtailed its oil production, other members would be able to cover its share. Some observers envisage that Doha’s exit from OPEC may trigger other members to leave as well. Even with a likely dissatisfaction with Saudi Arabia’s leadership in the cartel or disagreement with its politics in the region, other members will be driven by what is best for their interests. In fact, Qatar’s withdrawal may improve the bargaining position of some OPEC members and strengthen their positions in the organization. Iran, for example, used Qatar’s exit announcement to get other members to agree on production cuts of 1.2 million barrels of oil per day.

Even if other OPEC members leave, the members that really matter are the dominant oil producers that dictate the cartel’s direction, namely Saudi Arabia, the UAE, and some others. At this juncture, Saudi Arabia’s agreements with non-OPEC oil giants, such as Russia, to cut production, along with the growing influence of the U.S. as an oil exporter, matter more than OPEC’s small oil producers. Because the balance of power in the oil markets is shifting to these non-OPEC heavyweights, highlighting the cartel’s weakness as an institution, potential dissatisfaction of other members with Saudi Arabia and OPEC may make quitting the organization an appealing option. Like Qatar, other members may start viewing OPEC as useless, especially if, like Qatar, they feel they have no say in what happens in it.