Qatar recently announced that it was walking away from the Organisation of the Petroleum Exporting Countries (OPEC).
What is OPEC?
- OPEC was initially founded in 1960 by Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. Qatar joined in 1961.
- OPEC is now a group of 15 countries that produce about 45% of the world’s oil and contain over 80% of its “proven” reserves.
- OPEC has a very big influence on global oil prices.
- It plays a crucial role in determining the economic health of many countries, including India.
What is the rationale behind Qatar’s decision?
- Qatar is among the world’s smallest countries by area.
- However, it is the richest in terms of per capita gross national income ($128,000 according to World Bank figures).
- Qatar’s riches are due to its natural gas reserves, and it is the world’s largest exporter of liquefied natural gas (LNG).
- So it wanted to focus on its gas industry rather than on oil, in which it was in any case a small player.
- It denies any political reasons for leaving OPEC.
- However, Qatar’s broken diplomatic relationship with Saudi Arabia is to be noted.
- Notably, Saudi Arabia plays a dominant role in the OPEC, having pumped 11 million barrels per day in October, 2018.
- So Qatar feels it was pointless to put efforts, resources and time in an organisation that it was a very small player in.
Why is Qatar’s regional relations strained?
- Qatar has long showed an independent mind in foreign policy.
- This includes having a close economic and diplomatic relationship with Shia Iran, Sunni Saudi’s great regional rival.
- This stance does not always align with the priorities of its regional Arab neighbours.
- In June, 2017, Saudi Arabia, UAE, and Bahrain cut ties with Qatar.
- They directed Qatari citizens to leave within 14 days, and forbade their citizens from going to or staying in Qatar.
- Egypt too severed diplomatic contact with Qatar.
- All of these countries shut their airspace to Qatari aircraft, and told foreign airlines to seek permission if flying to and from Qatar.
- Saudi also sealed Qatar’s only land border, and closed its ports to Qatari-flagged ships.
- It claimed Qatar had refused to end ties with “terrorists”, after Doha declined to fulfil 13 demands that were presented to it.
- It included
- cutting diplomatic relations with Tehran and military ties with Turkey
- shutting down the TV station Al Jazeera
- aligning with other Arab countries “militarily, politically, socially and economically”
- But Qatar said the demands amounted to surrendering their sovereignty, which it would never do.
- It has backed the Muslim Brotherhood and Hamas, but it is also part of the US-led war on the Islamic State.
- It has assisted the rebels fighting Bashar al-Assad’s regime in Syria.
- Over the last year and a half, hopes of reconciliation of Qatar with its neighbourhood have dimmed.
- Doha has only deepened its cooperation with Iran and Turkey, and with political Islamist organisations.
How will Qatar’s decision impact global oil prices?
- Qatar is a tiny player that pumped only 2% of OPEC’s total output of 32.9 million barrels per day.
- It has limited influence on OPEC’s pricing decisions and so the exit would not make a much impact in terms of global oil prices.
- However, over the last many decades, it has played a role mediating internal rivalries in OPEC.
- It helped strike production-cut deals with producers like Russia.
- So in these areas, Qatar’s absence may hurt OPEC slightly.
- India – Qatar’s position as the world’s top LNG exporter and an influential player in the global LNG market is important for India.
- Qatar is one of India’s oldest LNG suppliers, with Petronet LNG among the companies that have contracted to buy LNG from Qatar.
- But LNG pricing is not in OPEC’s domain, so Qatar’s decision is unlikely to impact these trends.