Qatar and OPEC: A Story of Energy, Politics, and Risks

On December 3rd, Qatar’s energy minister announced that his country would be leaving the Organization for the Petroleum Exporting Countries (OPEC) in a move that would come into effect at the beginning of 2019. The surprise departure of this Persian Gulf country, one of the original members of the organization, comes at a time of diminishing influence of the oft-noted oil cartel. In essence, OPEC rose as a means to operate an oligopoly (a cartel in an industry with high barriers to entry). The theory goes that coupling petroleum-producing countries together and making calculated moves to increase or decrease the supply of oil will exert market power over price that then should increase profits. The difficulty comes through the incentives for countries to cheat on these arrangements for their personal gain, and OPEC has been no stranger to this issue with a reported 96 percent of production targets not being met. What this data indicates is the lack of true oligopolistic power exerted by the ostensibly colluding organization.

For this reason, it appears that Qatar’s reasoning for leaving the group does not come at a detriment to its economic incentives, as Qatar exports around million barrels of oil daily which ranks only 17th in the world. By comparison, Saudi Arabia, the most influential member of OPEC, exports around ten million barrels daily. Additionally, it appears that Qatar hopes to expand its production of natural gas, which has been an area of growth for U.S. energy production and the world over. As natural gas consumption and production have increased at a rate of 3% and 4%, respectively, this industry appears to be the growth sector as oil lags at a 1.8% consumption growth rate, according to a BP report. In this sense, the peninsular Arabian country may be placing bets on global energy trends while also looking to shift political alliances.

While the energy minister of Qatar concurrently noted that the decision to exit OPEC does not come as a political move, it does immediately beg the question as to whether it is indeed a political decision. The logic behind such an election may be signaled by a Saudi and United Arab Emirate embargo on Qatar from 2017 and represent the dissatisfaction that the country has been in an organization dominated by its seemingly hostile neighbors. Overall, commentators point to the waning global importance of OPEC, both economically and politically, as the group seems to mainly function as a platform for Saudi Arabia to express its views on oil markets and exert political influence over the region. With an Arabian country pulling out of this largely Middle Eastern group, the future of OPEC remains quite uncertain.

Ultimately, Qatar choosing to make novel alliances with Western powers or Israel in place of allying with Saudi Arabia and OPEC indicates that those who have treated their neighbor poorly may prove wise and fruitful. The choice to emphasize natural gas production could equally be economically astute. Such developments in a region known for instability and infighting could be beneficial to major world powers seeking to gain influence in the region, yet, just as easily, it could additionally prove to destabilize the Middle East further at the possible buoy to Qatar.

Sources: The Economist, The Washington Post, Al Jazeera, BP