Qatar Blows Gas on Saudi Arabia’s OPEC+

Days before a major conference in Vienna where OPEC members will discuss a potential oil production cut in the face of declining prices for a barrel of Brent Crude, Qatar has made a surprise announcement that the small state is exiting the world’s most prominent oil cartel. On the face of it, Qatar’s decision to quit OPEC should not have a substantial impact on the global price of oil as Qatar produces less than 2% of OPEC’s total output while non-OPEC members Russia and the United States remain in the top three oil producing nations by capacity alongside OPEC leader Saudi Arabia.

Even so, Qatar has not ever had any particular trouble keeping up with OPEC quotas in the manner that former member Indonesia had – thus leading to the large south east Asian nation’s generally amicable but lacklustre split from OPEC. Yet in an age where Russia and Saudi Arabia form the core of an OPEC+ format which in reality simply means OPEC’s de-facto Saudi leadership in addition to Russia, Qatar has decided to explicitly reject OPEC membership while implicitly challenging OPEC+’s cooperation regarding cuts to crude oil output.

Yet while Qatar’s oil production is not particularly substantial compared to its soon to be former OPEC partners, the country exported more liquefied natural gas (LNG) in 2017 than any nation in the world, while Qatar remains in the top three nations in respect of gas reserves just behind Iran and Russia. As there have been whispers that Qatar may work with Iran to extract more gas from a maritime gas field within the territorial waters of both nations, it becomes clear that in spite of Doha’s denials, the withdrawal from OPEC is Qatar’s way of trying to create further distance between itself and its rival Saudi Arabia.

It was later revealed by Qatari minister of state for energy affairs Saad Sherida al-Kaabi that the country seeks to defy OPEC and expand production, thus threatening to lower global energy prices at a time when the OPEC+ partnership looks to modestly rise the price of Brent Crude in line with a recent dive in the price of a barrel of oil that has frustrated the desires of the leaders of the OPEC+ format.

With the Saudi led economic, diplomatic and tourism boycott of Qatar still in full swing, Doha has taken the kind of optically powerful though pragmatically less relevant move that caused the Saudi-Qatari dispute in the first place. In many ways, Saudi Arabia has a history of reacting strongly to moves taken by Qatar which some world even call an overreaction. Thus, Riyadh’s reaction to Qatar’s move away from OPEC may in fact be more significant than Doha’s decision.

With that in mind, it may be that Qatar in fact wants to get Saudi Arabia’s attention and has therefore withdrawn from OPEC at a crucial time in the cartel’s operational history in order to do so. In other words, what better way than to promote Qatari LNG than to make a move which hints at disorder in Saudi Arabia’s de-facto OPEC house, a place that remained theoretically united even during the Iran-Iraq war and multiple substituent US invasions of Iraq. With Qatar threatening to increase its modest oil output while also working to increase its already substantial gas output, the message that Doha is sending to Riyadh is all too clear.

Beyond just defying the world’s largest oil cartel, the wider world must apprehend the reality that Qatar clearly wants to focus more on gas related projects while unlike Russia (a significant gas exporter itself), the more modest oil producer that is Qatar simply felt that maintaining OPEC membership was not worth its while when there were other priorities to focus on – albeit priorities that continue to reveal the schism between Qatar and neighbouring Saudi Arabia.

Yet while this is true, the timing of the announcement betrays the Qatari move as a clear attempt to provoke Saudi Arabia during a time when Turkey clearly has Qatar’s geopolitical back while Russia in spite of its powerful partnership with Turkey now has Saudi Arabia’s back. None of this is to suggest that a hot conflict will arise from Qatar’s surprise decision but instead, Qatar is testing the waters and will assess its next move based on the reaction of its main rival. For Riyadh’s part, it would behove the Kingdom not to react with public anger to Qatar’s decision, but it is an unpredictable response from Riyadh that Qatar hopes to use as a barometer to determine its future courses of action across multiple fronts in the region.

Taken in totality, by threatening to increase its oil production in contravention to OPEC+’s strategy and by pivoting towards a more substantial long term focus on expanding gas production, Qatar is now positioning itself as a rival to OPEC (and in a less explicit fashion to OPEC+) in both optical and in potentially increasingly meaningful ways in the medium and long term.

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