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Energy

Qatar to leave Opec: a smart business move that plays to its core strength

  • Amid the Saudi-led economic blockade, and its own marginal position in Opec, Qatar has wisely opted to focus on its global lead in natural gas production
PUBLISHED : Saturday, 29 December, 2018, 1:01pm
UPDATED : Saturday, 29 December, 2018, 1:01pm

The surprise move by Qatar to quit Opec next month might seem a minor flap, even though Qatar has been a member of the oil cartel since 1961 (“Qatar to quit Opec amid tensions with Saudi Arabia”, December 3). Indeed, its oil minister, Saad al-Kaabi, says the decision is not linked to the ongoing economic boycott imposed by Saudi Arabia and its allies, the United Arab Emirates, Bahrain and Egypt.

Yet questions abound: what does this mean for Opec’s future? Will this departure affect oil prices? Does it suggest internal turmoil within Opec?

The announcement came on the heels of a recent decline in oil prices. Yet this drop is attributed to supply and demand; ongoing trade tensions between the United States and China; and Russia’s willingness to accept the price of oil at US$60 per barrel.

Energy forecasters wonder whether consumers will continue to benefit from low oil prices in 2019. After all, Russia, a non-Opec member, decided recently to join the bloc in collectively cutting production by 1.2 million barrels, which would seem to automatically trigger a hike in prices. And the Saudis last week accelerated their plan, reportedly opting to cut their own production by 322,000 barrels a day, rather than the previously announced 250,000 barrels a day, for the first six months of 2019.

Should we brace ourselves for skyrocketing prices at the pump, even replays of long queues for petrol? Not necessarily.

From a political angle, Qatar saw no reason to maintain membership in Opec, an organisation where resolute enemy Saudi Arabia holds sway over other members.

Given the ongoing economic blockade Saudi Arabia and its allies have imposed on Qatar, the latter’s departing Opec is an indication of more political turmoil on the horizon for the once-influential oil cartel. I won’t be surprised if Qatar withdraws from the Gulf Cooperation Council sooner than one expects.

China a pillar of strength in Qatar’s fight against blockade

From an economic perspective, Qatar leads the world in natural liquefied gas production with about 28 per cent of global output. It makes business sense for Qatar to cut ties with Opec where its oil production is only 600,000 barrels a day – a small amount by heady Opec standards. Qatar is smartly focusing its attention on maintaining its world dominance in natural liquefied gas production.

The bottom line is, Qatar’s withdrawal from Opec highlights its long-term strategy to diversify its resources and position itself for economic opportunities in the 21st century.

Meanwhile, besides dubious policies on oil and Yemen, the blockade on Qatar has destroyed any credibility left in the Saudi regime. Against all odds, Qatar is managing well. And the blockade is politically and economically weakening Saudi Arabia.

Dr David Oualaalou, geopolitical consultant, Dallas