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In a surprise move in December, Qatar ended its nearly 60-year membership of Opec – the Organization of the Petroleum Exporting Countries.

Dubbed by some market observers as “Qataxit”, the move is largely seen as a symbolic, political act in light of the ongoing Saudi-led blockade on Qatar. But in the long term, experts warn, the country’s exit could diminish the organisation’s status as smaller members feel increasingly excluded by the Saudi-Russia dominance.

GTR speaks to Richard Robinson, Middle East analyst at consulting firm Oxford Analytica, about the significance of Qatar’s decision, its likely impact and what traders and financiers should look out for.

 

GTR: How significant is the decision by Qatar to leave Opec?

Robinson: The decision is primarily important in terms of its symbolism. To a great extent, it is driven by a desire to demonstrate ambition and independence in the face of adversity, as represented by the ongoing boycott of the country by Saudi Arabia, the UAE and others.

This is likely to have been heavily influenced by an individual personality, as many policy initiatives are in Qatar. Saad Sherida al-Kaabi, the new energy minister and CEO of Qatar Petroleum, has struck a more assertive tone than his predecessor since he came to office in November. Kaabi appears determined to pursue a bullish, expansionist course. In mid-December, for example, he announced that he was looking at investing around US$20bn in gas and oil developments in the US.

 

GTR: What are the drivers of this move?

Robinson: Officially, authorities say the decision is because they wish to concentrate on their gas industry, and Qatar is using the move to promote this strategic direction and the country’s sense of individualism in the region. The ramping-up of gas production has been in the works since Qatar announced an end to its self-imposed moratorium on expansion in April 2017. Since then, Doha has been promising to add more and more capacity. Currently, its plans are to increase production by 43% by 2024 – reaching 110 million tonnes per annum.

That said, Doha did not need to leave the organisation to achieve these goals as there are no Opec restrictions on gas production, nor on the natural gas liquids that Qatar also produces. Moreover, the costs of Opec membership were not greatly burdensome for the government. The real drivers are likely to be mainly political, sending messages to two audiences: Riyadh and Washington.

Being by far Opec’s largest producer, Saudi Arabia has always dominated the organisation. It is very probable that the decision to leave was at least partially intended as a statement of defiance and a slap in the face to the Saudis. Doha is saying that it no longer wants to be a member of a club led by Riyadh.

As for the US, the Trump administration has been pushing hard to keep the global oil supply high and prices low, and it has been very vocal in its opposition to Opec production quotas. By leaving, Qatar can completely distance itself from this dispute. This would also protect the country and its US investments if the US congress ever does pass anti-Opec legislation, which has reared its head again lately.

 

GTR: What could the consequences be – for Qatar and for Opec?

Robinson: This was a move that has symbolic value, but does not have immediate practical implications for Qatar, Opec or the wider oil market. Qatari oil output as a proportion of the Opec total was very small – around 2% – and the country was already exporting less than its quota. We are not going to see Doha throwing off the shackles of Opec production limits and accelerating oil exports. In any case, the country does not really have any spare capacity given the maturity and small size of its oilfields.

In the longer term, however, the move could lead some of Opec’s smaller members to start reconsidering their position. Losing such a longstanding member as Qatar, although it is not a large producer, could certainly diminish the organisation’s status.

Even before this, many were already questioning Opec’s purpose, given that production limits are now being driven mainly by deals between Saudi Arabia and Russia, which is not even an Opec member. Meanwhile, the US has also emerged as a third major player on the global scene, further disrupting Opec’s ability to influence prices and supply.

 

GTR: Could Qatar’s departure impact the ongoing Saudi-led boycott of the country?

Robinson: It is not going to help matters, given that the move is likely intended as a snub to Riyadh. Qatar has responded fairly calmly and patiently to the boycott, avoiding rash policy moves, but now the country seems to have calculated that the dispute is not going to end any time soon and is going its own way.

There had been a suggestion that in the wake of the Khashoggi affair, the US might leverage the scandal to press Saudi Arabia to end the boycott. It now appears clear, however, that the Saudis have little intention of changing course, and Washington is not inclined to push them. At a recent WTO hearing over an intellectual property case brought by Doha against Riyadh regarding pirated broadcasts of sporting events, US representatives even chose to support the pretty spurious Saudi defence that they were acting in the interests of national security.

Qatar has rerouted its trade connections and is no longer feeling much pressure from the boycott. It was never likely to relent in any case, given that the Saudi demands are tantamount to a surrender of sovereignty. Ultimately, the dispute is probably going to last until Saudi Arabia and the UAE decide it is in their interests to negotiate a face-saving resolution.

They are unlikely to take further action against Qatar though, given the UAE’s continued reliance on Qatari gas via the Dolphin pipeline. Qatar has maintained these exports to burnish its credentials as a reliable supplier, but the UAE would probably be reluctant to push any harder.

 

GTR: Is there anything that global commodity traders and financiers should look out for?

Robinson: Whether or not Qatar needed to quit Opec to boost gas production, the LNG industry is certainly one to watch. The outlook is looking more and more positive, driven by strong demand in Asia.

The Qataris obviously see this and have tripled their original expansion plans as their dominance is being increasingly challenged by the likes of the US and Australia. Indeed, the latter’s LNG exports – at least temporarily – overtook Qatar’s for the first time in November. The Qataris could be offering competitively priced long-term contracts to secure market share, as well as win political allies in light of the boycott.

However, it will be worth watching Doha’s relations with Tehran in the coming months, as the two share the North Dome/South Pars gas development. The official reason for Qatar’s previous moratorium on expansion was to assess its geological impact; unofficially, it was because the country was developing its half much faster, and was giving the Iranians time to catch up. Iran could push back if the Qataris expand too quickly.