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Qatar's irrational decision to leave OPEC

OPEC's future is back in the air after Qatar decided to leave the oil cartel on January 1, 2019. Said…

OPEC’s future is back in the air after Qatar decided to leave the oil cartel on January 1, 2019.

Said Al Kaabi, Energy Minister in Qatar, told the press that Doha will leave OPEC in order to concentrate its investments and political efforts on natural gas. Qatar’s decision to leave OPEC is being painted as evidence of a new rift within the organization. However, this assessment is based on incorrect assumptions and does not take into account OPEC’s character.

The future of OPEC is not doubtful, it can even be argued that the future is currently brighter than it has been for the past few years. The oil cartel was always forced to deal with internal disputes or even direct conflicts, such as the diplomatic gap between the Iranian hardliner Ahmadinejad, behind Hugo Chavez and Saudi Arabia during the third summit of OPEC in 2007. The oil cartel survived these conflicts and recovered . The Qatar decision to leave will not sit in the shining armor of the group, as Doha’s oil production is insignificant compared to some of its more influential peers in the cartel. Qatar’s future is natural gas, focusing on LNG exports.

Most of Qatars crude oil is produced on the Al-Shaheen field, developed in collaboration with Danish oil distributor Maersk Petroleum. This field of oil, which for years has become a technological phenomenon due to the expanded multilateral drilling, creates new world records, has been hit by technical challenges related to scaling and slugging. The current owners are fighting an uphill, which may not give the expected results. Qatar’s oil project was already very cloudy, and by leaving OPEC, Doha seems to throw in the towel. Related: Qatar Completes OPEC

No matter how significant one considers Qatar’s decision, it’s hard to see it as a very rational. As one of OPEC’s most vocal members, Qatar had a statement far beyond its actual economic or military capacity. By designing OPEC’s strategy, Doha played a central role at global level. If you leave OPEC, it will immediately cause it to lose this influence. Moving OPEC focus to retaining its status as an LNG power plant may be economically rational, but it could cost Qatar’s geopolitical leverage effect. With the exception of Russia, “gas geopolitics” is not a real power factor taken into account by global powers or military strategists. Being part of the decision-making group within OPEC is usually the key to the White House, the Kremlin or Brussels. Having insight and a statement at the table of OPEC ministers gives nations a great power.

Still wondering why Qatar has made this decision. Before insiders give us the background and motivation for this decision, we will all surrender to guess the truth. In guess, however, we can assume some factors that will have weighed the decision. Since the start of the Saudi Arabian association with Qatar, the Minister of Petroleum and his delegation has almost been supported at the OPEC meetings. The last meeting in Vienna made it clear that the majority of OPEC ministers would not speak openly with their Qatar and Iranian counterparts. Walking through the meeting hall’s rooms and corridors in Vienna was the visualization of the conflict. This ongoing open conflict is probably one of the reasons that Qatar leaves the cartel. And do not underestimate the negative effects of cultural pride in rational decision making. After a long future newspaper (Al Attiya), Qatar ministers were removed from the headlights.

Another reason may be a whole new strategy established after the reorganization of the Qatar government, including the Energy Minister. So far, we have only heard the usual diplomatic Arabic standard phrases that have been used in the media. A possible transformation and power struggle in the Qatar power structures around the Emir may also have been behind it. Related: Oil Pumps on Trump-Xi Trade Truce

Over the next few days, things will become clearer. Analysts should keep track of Qatar’s position in Vienna at the OPEC meeting. Doha is still a full member, who should give it a statement on all matters. One of the most interesting things is the relationship between Qatar and Iran, and whether this is a symbiotic relationship or maybe something more. Iran and Qatar are also strongly linked to a possible global gas power structure, currently known as GECF.

The Qatar decision will certainly also put some pressure on Tehran. Losing another pro-Iranian power broker in the Saudi-led oil cartel, which can even expect Egypt and others to join soon, will put Iran in a corner. Enhanced Saudi relations are another major weakness in the face of Tehran. Russia’s gas power combined with OPEC interests can be a fatal threat to Qatari LNG dreams in the future.

It is an overstatement to say that OPEC’s future is threatened, but instead, potential destabilizing factors seem to have been removed from cartel. However, the Vienna meeting will still be very interesting, with Doha still part of the procedure. Saudi Arabia and Russia, supported by the UAE, will not have a problem to confuse the storm.

By Cyril Widdershoven for Oilprice.com

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