Why Qatar has left OPEC, and how the decision will impact oil prices, India

• Qatar’s Energy Minister Saad Sherida al-Kaabi on December 3, 2018 announced that the country will withdraw from the Organization of the Petroleum Exporting Countries (OPEC) in January 2019. This decision to quit OPEC was confirmed by Qatar Petroleum, the state oil company.

• Al-Kaabi said the withdrawal was purely a business decision.

• Doha is one of the smallest oil producers in the bloc.

• Since 2013, the oil production in Qatar has steadily declined from 728000 barrels per day in 2013 to about 607000 barrels per day in 2017, which is just under 2 percent of OPEC’s total production.

• The Minister further said, “The withdrawal decision reflects Qatar’s desire to focus its efforts on plans to develop and increase its natural gas production from 77 million tonnes per year to 110 million tonnes in the coming years.”

• The move came just days ahead of the OPEC meeting that is scheduled to take place on December 6, 2018.

• Qatar is the first Gulf country to leave the OPEC, the bloc of 15 oil-producing countries that account for a significant percentage of the world’s oil production.

• Qatar joined OPEC in 1961, one year after its establishment.

Qatar is world’s biggest supplier of LNG: The reason behind Qatar’s withdrawal from OPEC

• Qatar’s pure strength is the production of Gas. Qatar is the world’s biggest supplier of Liquefied Natural Gas (LNG), producing almost 30 percent of the world total.

• Qatar also shares the world’s largest known natural gas field, the ‘North Field’ with Iran.

• The country plans to increase the supply of natural gas by developing a future strategy based on growth and expansion, both in its activities at home and abroad.

• It requires focused efforts, commitment and dedication to maintain and strengthen Qatar’s position as the leading natural gas producer.
• In September 2018, Qatar announced to increase its production of natural gas by adding a fourth production line to raise capacity from the North Field to 110 million tonnes a year.

• Most of Qatar’s annual LNG supplies, almost 80 million tones, are shipped in tankers to different countries, including the UAE, one of the countries imposing the blockade on Qatar.

Impact on oil prices

• Of OPEC’s 15 members, Qatar ranks 11th in oil production and is the fifth smallest producer after Ecuador, Congo, Gabon and Equatorial Guinea.

• Qatar’s withdrawal from the bloc would have limited impact on oil prices and markets as the major countries are maintaining the demand and supply stability.

Saudi Arabia and other Arab countries’ boycott on Qatar: Will the withdrawal intensify the Gulf Crisis?

• The move may intensify Qatar’s isolation in its crisis with its Arab neighbors. In June 2017, OPEC members Saudi Arabia, United Arab Emirates (UAE), Bahrain, Yemen, Libya and Egypt had cut trade and transport ties with Qatar, putting diplomatic blockade on Qatar and accusing the country of supporting terrorism. However, Qatar denied the claims.

• The cut off included withdrawal of ambassadors and imposing trade and travel bans. The Qatari channel Al Jazeera also faced a lot of flak for its Islamic bent and critical reporting of the regressive regimes in the region.

• Besides this, the nation was also accused of maintaining good relations with Iran and supporting the Muslim Brotherhood.

Qatar’s removal from GCC

• There is a Gulf Cooperation Council (GCC), comprising Arab States of the Gulf, which meets ahead of OPEC meetings to discuss the policies.

• Qatar too had a voice in the council. However, the country was shut out of the council and it is hardly consulted now.
Impact of Qatar’s withdrawal on India

• Qatar is India’s major LNG supplier and a major Foreign Portfolio Investor (FPI) in Indian equities markets. It has committed over Rs 40000 crore to the Bharatmala road projects in India and is open to further investments.

• In this case, what is good for Qatar is good for India. Once Qatar pulls itself out of the OPEC, it will have freedom to decide and fix the prices of LNG without any pressure of the Gulf nations. This would directly benefit India.

• Petronet LNG is India’s biggest gas importer. It buys 8.5 million tonnes of Liquefied Natural Gas (LNG) every year from Qatar under a long-term contract, accounting for 44 percent of India’s LNG imports.

Organization of the Petroleum Exporting Countries (OPEC)

• OPEC was founded in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, five major oil-producing countries.

• OPEC is an organisation of 15 oil-exporting countries and has its headquarters in Vienna.

• It hosts regular meetings among the oil ministers of its member nations.

• Mohammed Barkindo of Nigeria is currently the Secretary-General of the OPEC.

• The Organization of the Petroleum Exporting Countries (OPEC) has a Statute which was adopted by a unanimous decision of its Founder Members in January 1961 in Caracas, Venezuela.

• “The Statute stipulates that the principal aim of OPEC is to harmonise the petroleum policies of its Member Countries as part of its efforts to safeguard their interests. It further states that members of the Organization shall work together to ensure stable oil prices, secure fair returns to producing countries and investors in the oil industry, and provide a steady petroleum supply to consumers.”

• The main aim of the OPEC is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilisation of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers.

Members of OPEC (excluding Qatar)

Algeria (1969), Kuwait (1960), Angola (2007), Libya (1962), Ecuador (1973), Nigeria (1971), Equatorial Guinea (2017), Congo (2018), Gabon (1975), Saudi Arabia (1960), Iran (1960), United Arab Emirates, Iraq (1960), Venezuela (1960)

———————————————

Mains Paper 2: IR | Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests
Prelims level: OPEC

Mains level: Impact of Qatar’s leaving OPEC on India

Share article