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

OPEC has a very big influence on global oil prices, which play a crucial role in determining the economic health of many countries, including India.

By: Express News Service | New Delhi |
Updated: December 5, 2018 9:24:41 am
Explained: Why Qatar has left OPEC, and how the decision will impact oil prices, India FILE – In this May 5, 2018, file photo, a giant image of the Emir of Qatar Sheikh Tamim bin Hamad Al Thani, adorns a tower in Doha, Qatar. (AP Photo/Kamran Jebreili, File)

Qatar — among the world’s smallest countries by area and the richest in terms of per capita gross national income ($128,000 or Rs 90 lakh, according to World Bank figures) — announced Monday it was walking away from OPEC, a cartel of 15 countries that produce about 45% of the world’s oil and contain over 80% of its “proven” reserves.

OPEC was founded in 1960 by Saudi Arabia, Iraq, Iran, Kuwait, and Venezuela. Qatar joined in 1961. Saudi Arabia dominates the cartel, having pumped 11 million barrels per day in October. OPEC has a very big influence on global oil prices, which play a crucial role in determining the economic health of many countries, including India.

Why has Qatar left OPEC?

Energy Minister Saad Sherida al-Kaabi said Monday Qatar wanted to focus on its gas industry rather than on oil, in which it was in any case a small player. Qatar’s riches are due to its natural gas reserves, and it is the world’s largest exporter of liquefied natural gas (LNG).

While al-Kaabi denied there were political reasons for leaving OPEC, it is impossible to see its decision as being independent of Doha’s broken diplomatic relationship with Riyadh, which has been relentlessly hostile to it. Al-Kaabi himself alluded to a desire to break free of Saudi control, saying it was pointless “to put efforts and resources and time in an organisation that we are a very small player in, and I don’t have a say in what happens”. He added that “we’re not saying we’re going to get out of the oil business, but it’s controlled by an organisation (OPEC) managed by a country”. He took no names.

What is Saudi’s problem with Qatar?

Qatar has long showed an independent mind in foreign policy that does not always align with the priorities of its regional Arab neighbours. This includes having a close economic and diplomatic relationship with Shia Iran, Sunni Saudi’s great regional rival.

On June 5, 2017, Saudi Arabia, UAE, and Bahrain cut ties with Qatar, directed Qatari citizens to leave within 14 days, and forbade their citizens from going to or staying in Qatar. Egypt too severed diplomatic contact with Doha, and all of them shut their airspace to Qatari aircraft, and told foreign airlines to seek permission if flying to and from Qatar. Saudi sealed Qatar’s only land border, and closed its ports to Qatari-flagged ships.

Riyadh claimed Qatar had refused to end ties with “terrorists”, after Doha declined to fulfil 13 demands that were presented to it, including cutting diplomatic relations with Tehran and military ties with Turkey, shutting down the TV station Al Jazeera, and aligning with other Arab countries “militarily, politically, socially and economically”.

Qatar said the demands amounted to “surrendering our sovereignty”, which it would “never” do. Doha has backed the Muslim Brotherhood and Hamas, but it is also part of the US-led war on the Islamic State, and has assisted the rebels fighting Bashar al-Assad’s regime in Syria. Also, for Saudi to accuse another country of supporting terrorism is a severe case of the kettle calling the pot black, many analysts thought — and interpreted Riyadh’s action as typical of its impetuous Crown Prince Mohammed bin Salman.

Over the last year and a half, hopes of reconciliation have dimmed, and Doha has only deepened its cooperation with Iran and Turkey, and with political Islamist organisations.

Will Qatar leaving OPEC impact global oil prices?

Not quite. Qatar is a tiny player that pumped 609,000 barrels a day in October, only 2% of OPEC’s total output of 32.9 million barrels per day. However, over the last many decades, it has played a role mediating internal rivalries in OPEC and striking production-cut deals with producers like Russia. This is where its absence may hurt OPEC a bit.

(left) Oil prices in 2018; OPEC oil production

And will India be impacted by the departure in any way?

Qatar has limited influence on OPEC’s pricing decisions. From India’s perspective, its position as the world’s top LNG exporter (annual production of 77 million tonnes per year) and an influential player in the global LNG market is more pertinent. Qatar is one of India’s oldest LNG suppliers, with Petronet LNG among the companies that have contracted to buy LNG from Qatar. But LNG pricing is not in OPEC’s domain, so Qatar’s decision is unlikely to impact these trends.

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