Why did OPEC lost one of its oldest members?
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The decision of the Qatar government to abandon OPEC after 57 years has revived the debate on the role of the organization and its members
On Monday, Qatari energy minister Saad Sherida al-Kaabi announced that his country will leave OPEC in January 2019, which no doubt shocked many analysts of the oil world to culminate a history of 57 years of membership, just one year less than Venezuela, Iran, Iraq, Saudi Arabia and Kuwait who founded the organization in 1960. Now, two questions must be asked: what is the reason for this decision? And how will it impact OPEC, and especially its Latin American members?
Leer en español: ¿Por qué la OPEP pierde a uno de sus miembros más antiguos?
The richest country in the world … in natural gas
Qatar is the richest country in the world if we average it in terms of GDP per capita, with an income of 128,702 USD per year as reported by the IMF this year, and the basis of this wealth – as in much of the Middle East – comes from the export of hydrocarbons. But not only of oil but fundamentally of natural gas. In fact, Qatar is the largest exporter of liquefied natural gas in the world with 77.2 million tons per year, a figure higher than that exported jointly by Australia with 44.3 and Malaysia with 25, second and third largest exporters respectively worldwide.
Therefore the interest of Qatar, a country of just 2.6 million inhabitants and that would organize the next soccer World Cup in 2022, is really in natural gas and not so much in oil. This does not imply that he will neglect his interest in the oil business, but rather that he will decide to play a leading role before one of the mere spectators as has been happening within OPEC in recent years. Qatar's oil production was 609 thousand barrels per day, which represents only 1.85% of production in OPEC countries according to its monthly report for November.
Is OPEC Saudi Arabia?
In addition to that, and as a preponderant factor to announce the questioned withdrawal, is that Saudi Arabia in alliance with the United Arab Emirates, Bahrain and Egypt imposed a political and economic boycott in 2017 for allegedly supporting terrorism. This isolation was transferred to the bosom of OPEC, where the kingdom of Riyadh has been taking decisions unilaterally in terms of cuts in production, relying on the other giant outside the organization, such as Russia. The Saudis produced 10.6 million barrels per day (MMBD) in October while the Russians set a record in the post-Soviet era by pumping 11.6 MMBD.
The truth is that OPEC cataloged as a poster by many analysts and politicians, including the president of the United States Donald Trump, increasingly works less as it did in past decades where the importance of its members was many more couples. Today, the relative weight of Saudi Arabia within the organization has grown thanks, among other things, to US sanctions on Iran, the serious economic crisis that Venezuela is going through, political instability in Libya, which has caused lower crude exports to the market from these countries of what they exported a decade earlier.
Given this scenario, the Saudi regime, which always played a decisive role inside and outside OPEC, would be sharing this role with Moscow at the present time, which together contributes 25% of world production. In fact, in the last large production cut between OPEC countries and some non-OPEC countries that took place in October 2016 of 1.8 million barrels per day, only Russia withdrew 300 thousand barrels per day from the market. OPEC would be transforming from an organization of two moderately balanced factions to an organization with a single big star, Saudi Arabia, and a set of satellites gravitating around it.
Qatar, Venezuela, and Ecuador
Therefore, Qatar's decision to abandon OPEC will not have a significant impact, beyond the resonance caused by any news in the oil market, especially if it comes from a Middle East country. The barrels that this country could fail to contribute in a possible trimming agreement, would be facially assumed by the Saudis or Russians without any problem.
On the other hand, Ecuador and Venezuela, the only Latin American countries of the OPEC, do not have a significant weight either, with a production of 525 thousand barrels per day and 1.2 million barrels per day respectively. The first has always been a small country within the organization; However, Venezuela, the founding country, the first oil exporter for several decades in the 20th century, today suffers a devastating economic crisis that has generated a debacle of its oil production that represents only 3% of the current OPEC production.
Read also: Venezuela: is it a good option not using the dollar?
In contrast to Qatar, which not only will maintain its oil investments inside and outside its territory but with a present and future linked to natural gas as the main exporter, the Caribbean country does not have an alternative source of income and according to some estimates would require a barrel price of more than $ 200 to balance their fiscal accounts so their role should be to bend to the decisions of the Moscow-Riyadh axis and advocate a cut that can recover a bit the price of oil.
LatinAmerican Post | Luis Alberto Lozada
Translated from "La OPEP pierde a uno de sus miembros más antiguos ¿Por qué?"
