OPEC: A Brief History
Post World War II, the world was breathing the air of independence and new sovereign nations emerged. This whole transformation led to a new start. Back then, the global crude market was governed by seven major oil companies, famously known as ‘Seven Sisters’ and controlled 85% of the world’s oil production. In 1960, when the Seven sisters decided to reduce the crude oil prices they produced, it ignited anger amongst the fellow producers and led to the formation of OPEC as a response to this decision. The present OPEC Qatar discord must be understood in the historical context.
Qatar’s entry into OPEC
Initially, 5 countries pledged to be the part of The Organization of the Petroleum Exporting Countries(OPEC), namely, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The cartel was later joined by Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007), Equatorial Guinea (2017) and Congo (2018). OPEC was formed with the mission “to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”
The Rise of OPEC
The Arab-dominated oil cartel’s impact started being prominent with the decline of US production in the 1970s. In October 1973, when Egypt and Syria jointly attacked Israel, and the US supported Israel through airlift of arms and other military assistance, it was the first time for OPEC to test its power and prominence. The cartel saw it as a muscle-flexing opportunity and punished the US and its allies by announcing oil embargo against them. Although the embargo was lifted in 1974 after many considerations and negotiations by the United States.
Currently, OPEC has 81.89% of the world’s proven oil reserves but today, its future is on shaky grounds with OPEC Qatar dispute and other political issues surrounding the cartel. Qatar’s Energy Minister announced this news just before a crucial meeting of OPEC and its allies in 2018. Most people think it as a response of blockade imposed on Qatar by 4 Arab countries.
Qatar leaving OPEC: A big question mark on the group
Saad Sherida al-Kaabi, Qatar’s minister of state for energy affairs and president and CEO of Qatar Petroleum announced that the decision of discontinuity will be effective from January 1st 2019 and nodded against the rumours of this decision being politically driven. He said in a statement that the withdrawal decision “is not political, it was purely a business decision for Qatar’s future strategy towards the energy sector.”
Qatar is the 11th biggest oil producer of OPEC amongst the 15 nations group, reveals April 2018 output statistics. This accounts for only 2% of the total output of OPEC, and so Qatar’s departure might not concern the cartel much but will surely question its pride in putting the shared economic interests above all the politics.
With the end of more than half a decade old membership, people are raising eye on the very existence of the OPEC. After OPEC Qatar incident, cartel’s weakness as an institution is quite evident in the negligible change in the crude market even after the decision of supply cut by the cartel and its allies. The market responded rather firmly on the updates of US-China trade disputes, for that matter.
With the rise in US’ production and withdrawal of Qatar, OPEC has been called with different names, but the one which puts all its activities into question is the organization being called ‘ill-equipped’.
Meanwhile, Iran’s oil minister, Bijan Zanganeh, signals some problems with the OPEC and urges the organization to investigate Qatar’s exit. OPEC Qatar controversy and every other thing in and around the cartel indicates the deteriorating political values in the group and brings it in the dark light of politics and power game.
Qatar’s exit and its impact on the future of its energy sector
The Qatar government started being a catalyst to attract investment in its energy sector since 2018. The nation is planning to boost its production of LNG from 77 million tonnes to 100 million tonnes a year.
While leaving OPEC, the Energy Minister of the Arab-nation said that Qatar wanted to focus on its LNG industry as it is and that this move is “technical and strategic”.
Qatar is the largest LNG exporter since 2016 but is a minnow in oil. It is evident from the graph above that the Arab nation has a minimum role to play in the world oil production.
The ministry of Qatar informed that “In the next few months we will be announcing several major projects. Our goal in this strategy was to remain focused on our core business and activities to enhance Qatar’s international standing as the world’s leading natural gas producer,”
The upcoming projects will have a major impact on Qatar’s energy sector and its overall economy. And it would be interesting to see in future, how its separation from OPEC affects its business. For now, the market has decided to give no predictions and forecast on what lies ahead for the Middle-East nation.
Impact on the global market
Wood Mackenzie stated in one of its market analysis that “Qatar has minimal spare capacity so its exit won’t affect the volume of oil supply in the market during 2019 or risk OPEC’s goal of reducing output next year. However, it does come at a time when OPEC needs to hammer out a deal in the face of market skepticism in the cartel’s ability to control production.”
Qatar used to produce 600,000 bpd of crude which was dwarfed out compared to the per day production of OPEC’s de facto leader Saudi Arabia who produced 10 million barrels a day. So, Qatar’s plan to exit the oil cartel has indicated its intention to maintain its place as the biggest player in the LNG market. And moreover, the market has decided that Qatar leaving OPEC poses no instant market risks and will not affect oil prices for now.
Unpredictability surrounds the future of the crude market
With the OPEC policies being called political and beneficiary moves, Qatar parting its ways from the cartel ahead of OPEC Qatar dispute and oil prices experiencing turbulence, not much can be predicted about the future crude market. A lot has happened in 2018, and while 2019 awaits for much more, the oil and gas industry prepares itself for a ‘not so-smooth’ journey ahead. Comparatively stable oil prices and China’s initiative to resolve the trade dispute with the US warms up the industry for whatever waits ahead.
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