December 3, 2018 / 1:05 PM / 7 days ago

Breakingviews - Qatar’s OPEC exit is a deft way to irritate Saudi

Saad al-Kaabi, chief executive of Qatar Petroleum, gestures as he speaks to reporters in Doha, Qatar, July 4, 2017. REUTERS/Naseem Zeitoon

LONDON (Reuters Breakingviews) - Qatar has found a new way to irritate Saudi Arabia. Since June last year, the tiny gulf state of 2.6 million people has dealt with a hair-raising blockade by its neighbour with relative insouciance. Now it is equally nonchalantly leaving the Organization of the Petroleum Exporting Countries, the once all-powerful club of which Saudi is the de facto leader.

Qatar has good reasons to do so. For one, it can afford to. In October Doha provided only 600,000 barrels per day of OPEC’s 33 million bpd output level, whereas Saudi provided 10.7 million bpd. Developing its huge, lower-carbon natural gas reserves should push output in barrel-of-oil-equivalent terms from 4.8 million boe to 6.5 million boe during the next decade. And OPEC membership hasn’t stopped Saudi and fellow member United Arab Emirates cutting off economic links.

Indonesia, Gabon and Ecuador have all suspended membership since OPEC’s 1960 formation. But the departure of Qatar, on board since 1961, comes at a time when there are more and more reasons for smaller members of the group to question its benefits. They often get a raw deal anyway, because spare production capacity is largely concentrated in Saudi hands. In the summer, for example, OPEC’s decision to pump more oil allowed Riyadh to grab both market share and huge profits.

Events this week could be even more annoying. At the weekend’s G20 summit in Argentina, Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman agreed to extend an OPEC and non-OPEC cooperation pact that led to a cut in 2016, with the details due to be thrashed out at an OPEC meeting on Thursday. It was another powerful signal that OPEC membership does not guarantee having a seat at the table. 

Qatar’s decision to give up that seat suggests that the benefits of OPEC membership are looking increasingly fuzzy. The falling cost of renewable energy and epic U.S. production growth will inevitably diminish the cartel’s influence. Meanwhile, the logical upshot of Donald Trump’s very public support for “MbS” after the murder of journalist Jamal Khashoggi by Saudi agents is that the crown prince will be more likely to kowtow to the U.S. president’s desire for prices to fall. With both Moscow and Washington’s interests being heard before their own, it’s hardly surprising that members of independent means are voting with their feet. 

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