Qatar’s exit an ominous sign for Opec

The immediate question raised by Qatar leaving the Organisation of Petroleum Exporting Countries (Opec) is, of course, what to call this? Qatarexit, or even Qatexit, sound wrong. Qatar-ta-fornow has a nice ring to it, even if it’s a tad unwieldy. Maybe just go with Qatout.

While that one is a little aggressive, it at least conveys one of the factors likely behind the move. Saudi Arabia has been gunning for Qatar, launching a blockade last year aimed at bringing the Gulf state to heel on issues such as its relations with Iran. With Opec’s de facto leader having pushed Qatar out into the cold already, the diplomatic benefits of membership can hardly seem that compelling in Doha.

In purely mathematical terms, Qatar’s decision to leave makes little difference: It accounts for less than 2% of Opec’s crude oil output. The country’s clout in energy markets stems from something outside of Opec’s purview, namely Qatar’s status as the world’s largest exporter of liquefied natural gas. Yet the symbolism of a long-standing, Middle Eastern member leaving is inescapable.

Opec’s world has changed, and the organisation is ill-equipped to cope. The mere fact it relies on a clutch of nonmembers, especially Russia, to make its presence felt tells you a great deal about its difficulties. The fact that Opec has also relied on the collapse of one of its founding members, Venezuela, to drain barrels from the market also says a great deal. Also telling is the likelihood that Opec and its partners will soon announce a supply cut of at least 1 million barrels a day to halt the recent slide in prices — almost exactly two years after announcing the same thing.

The re-emergence of the US as a fast-growing oil producer and exporter is perhaps the single biggest challenge to Opec’s authority. The shortened timescales and falling costs of tight-oil development have short-circuited the group’s traditional approach of managing oil supply over several years to rebalance the market.

The shale boom has also coincided with and encouraged seismic shifts in America’s relationship with the rest of the world, exemplified by the presidency of Donald Trump. Those shifts exist on a continuum between reality and perception, but have changed the calculus for everyone, including Opec’s members.

Saudi Arabia, for example, felt emboldened by President Trump’s embrace to escalate its feud with Qatar last year. Yet the president’s clear antipathy toward rising oil prices and switcheroo on implementing sanctions on Iran has also whiplashed Saudi Arabia and left it in a bind as to how to raise prices without drawing a tweetstorm from Washington or worse.

The prospect of Mr Trump potentially backing anti-Opec legislation in Congress provides another reason for Qatar to distance itself from the group, given its majority stake in a major LNG terminal in Texas. Expect this week’s Opec statement to be even more artfully worded than usual.

All of this exposes the rot beneath the pomp of those gatherings in Vienna. Opec’s divisions in terms of capabilities, wealth, foreign relations, and even political cohesion are wide and widening further. The threat of weakening or even peaking oil-demand growth in coming decades looms over many of these countries, including Saudi Arabia. The latter is now in permanent market-management mode, aided (for now at least) by Russia and trying to balance political and economic imperatives visà-vis the other big force in oil, the US.

Opec’s lesser members have little sway against these three, and the organisation’s inherent weaknesses make it illsuited to shaping a more complex and dynamic oil market. Qatar’s withdrawal doesn’t affect that much one way or the other, but it’s the latest sign of what has changed.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker.

The prospect of Mr Trump potentially backing anti-Opec legislation in Congress provides another reason for Qatar to distance itself from the group.