Doha exits OPEC to take a swipe at Riyadh

Editor’s note: On Monday, Qatar announced that it will leave the Organization of the Petroleum Exporting Countries on Jan 1, ending its 57-year membership. What has prompted Doha to exit OPEC? And what impact will it have on the bloc and the oil market? Two experts share their views on the issue with China Daily’s Liu Jianna. Excerpts follow:

To a large extent economic concerns have prompted Qatar to exit OPEC. It needs huge amounts of oil capital to sustain its big diplomacy, including purchasing US arms and building infrastructure for the Football World Cup in 2022. Also, by leaving the oil cartel, Doha believes it can concentrate on developing its pillar industry of natural gas.

Besides, by withdrawing from OPEC, Doha has hit back at Riyadh for blockading and using OPEC’s mechanism to crack down on Qatar. Doha’s abrupt exit from the oil cartel will also deal a blow to OPEC’s overall influence. It might even set off a chain reaction, causing other, smaller oil producers to follow suit and expand production to increase their revenues.

Yet the fact that Iran has not exited OPEC despite facing threats from the US speaks volumes of its members’ prudence on this issue.

For the time being, the possibility of OPEC disintegrating remains remote. The Middle East-dominated cartel has ensured the predominance of traditional energy through a collective price and production mechanism since its establishment in 1960. Its members have enjoyed substantial benefits in both economic and geopolitical fields. Yet the brutal and chaotic competition that may arise in an OPEC-less world could disrupt the international oil market and cause runaway increases or decreases in oil price.

But despite the leading OPEC countries and energy giants represented by the US, which sway oil prices using financial and market tools, being opposed to the idea of breaking up OPEC, the possibility cannot be ruled out.

Analysts say Qatar could quit the Gulf Cooperation Council next. In fact, this speculation had been doing the rounds long before Doha’s exit from OPEC. But for Qatar, leaving the GCC would come at a much higher cost. For now, it cannot afford to break away from the Arabian Peninsula and seek nonalignment and independence even though the prospect of Doha leaving the GCC has sounded the alarm for Riyadh. Yet given Qatar’s relative small size, population, economic strength and geopolitical weight, its withdrawal would not harm the GCC’s main body, but could inflict much pain on Qatar. So Doha would think twice before taking such a decision. Ma Xiaolin, a professor at Beijing Foreign Studies University

As a matter of fact, a member state’s withdrawal is nothing new to OPEC. When a member country’s oil export declines or when it starts importing rather than exporting petroleum products, it prefers to pull out of the cartel. Indonesia is an apt example. On the other hand, a number of big oil exporters have joined the team along the way.

Qatar’s exit is not surprising considering its diplomatic dispute with countries led by Saudi Arabia appeared to have reached a point of no return. In addition, Qatar itself is not a major oil producer, but it is the largest exporter of liquefied natural gas. The gas price, of course, is linked to the oil price. Being tied together with other oil producers, led by Saudi Arabia and Russia, and thus being forced to reduce supply is not conducive to Qatar’s economic growth.

In the long run, oil prices are expected to dip further as Qatar may increase the supply of oil and gas on a large scale while demands are expected to remain the same or decline. Which makes Qatar’s exit from OPEC different from other geopolitical events that have largely driven up oil price.

Generally speaking, the future of OPEC rests in the hands of major Gulf countries and the US. Actually, Qatar’s exit has reduced the possibility of OPEC’s disintegration as Saudi Arabia will now have a greater say in the Qatar-less cartel, to the US’ delight. Sun Xia, an associate research fellow at the Institute of International Relations, Shanghai Academy of Social Sciences

SHI YU / CHINA DAILY