Context

Qatar has announced that it would leave OPEC in January 2019 to focus its efforts on natural gas.

Background

Qatar joined OPEC in 1961, just a year after the organization was founded.

It is believed that current move is a strategic response by the country to a changing energy landscape and the 18-month old ongoing boycott of Qatar by Saudi Arabia, United Arab Emirates, Bahrain and Egypt. The boycott was led by Saudi Arabia, which is also the de facto shot-caller in the oil producers’ body.

As of now, Qatar maintains that its decision to leave the oil cartel is aimed at reinforcing the country’s autonomy from its Persian Gulf neighbours. But the exit also points to larger problems with oil production and pricing and OPEC’s declining clout in a world that is looking to move away from fossil fuel.

About

What is OPEC and what is its role in the oil market?

The Organisation of the Petroleum Exporting Countries (OPEC) is an international body of oil rich countries. It was formed in 1960 to negotiate with oil companies on matters like oil production and price. In 2017, the 15 OPEC members have approximately 82% of world’s total proven oil reserves and accounted for about 43.5% of the total oil production. OPEC influences global petroleum prices by fixing a production quota for its members. 

What are oil reserves and why is the term 'proven reserve' used? 

A country’s oil reserves is the estimated quantity of crude oil that can be produced under current operating conditions given that only a fraction of the total stored oil can be extracted for economic use. This fraction is called actual oil reserves, the exact definition of which varies from country to country. Experts believe that oil producing countries do not reveal their true oil reserves as oil assures them significant favours in international negotiations. According to the degree of uncertainty in the claims of the country, the reserves are classified as proven and unproven. 

Why do experts criticise OPEC? 

OPEC’s key goal is to safeguard the interests of member countries and maximise their profit from oil exports. Critics, however, say that oil plays a significant role in OPEC’s ties with the western world. Following the 1973 Yom Kippur War between Israel on one side and Syria and Egypt on the other, OPEC refused to ship oil to western countries that supported Israel. That sparked the oil crisis and a four-fold jump in oil prices, which in turn increased US’s involvement in West Asian politics and cemented US-Saudi diplomatic ties. 

Why is Qatar leaving OPEC? 

OPEC is heavily influenced by Saudi Arabia with which Qatar is not on the best of terms. Qatar’s oil output is only 2% of OPEC’s total output and, hence, it always had little say in its policy decisions. Qatar today is among the largest exporters of natural gas and is no longer dependent solely on oil.

Is this the first time a member leaving OPEC?

No, it has happened before. There were five founding members of OPEC in 1960 — Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Later, many countries joined and left OPEC, bringing the number to 15 at present. Ecuador suspended its membership in 1992 only to rejoin in 2007. Indonesia suspended its membership in 2009, reactivating it again in 2016 before suspending it once more at the end of that year. Gabon ended its membership in January 1995, but joined back in July 2016.

Is OPEC's relevance declining over the year?

Compared with the 1970s, OPEC’s influence on the global energy market has significantly declined. Petroleum is no longer the only fuel that can move a vehicle. Also, the recent price shock when crude remained at over $100 per barrel came as a boon for US shale oil production. It is estimated that US will soon overtake both Saudi Arabia and Russia in oil production. Saudi’s waning influence on the world petrol market may also have prompted Qatar to leave OPEC.