(Bloomberg) -- Qatar said it will leave OPEC next month, a rare example of the toxic politics of the Middle East rupturing a group that had held together for decades through war and sanctions.
Qatar, a member since 1961, is leaving to focus on its liquefied natural gas production, Energy Minister Saad Sherida Al-Kaabi told a news conference in Doha on Monday. He didn’t mention the political backdrop to the decision: dire relations with Saudi Arabia, which has led a blockade against his country since 2017; and a rhetorical onslaught from U.S. President Donald Trump against the cartel.
“The symbolism is profound,” said Helima Croft, commodities strategist at RBC Capital Markets LLC and a former analyst at the Central Intelligence Agency. “Given that the concentrating on LNG should not be incompatible with OPEC membership, the move will invariably lead many to conclude that the geopolitical divisions had become too intractable.”
A spokesman for the Organization of Petroleum Exporting Countries declined to comment.
Qatar is OPEC’s 11th-biggest oil producer, accounting for less than 2 percent of total output, so its departure may not have a significant impact on discussions this week to cut production in conjunction with allies including Russia. Yet it sets a troubling precedent for a group that prides itself on putting shared economic interests above external politics -- even extreme events like the Iran-Iraq war in the 1980s or Saddam Hussein’s 1991 invasion of Kuwait.
“Quitting OPEC is largely symbolic for Qatar,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London. “Its oil production has been steady with limited prospects for increases.”
Qatar is a minnow in oil and a giant in natural gas. Counting both its production of crude and condensate -- a form of ultra-light oil -- the nation pumps about 1 million barrels a day, less than a 10th of Saudi Arabia’s output. In the 2016 production-cuts deal between OPEC and non-members including Russia, Qatar made a reduction of 30,000 barrels a day, just 1.7 percent of the total.
Add in natural gas, supplied to its neighbors by pipeline and globally as LNG, and the nation’s output rises to 4.8 million barrels a day, with plans to expand that to 6.5 million, according to Al-Kaabi.
“Achieving our ambitious strategy will undoubtedly require focused efforts, commitment and dedication to maintain and strengthen Qatar’s position as the leading LNG producer,” Al-Kaabi said in a statement. “I would like to reaffirm Qatar’s pride in its international standing at the forefront of natural gas producers, and as the biggest exporter of LNG.”
Frayed Relations
Relations within OPEC are sometimes frayed and observers have often speculated that the group could fracture. Yet oil ministers from Iran and Iraq continued to attend the same meetings even as their nations fought a bloody war that included the use of chemical weapons.
In the mid-1990s, Venezuela appeared at times on the brink of pulling out. Some U.S. right-wing politicians also tried to convince Iraq to withdraw after the 2003 invasion, but Baghdad resisted the pressure. Iran and Saudi Arabia have been bitter regional rivals for many years, backing opposite sides in civil wars in Syria and Yemen, but have still been able to negotiate compromises within the group’s Vienna headquarters.
In the history of the cartel, three nations have left the organization, although two later re-joined. Most recently, Indonesia suspended its OPEC membership because its status as a net importer of oil made joining the 2016 production cuts impractical.
Founding Nations
Qatar was the first country to join OPEC after the five founding nations -- Iran, Iraq, Kuwait, Saudi Arabia and Venezuela -- formed the group in 1960. It’s the first Middle Eastern nation to leave the group.
Its departure comes amid a standoff between Gulf Arab nations. A Saudi-led coalition implemented a blockade on Qatar in June last year, severing diplomatic, trade and transport links as they accused Doha of funding extremist groups and being too close to Iran.
Qatar is also leaving at a time when being an OPEC member carries wider political risks. In addition to the verbal attacks from Trump, the U.S. Department of Justice is formally reviewinglegislation to rein in the cartel’s power. If passed, the NOPEC bill could open up members of the group to legal attacks under the Sherman Antitrust Act of 1890, used more than a century ago to break up the oil empire of John Rockefeller.
The departure of Qatar “presents a public relations and perhaps a sentiment problem” for OPEC at a crucial time, said Joe McMonigle, an oil analyst at Hedgeye Risk Management LLC and a former senior official at the U.S. Energy Department.
(Updates with analyst comment in third paragraph.)