Qatar signals big break from Saudis by leaving OPEC

Qatar has announced that it is withdrawing from the Organization of Petroleum Exporting Countries (OPEC) on Jan. 1 after nearly 60 years of membership. This is jarring news to energy markets but understandable at two levels: operational and political. 

Qatar, a country whose name is pronounced in many different ways, from “gutter” to “guitar," holds a strategic place in energy and foreign policy. It occupies a peninsula smaller than Connecticut, linked by land only to Saudi Arabia and the United Arab Emirates.

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Its population comprises about 350,000 Qatari nationals but is supplemented by 2 million foreigners ranging from international academics at University City to temporary laborers building the 2022 World Cup venues. Energy receipts provide a whopping gross national product of $660,000 per citizen. 

Qatar has critical but complex relations with the U.S. It hosts a major U.S. naval base but has been accused of supporting groups that, in the words of former U.S. Secretary of State Rex TillersonRex Wayne TillersonAxelrod: Trump's Tillerson insults 'continue a disturbing portrait' Overnight Defense: Nauert tapped for UN envoy | Trump teases changes to Joint Chiefs of Staff | Trump knocks Tillerson as 'dumb as a rock' | Scathing report details Air Force failures before Texas shooting Trump: Tillerson 'dumb as a rock' MORE, “span the spectrum of political expression from activism to violence.” It funds Al Jazeera television, which often challenges U.S. policy.

Qatar has the world’s third-largest natural gas reserves, following Russia and Iran. It shares a huge gas field with Iran; Qatar calls it the North Dome; Iran calls it South Pars.

OPEC impacts oil production but not natural gas. Over the years, it has often been a fractious group of countries that didn’t comply consistently with their commitments. Recently, OPEC has grown in numbers as new oil-producing countries in Africa have joined.

What's more, under Saudi leadership, OPEC has extended its effectiveness through coordination with Russia, also not an OPEC member. But with 600,000 barrels of oil production per day, Qatar ranks outside the top 10 OPEC producers, at 17th in the world. 

Still, why would Qatar leave OPEC? There are smaller players who presumably feel they benefit from actions that can move markets in both directions.

The answer to that lies in the relationship with its neighbors. Qatar has had relatively calm relations with Iran, with whom they share that huge gas field.

But last December, several Arab countries imposed a diplomatic and economic embargo on Qatar, and the United Arab Emirates and Saudi Arabia sealed their borders following accusations that Qatar has maintained too close a relationship with Arab nations' regional rival, Iran. 

These factors left Qatar in a subordinate position with hostile neighbors. Despite some cataclysmic scenarios for the impact on its economy, Qatar proved to be resourceful and resilient, using its wealth to bring imports by air and sea rather than less costly land routes.

As a result, Qatar no longer saw much to gain by continuing its membership in OPEC. The country can continue to rely on its own self-interest to adjust its production if it chooses — or not.

Finally, the killing of Saudi journalist Jamal Khashoggi threw a new wrench into the continually complex relations between Saudi Arabia and its neighbors. Khashoggi’s death highlighted the war in Yemen that is seen by many as a proxy battle between the Kingdom and Iran. It has also brought attention to Saudi actions against Qatar. 

By withdrawing from OPEC, Qatar has declared its independence from Saudi hegemony.

Bill Arnold is a professor in the practice of energy management at Rice University’s Jones Graduate School of Business. Previously, Arnold was Royal Dutch Shell's Washington director of international government relations and senior counsel for the Middle East, Latin America, and North Africa.