OPEC Dropouts – The Ones Who Got Away (actually four)

Starting this week, we are preparing to take a look at OPEC dropouts, the multinational organization that was created to control oil prices and preserve the energy rights of its members – mostly against private oil companies. Founded in 1960, OPEC has a total of four member countries that have suspended or terminated their memberships, namely Ecuador, Indonesia, Gabon, and Qatar.

While being an energy-related organization, its influence extends to the market as well as geopolitics. The most prominent example would be the energy crisis in the 1970s, caused by a crude oil embargo on the west for their support of Israel. This inadvertently encourages energy security for western countries, to a certain extent motivating the US to become the world’s largest oil producer.

How Influential Is OPEC?

The latest collective decision by OPEC has led to a cut in daily crude oil production quota (not actual production) by two million barrels, in order to stabilize oil prices and national interests. Since the announcement in October, oil bulls have regained strength. As of 2 November, WTI oil futures were traded at $88.59 a barrel, and Brent oil futures at 94.72 – gaining over $10 in a little over a month.

By controlling about 40% of global oil production and 80% of global oil reserves, OPEC has been an effective organization in swaying the market and even international relations. If so, why would its members opt to leave – especially in the 21st century, where many countries are undergoing energy transformation and diversification, and (public and private) oil producers alike are getting less favorable public images, and less sustainable?

Why Leave?

In a way, OPEC operates similarly to a labor union, gaining bargaining power and monetary gains through collective action/stance. But when the cost exceeds the benefits, it would be logical to leave. In this case, Ecuador has cited fiscal problems for its second official departure from OPEC. For decades, the country’s economy has struggled. It believed the OPEC production quota and the two million dollars required to be a member of the club have posed significant financial constraints.

As the Russian Invasion of Ukraine progressed, the market opportunity presented to oil-producing nations grew more enticing with rising energy prices. However, OPEC members had to follow the allotted production quota, and countries that heavily relied on oil income were put into a disadvantageous position. The disproportionate production numbers also made low-producing countries like Ecuador overshadowed by prominent producers like Saudi Arabia.

Complex political nuances within OPEC members have also sparked grievances. Qatar and Indonesia’s departure can be partially attributed to geopolitical conflicts, including those that take place beyond their territories. Stay tuned as we learn more about the outlying oil-producing nations. Check the latest oil price here.