Qatar Leaves OPEC – What Does This Mean For Aviation?

The nation of Qatar has given notice that it intends to leave the OPEC. The OPEC is the Organization of the Petroleum Exporting Countries. Based in Vienna, it is a group of countries which export petroleum. The stated mission of the organisation is to “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.” The news comes after Qatar Airways threatened to leave the OneWorld Aviation Alliance earlier in the year.

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The nation of Qatar has tendered its resignation to the OPEC. Photo: Airbus

Why is this happening?

The action taken by Qatar is likely down to many complex reasons. However, the main reason given by the nation is that it intends to start focusing on the production of Gas. Currently, the nation is the world’s largest exporter of liquid natural gas. Several of the other Arab nations have, however, accused Qatar of funding terrorism, and are boycotting the state. As such, Qatar’s aircraft are banned from the majority of neighbouring airspace, meaning that aircraft can only fly in and out of Qatar via one specific route.

Qatar registered aircraft are banned from flying in Bahrain, Egypt, Saudi Arabia, and the United Arab Emirates. As such, they were required to fly in and out through Iran, who charged a hefty fee for each flight. Since the crisis began, Qatar Airways has been granted three contingency routes though international water by the ICAO.

Decision Not Based On Geopolitics

Qatar’s Energy Minister, Saad al-Kaabi, told the press that the reason for leaving the oil cartel was not related to the current geopolitical situation in the middle east. Instead, he said that the decision was driven by the fact that Qatar is not a major oil exporter.

“We don’t have great potential (in oil), we are very realistic. Our potential is gas.”

What Could This Mean For Aviation?

The aviation industry has recently suffered from a very volatile year in terms of oil prices. Following a long period of prices rising substantially, the cost of oil has suddenly begun to tumble. As a result of this volatility, many airlines have taken a huge hit to their profits over the past 6 months. While in the case of Emirates, this has been attributed to not hedging for fuel, Cathay Pacific has reportedly lost $6.5 billion. The airline has reportedly lost the amount as it is locked into a fuel hedging contract paying fixed prices.

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The price of oil has begun to fall sharply after a long period of steady increase. Source: IATA

A fuel hedging contract is when an airline agrees to buy X amount of fuel at a fixed rate over the length of the contract. While this means that huge savings can be made if fuel prices rise, huge losses can also be made if prices fall. Many airlines have recently been fighting the volatility of the fuel market, and as such, Kenya Airways will begin fuel hedging again from next year to cushion itself. It is possible that the price of oil will continue to fluctuate going forward caused by the cessation of Qatar’s OPEC membership.

How do you think Qatar’s resignation will affect the industry? Let us know in the comments down below!