Qatar adrift: what next for shunned LNG giant?

Arab coalition condemns Opec member but at what cost?

In a swift and scything multilateral decision, six Arab states have severed diplomatic ties with Qatar, the world’s largest liquefied natural gas (LNG) exporter.

Spearheaded by Saudi Arabia and Egypt; Bahrain, the United Arab Emirates (UAE) and embattled Libya and Yemen have all agreed to suspend airborne and seaborne travel to and from the Persian Gulf peninsula over its alleged support for terrorism.

Qatar’s sole land border will also be closed as Saudi Arabia slams shut the gate to the Arabian mainland and vital overland supply routes.  

The unexpected rupture in pan-Arab relations saw oil prices shoot up by one per cent before gains pivoted into retrograde.

This political freeze-out, ostensibly orchestrated by Opec’s keystone state, strikes directly at the heart of the 13-member organisation.

Opec’s recent Vienna conference saw the energy combine commit to a regime of production cuts through February 2018. There will now be little reason for Qatar to adhere to those non-binding stipulations. 

Oblique objectives

Although the diplomatic declaration slams the kosh firmly down on Qatar’s fingers, the target of this action is neither singular nor is the timing coincidental.

Barely a fortnight ago, US President Donald Trump, addressed a convocation of Arab nations in Riyadh in which he lambasted Iran.

Saudi Arabia’s formal explanation for its part in this impromptu flare-up included reference to Qatar’s support for “the activities of Iranian-backed terrorist groups”.

As we stated here, Trump has filled his administration with iranophobes, and was an outspoken opponent of Iran’s landmark nuclear deal. His secretary of state recently likened the Shia republic to North Korea, in an echoing of George W. Bush’s “Axis of Evil”.    

Despite protestations to the contrary, this move lays bare the cosy relationship of the Gulf states, and, by extension, Opec’s kingpins, with the US.    

Pipelines and bottlenecks

Staring at each other across the Persian Gulf, Qatar and Iran have enjoyed cordial bilateral relations since the Iranian Revolution, mainly due to their joint control of the largest gas field on Earth, the North Field/South Pars accumulation.    

The sudden souring of relations will make unworkable the pipeline solution mooted to monetise Qatar’s vast deposits.

The proposed US-backed transit artery would need to run through Saudi Arabia, Jordan, Syria and Turkey before plugging into the European supply network.

Qatar’s gas exports will continue to pass unabated by sea for now, with tankers able to cut through the Iranian sector of the Strait of Hormuz, towards the Far East.

Seaward passage to Europe may become problematic if relations further deteriorate and Egypt seeks to prohibit Qatari access to the Suez Canal.  

A concerted effort to blockade Qatar’s eastward LNG exports could spark a major diplomatic incident, led by LNG-dependent nations like Japan and South Korea.   

Retribution and consequences

Should the political situation go from bad to worse, there is a possibility that Qatar might turn off the spigot to gas exports to its immediate neighbours.

The UAE would feel the brunt of this if the Gulf monarchy decided to cut off the Ras Laffan to Taweelah stretch of the Dolphin Energy regional pipeline network.

In a wider context, the rending of Opec that I have often spoken about may now come about from disputes among the “have-mores” rather than with the “have-nots” in the oil syndicate.

Marginalising Qatar may also force the country into the orbit of Tehran and its allies in the Kremlin.

The creation of a formalised “Gas Club” – comprising Qatar, Iran and Russia – would control more than 57 per cent of the world’s proven gas reserves and become a high-octane vehicle of global political leverage.

With the height of summer approaching in the Gulf, there is a cold chill rising out of the Arabian desert.