Saudi-led Coalition’s Blockade of Qatar — Why Now and What Are the Economic Impacts?

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Qatar is a major supplier of liquefied natural gas. donvictori0/Adobe Stock

Editor’s Note: This is the second part of Stuart Burns’ analysis of last week’s decision by several Arab nations to break ties with Qatar. On Friday, Burns covered the political backdrop. 

Qatar may well be asking: why now?

The country has been engaged in such activity (as detailed Friday) for a decade or more, but the young Saudi Deputy Crown Prince Mohammed bin Salman and Abu Dhabi’s Crown prince, Sheikh Mohammed bin Zayed, seem to have found common ground to take Middle East politics into their own hands and mold the region the way they would like to see it.

It would seem they are not above fabricating their own fake news to achieve it, either. For example, Qatar’s Emir Tamim is reported to have said that Hamas is “the legitimate representative of the Palestinian people,” and called Iran “a big power in the stabilization of the region.”

But attendees at the speech reported he said no such thing. Shortly afterward, it was discovered the Qatar News Agency (QNA) website had been hacked into and the stories inserted.

The timing of the diplomatic freeze is also relevant.

Just two weeks after President Donald Trump’s visit, you have to think this was discussed and approval was sought for U.S. backing, at least politically, for such a dramatic move. It should not be forgotten that the U.S. has a major intelligence-gathering military base in Qatar, the Al Udeid Air Base on Qatari soil is a pivotal staging ground for U.S. counterterror operations, the Washington Post states.

In a more recent development, Secretary of State Rex Tillerson on Friday made a call for de-escalation, asking the Saudi-led coalition to ease its blockade of Qatar on the grounds that it is creating food shortages and making the fight against ISIS more difficult, according to Bloomberg.

The alliance is trying to pull Qatar into line with the position taken by the other members of the Gulf Cooperation Council — aligning against Iran and backing away from supporting terrorist sympathizers. In that they are to be applauded, but the risk is the situation gets out of control. One must assume closed-door discussion has not worked and the GCC coalition is taking this more extreme step to shock Qatar into compliance. The danger is it could also drive Qatar further into the arms of the Iranians, further polarizing the region’s political blocs.

Not surprisingly, the move caused a jump in the oil price and jitters in the liquefied natural gas (LNG) market, in which Qatar plays an outsize role as a major supplier to Europe and Asia. Oil prices immediately jumped but then fell back, as it became clear Qatar’s 30,000 barrels a day were unlikely to have any impact of global supply.

Of more concern, however, was LNG.

Qatar supplies a third of the U.K.’s consumption and is the world’s largest exporter of LNG.

Qatari production of aluminum — at 610,000 tons per annum, in a 50:50 joint venture with Norsk Hydro — represents less than 1% of the global market Prices have been unaffected by the news of the GCC blockade.

In the short term, exports may be disrupted because cargoes were transhipped in neighbouring UAE onto larger vessels. However, Qatalum (the joint venture between Qatar Petroleum and Norsk Hydro) says it can ship directly from its own ports, if necessary.

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