Real Reason Behind Qatar Crisis Is Natural Gas, as Saudis Issue 24 Hour Ultimatum

Gulf CrisisIn the latest escalation of the Gulf crisis in which a coalition of Saudi-led states cut off diplomatic and economic ties with Qatar, Saudi Arabia has now given Qatar a 24 hour ultimatum to fulfil 10 conditions, that have been conveyed to Kuwait, which is currently involved in the role of a mediator between Saudi and Qatar.

Whilst the official narrative for the diplomatic fallout is because – to everyone’s ‘stunned amazement’ – Qatar was funding terrorists, including a report by the FT that Qatar has directly provided $1 billion in funding to Iran and al-Qaeda spinoffs, could the real reason behind the diplomatic fallout be far simpler, and once again has to do with a long-running and controversial topic, namely Qatar’s regional natural gas dominance.

Bloomberg debunks the ‘official narrative’ behind the Gulf crisis and suggests that Saudi Arabia’s isolation of Qatar, ‘and the dispute’s long past and likely lingering future are best explained by natural gas.’

The reasons for natural gas as the source of discord are numerous and start in 1995, ‘when the tiny desert peninsula was about to make its first shipment of liquid natural gas from the world’s largest reservoir. The offshore North Field, which provides virtually all of Qatar’s gas, is shared with Iran, Saudi Arabia’s hated rival.’

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The result to Qatar’s finances was similar to the windfall that Saudi Arabia reaped from its vast crude oil wealth.

The wealth that followed turned Qatar into not just the world’s richest nation, with an annual per-capita income of $130,000, but also the world’s largest LNG exporter. The focus on gas set it apart from its oil producing neighbours in the Gulf Cooperation Council and allowed it to break from domination by Saudi Arabia, which in Monday’s statement of complaint described Qataris as an ‘extension of their brethren in the Kingdom’ as it cut off diplomatic relations and closed the border.

In short, over the past two decades, Qatar become the single biggest natural gas powerhouse in the region, with only Russia’s Gazprom able to challenge Qatar’s influence in LNG exports.

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Undeniably, Qatar has shown a remarkable ability to shift its ideological allegiance, with the FT reporting as recently as 2013, that initially Qatar was a staunch supporter, backer and financier of the Syrian rebels, tasked to topple the Assad regime, a process which could culminate with the creation of the much maligned trans-Syrian pipeline.

The tiny gas-rich state of Qatar has spent as much as $3bn over the past two years supporting the rebellion in Syria, far exceeding any other government, but is now being nudged aside by Saudi Arabia as the prime source of arms to rebels.

The cost of Qatar’s intervention, its latest push to back an Arab revolt, amounts to a fraction of its international investment portfolio. But its financial support for the revolution that has turned into a vicious civil war dramatically overshadows western backing for the opposition.

However, as the years passed, Qatar grew to comprehend that Russia would not allow its pipeline to traverse Syria, and as a result it strategically pivoted in a pro-Russia direction.

Qatar’s sovereign wealth fund agreed last year to invest $2.7 billion in Russia’s state-run Rosneft Oil, even as Qatar is host of the largest US military base in the region, US Central Command. This particular pivot may have also added to fears that Qatar was becoming a far more active supporter of a Russia-Iran-Syria axis in the region, its recent financial and ideological support of Iran notwithstanding.

As a result of the tiny nation’s growing financial and political ‘independence’, its neighbours grew increasingly frustrated and concerned: ‘Qatar used to be a kind of Saudi vassal state, but it used the autonomy that its gas wealth created to carve out an independent role for itself,’ said Jim Krane, energy research fellow at Rice University’s Baker Institute, quoted by Bloomberg.

Furthermore, Qatar’s natural gas output has been ‘free from entanglement’ – and political pressure – in the OPEC, the oil cartel that Saudi Arabia dominates.

‘The rest of the region has been looking for an opportunity to clip Qatar’s wings.’

As Bloomberg adds, ‘that opportunity came with U.S. President Donald Trump’s recent visit to Saudi Arabia, when he called on ‘all nations of conscience’ to isolate Iran. When Qatar disagreed publicly, in a statement the government later said was a product of hacking, the Saudi-led retribution followed.’

Whether natural gas is the source of the Qatari isolation will depend on the next steps by both Saudi Arabia and Iran. Saudi Arabia, along with the United Arab Emirates and Egypt – are all highly reliant on Qatari gas via pipeline and LNG.

According to Reuters, traders startled by the development, have begun to plan for all eventualities, especially any upsets to piped gas supplies from Qatar to the UAE. The UAE consumes 1.8 billion cubic feet/day of Qatari gas via the Dolphin pipeline, and has LNG purchase agreements with its neighbor, leaving it doubly exposed to tit-for-tat measures, industry sources and traders said.

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