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2017-06-05 08:06:03
After Initial Jolt on Qatar Tensions, Energy Markets Settle

LONDON — As Saudi Arabia and four other Arab states cut diplomatic ties with Qatar on Monday, energy markets tried to digest whether the tensions would translate into disruptions.

The flare-up in the Middle East added to the instability in the world’s most important energy-exporting region. Saudi Arabia is the world’s biggest exporter of crude, while Qatar is home to substantial natural gas resources.

But a diplomatic row will not necessarily threaten supplies. Amid a global glut, other countries could easily step in to fill the void, provided tensions in the region do not escalate.

Investors seem to be making that calculus. While oil prices initially spiked by 1.6 percent on Monday, the markets quickly fell back to just above $50 a barrel.

“It is very difficult to see how this break in diplomatic relations would lead to a disruption of oil supplies,” said Paul Stevens, a Middle East oil specialist at Chatham House, a research organization in London.

Investors, for now, appear to be focused on the oversupply of oil, which has kept prices low for more than two years. Saudi Arabia and other major oil-exporting nations are trying to keep supplies in check, but American shale players continue to ramp up production.

Qatar, a member of OPEC, helped broker last year’s agreement by the cartel and by other producers, like Russia, to trim output in an effort to soak up supplies. Despite continuing political tensions, the parties agreed last month to extend the cuts for another nine months.

A small country with only 2.2 million residents — many of whom are not citizens — Qatar occupies a strategic position, jutting into the Persian Gulf from the Arabian Peninsula. Qatar has a border with Saudi Arabia and shares the world’s largest natural gas field with Iran.

Qatar is a relatively small oil producer with output of about 620,000 barrels a day in April, less than 1 percent of world supply. But Qatar is a world power in natural gas.

Through partnerships with Exxon Mobil, Royal Dutch Shell, Total and other companies, Qatar has built major infrastructure for chilling natural gas into liquid form so that it can be exported on ships. Qatar was the world’s largest exporter of liquefied natural gas last year, accounting for nearly 30 percent of supplies, according to the consultancy Wood Mackenzie.

Gas has helped make Qatar one of the world’s richest countries. The government has used the steady flow of cash to intervene in regional disputes and to fund activities like the broadcast network Al Jazeera, actions that often annoy its Arab neighbors.

The diplomatic row has economic implications. Saudi Arabia has called for multinational companies to withdraw from Qatar, putting those firms in a difficult position. Major construction work is underway in preparation for Qatar’s hosting of the 2022 World Cup, for instance.

Disruptions of Qatar’s supplies would shake the natural gas market, but would not necessarily destabilize it. There are multiple sources of liquefied natural gas, including huge facilities developed recently in Australia, and companies are showing themselves increasingly willing and able to route cargoes to different ports according to need and price.

If the turmoil persists, it could threaten investment in oil and gas facilities. Even before the latest diplomatic moves against Qatar, tensions were high, stoked in part by the bitter differences between Saudi Arabia and Iran, and the fighting in Yemen and Iraq.

“If this continues for any length of time it will have implications for the Qatari economy,” said Richard Mallinson, a geopolitical analyst at Energy Aspects, a market research firm. “The question is, do calmer heads prevail and do we see work to de-escalate.”