Feud Between Brothers: the GCC rift and implications for oil and gas markets
Earlier this week, Saudi Arabia, the UAE, Bahrain and Egypt cut diplomatic and economic ties with Qatar, accusing Qatar of supporting extremism. The measures are of unprecedented severity in modern GCC diplomacy with adverse consequences for Qatar, not least for its reputation as a business and international and regional transit hub and as host for international events, including the 2022 World Cup. While efforts at mediation are underway, it will be difficult to bridge the gap between Qatar and Saudi Arabia and its closest allies. At the root of the dispute is a fundamental difference in foreign and regional policy. Further escalation is unlikely, but the dispute will not be resolved anytime soon – unless Qatar makes some very painful concessions. Therefore, oil and gas markets should prepare for a flow of headline news, which could induce erratic volatility, despite the impact of the current escalation on oil and gas market fundamentals being rather limited. We expect no impact on oil market balances and there is no indication that Qatar’s exports of LNG, oil or NGLs will be impeded, though we could witness some redirection of LNG trade flows. While the impacts of the current escalation on energy markets are likely to be limited, the same can’t be said for the stability of the Middle East. The region is already undergoing a ‘regional’ civil war, which has fragmented countries, created new geographical boundaries, weakened the authority of central governments and increased the power of non-state actors. The current rift within the GCC, if not contained, will only amplify the ‘regional’ civil war, increasing the risk of further fragmentation, more intense proxy conflicts, and higher instability, which, whilst it may not have a direct impact on immediate oil and gas supplies, may well impact the long-term productive potential of the region.