June 6, 2017
By Christopher Kanaan
A tiny island facing a very large blockade
The tiny island of Qatar is facing a very large isolation– which really isn’t good for Qatar as the only land border shared is with Saudi Arabia, which provides almost all goods and services and even most importantly, food. The sudden reason for the isolation? Financing and support terrorism, including: ISIS, Muslim Brotherhood, Taliban, Hamas and the worst from Saudi Arabia’s eye: arch enemy Iran.
Reasons for the blockade of Qatar
While there could be multiple possibilities for the sudden compelling isolation of Qatar (including Trump’s recent visit), the ones I think most pertinent related to oil and gas prices as well as Iran. Iran, while not a member of OPEC, has come off sanctions and is now preparing to open up its oil market to international investments. Doing so, would be a major threat to OPEC nations in a time where the market seems to be oversupplied. Qatar is been seen cozy towards Iran. Recently on Trump’s first visit to Saudi Arabia, the US President rallied the troops from over 50 Islamic countries to “isolate” Iran and eliminate radical ideology. Of course for the Saudis, they consider a woman driver such as famous Saudi female activist (and “terrorist woman driver”) Manal al-Shariff as a potential terrorist and liberal poet such as jailed Raif Baddawi as propping up “radical ideology” for expressing political dissent. For the Saudis however, no ideology is more “radical” then Khoeminism or Shia’ism from Iran. Qatar’s Al Thani rulers dissented on Saudi plans to isolate Iran and expressed concern it would create instability. Not exactly what the Saudis wanted to hear at a time of being engaged in a war with Iranian proxy Houthis rebels next door in Yemen. Saudi Arabia is clearly paranoid of Iran and likely assumes that Iran’s opening of the west presents a serious challenge to The Kingdom if they don’t halt plans.
Taking the blame off themselves and putting it on Qatar
Saudi Arabia’s Al Saud family can’t exactly be too comfortable themselves. They have been accused of supporting “Wahabism,” the ideology that the ISIS (Daesh, Islamic State of the Levant, Al Qaida & Bin Laden) follow and with recent terrorist attacks in Europe and elsewhere, many are now focusing on that state sponsored Wahabi ideology and asking why their governments call Saudi Arabia an ally. Accusing Qatar of being the terrorist state deflects the eyes off themselves, at least for the time being. The UK Labour Party, looking better in the looming polls by the day, are adamantly pursuing an establishment of arms deals with Saudi Arabia for mass atrocities against civilians in Yemen. Similar calls have been made in Germany, Sweden and elsewhere. Prior to the ISIS attacks in Europe was the Arab Spring. Saudi Arabia’s protests were largely ignored but were prevalent in the eastern sector of the country, largely where the disgruntled Shiite (ideology of Iran) minority lives. For now, the Saudis can pretend to be the good guys. The friends of the United States, defenders against terrorism and an ally of the west. Just for now, though.
Doing “whatever it takes” to prop up oil prices
Saudi Arabia is absolutely desperate for higher oil prices– as is Russia and other OPEC nations which are seeing humongous deficits that can only be cured my higher oil prices. Khalid Al Salih, the Saudi energy minister recently agreed that he and Russian counterpart, Alexander Novak, that they would do “whatever it takes” to raise oil prices. With a negative market response to the OPEC extensions, the Saudis couldn’t have felt too good. The market was expecting deeper cuts as their initial cuts were not evidently not sufficient. Nonetheless, the Saudis claimed they will see the results soon. Meanwhile, I believe the Saudis conveniently started a conflict with Qatar to entangle also Iran and bring back that geopolitical risk of instability. There is no more valuable geopolitical risk then the one that lives in the Hormuz Strait. If any type of armed conflict starts in the Hormuz Strait, we could see oil prices potentially and quickly surpass their previous highs. Even the risk of war should act as a premium; if the Saudis are looking for oil in the $60s, it seems quite logical that they should obtain that support level should geopolitical risk (combining with inventory drops in the US) be even prospectively imminent. The natural gas market should see the greatest geopolitical premium as gas is imperative to major countries power plants and they require a steady and unquestionably stable supply- unlike oil which could potentially be acquired by other suppliers.
What to watch for now
Any escalation (or more unlikely, de-escalation) should be taken very seriously. The accusations of supporting the Islamic State a day after the murderous savage attacks in Europe are hardly forgivable. Donald Trump reinforced the Saudi view on Twitter, confirming that he supports action against Qatar and even encouraged it. There is no chance of turning back now. Personally I would like to watch for any interveners— already, Kuwait is trying to act as an intermediary. The ones trying to intervene on behalf of Qatar may become cynically seen by the Saudis and other GCC allies trying to isolate Qatar and Iran. The reluctance to intervene seems evident with the Turks, whose leader Erdogan did not mention Saudi Arabia by name when condemning the Qatari boycott.
Will Turkey be pulled into the equation?
Turkish President Tayyep Erdogan has taken the side of Qatar for the most part, claiming the allegations are untrue and reconciliation should take place immediately. I find it important to note the US-backed operation to re-take ISIS capital of their caliphate, Raqqa, is also imminently to begin. This will include using Turkish foe Kurdish fighters, armed by US, to fight ISIS; something that Turkey vehemently opposes as they see the Kurds as their own enemy. Turkey under Erdogan has also been accused of supporting terrorists in Syria and facilitating their entry. Erdogan has also made threats to Europe, stating they wouldn’t be safe on their streets. It will be interesting to see if Turkey will be dragged into conflict with Saudi Arabia or the United States, or possibly by proxy war with the Kurdish militias the USA is strongly backing in both Syria & Iraq.
Shipping lanes, re-fueling, Dolphin Pipeline
United Arab Emirates has the ability to shut down the Qatari Dolphin natural gas pipeline. This would send natural gas prices flying, most likely, and could send countries like Japan or India into disarray as they rely on Qatari gas imports for power plant operations. UAE has banned Qatari ships from re-fueling. Egypt is also considering a ban on Qatari ships in the Suez canal. Qatar could be forced to cozy up to arch Gulf rival, Iran, to use their land transportation and also seaways. Qatar as an Iranian ally will not be taken lightly by the Saudis and Co.
Bullish news, nonetheless
The initial reaction to the sudden blockade of Qatar was bullish. Crude oil went up around 2% before subsiding and going back into the red over supposed fears that this could break the OPEC pact. I beg the differ on any bearish element to the dilemma facing Qatar, it’s extremely bullish news and could open up a whole new can of worms. The can of worms that could throw the Mideast back into chaos and send oil prices to the moon. Al Jazeera is a powerful indoctrinator, watched by millions of Arabs & Muslims around the world and staunch pan-Arab, politically active Islamist groups such as the Muslim Brotherhood are backers of Qatar. If Iran gets involed, it could really get out of hand and there are no limits to the potential of “bullishness” deriving from a conflict like this. While this news is certainly not good for Qatar, for energy investors, I think it’s a great reason to believe that the crude forecasts of $50s for 2017/18 will be very wrong.