Energy Markets Can Survive Qatari Blockade

The blockade against Qatar is undoubtedly causing difficulties for the citizens on the small Persian Gulf emirate. But its isolation is far from complete, and chinks in the wall are a clear indication that the connections that exist between Qatar and its uneasy neighbors cannot easily be broken. And, it looks like energy markets can survive the policy, Julian Lee said in an article for Bloomberg.

Qatar's rulers built the country's independence on exports of hydrocarbons -- particularly natural gas -- and flows of these commodities have been put at risk by the restrictions imposed by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt.

The precise nature of these restrictions is far from clear. Some authorities in Saudi Arabia and the UAE say any vessel travelling to or from Qatar cannot enter their ports.  More recently, the UAE's Federal Transport Authority limited the ban to those that are Qatari-owned or flagged, and to the loading or unloading of ships trading with Qatar. There is evidence that bans by Saudi, Emirati and Bahraini ports on ships which also call at Qatar are affecting the country's oil and gas exports. The discounts that Qatar would need to offer to buyers of its oil to compensate for increased shipping costs are emerging.

The country's Al-Shaheen grade recently traded 70 to 90 cents per barrel below the regional Dubai benchmark, compared with an average discount of 25 cents last month.

Traders expect the gap to widen further, due to continuing uncertainty over whether vessels loading Qatari crude will be able to call at other export terminals in the region, according to a Bloomberg survey. The situation has taken its toll. Observed shipments of crude and condensate from Qatar are down 20% in the first half of June, compared with the average for all of May, according to Bloomberg's tanker tracking. One cannot read too much into two week's figures, because one shipment can have a big impact on daily average numbers, but the trend seems established. Still, it is far from clear that the nation's on a one-way path to stagnation. Vessels are still taking on cargo from Saudi Arabia and the UAE after loading in Qatar, just as they were before the ban. Since June 5, when the restrictions were imposed, 13 tankers have loaded crude oil or condensate from the country.  All but four of them also took on cargo in Saudi Arabia, the UAE, or both. The barrier imposed between the two countries and Qatar is porous, and may well remain so.