Cairo – Decypha: On the dawn of June 5, the Middle East woke up to the severance of ties between Qatar and several Arab states, including Saudi Arabia, Bahrain, UAE, and Egypt.
The crisis that has been deemed as the worst in the GCC since its creation in 1981, not only because of the severance of the diplomatic ties, but due to the expected political and economic after-shocks as well.
After the sudden decision, the prices of oil have fallen to their lowest level since the beginning of 2017, according to the Express. The barrel price has fallen into the $40s.
When the news first surfaced regarding the crisis, multiple analysts assumed that there will be a hike in oil prices. However, markets assumed that it will be harder for OPEC to approve more production cuts, Michael Baxter, economics commentator for The Share Centre told the Express. Experts also added that oil prices might struggle to move higher than $50 in the near future.
The Reality of the Oil Game
Given the supply abundance globally, it is unlikely that the Gulf crisis will lead to higher prices of oil in the short and medium term, M.R. Raghu, Executive Vice President of Kuwait Financial Centre (Markaz) told Agence France Presse.
Saudi Arabia, the main organizer for the ties severance and amid its accusations for Qatar over funding terrorism in the region, hasn’t disrupted the oil shipments of Qatar, Bloomberg reported. The two countries continue to share oil tankers despite the tension. The number of tankers filled with Qatari crude along with that of Saudi Arabia has increased, ship-tracking data compiled by Bloomberg for the 25 days before and after 1 July have shown.
The three countries’ loadings of crude remains unharmed to a large extent since the crisis broke out on 5 June, Bloomberg continued. The crisis has raised concerns that it may affect the oil supply from the region, though it hasn’t yet happened, according to FXEMPIRE. However, there is fear among countries that demand may increase with not enough supply.
They expected that oil prices will remain well bid over the short and medium term. Also, any further escalations in the tension may lead the barrel to jump over $50, adding that several countries in the region may love to see the prices around $60.
The exports of gas and oil are not likely to be affected in the near future. However the Qatari economy has suffered in light of the crisis and the national currency is going through hard circumstances, according to a research conducted by the European Parliament. The report added that the prices rose initially when the problem first sparked. However, it was fast to drop again.
Oil experts believe that it is unlikely that OPEC agreement to buoy prices will disintegrate, according to CBS news. Oil prices were already low prior to the crisis, and they will likely remain on that level. He added that there is an excessive supply available to get prices higher, Matthew Peterson, chief wealth strategist at LPL Financial told CBS.
CBS predicted that the Gulf crisis will cause minor, if any, damage to the energy sector due to multiple reasons. The first one is that Qatar isn’t a major oil player. It is number 17 crude oil producer. Exports may be a bit shaken. However, experts believe that there will only be a minor influence.
Qatar, at the end, will have to comply with a more powerful Saudi Arabia and will eventually play some sort of a role in Saudi Arabia-American alliance, IHS Markit Middle East analyst Firas Abi Ali wrote.
OPEC is Likely to Move Forward
During the 1990s, Qatar accused Saudi Arabia and other countries of attempting to block the export of Liquified Natural Gas (LNG). It is expected that such a problem may surface again, given that the hydrocarbon future is under pressure, according to Oil Price.
In the 1980s, Iran and Iraq were involved in an eight-year war, during which the production of both countries was disrupted. However, OPEC successfully managed in 1983 to set its first output quota, according to Bloomberg. The oil prices remained elevated during the war years.
In 1990, Iraq invaded Kuwait and the production of both countries was suspended, according to the Energy Information Administration. OPEC also successfully made it through the conflict.
In recent years, the tension between Saudi Arabia and Iran have grown stronger due to the political turmoil that took over the region starting 2011. Hence, OPEC approved of a new collective production ceiling during that year.
OPEC members have faced several political disputes through the organizations’s 57-year establishment.However, their economic interests remained separate. It is not the first political tension between OPEC members and will not be the last. It has been through major political and military conflicts, but it had no implications on the work flow, Abdulsamad Al-Awadhi, a London-based analyst told India times.
All in all, it remains unclear when the Gulf Crisis will come to an end, particularly that Qatar refused a list of demands made by the boycotting countries. Egypt’s Foreign Ministry said in a statement that the GCC boycotting countries are meeting in Egypt on Wednsday to follow up on the situation with Qatar.
By Toqa Ezzeldin
