It may have not come as a shock, but on Monday the 5th of June Saudi Arabia, Egypt, Bahrain and the United Arab Emirates (UAE) cut all diplomatic relations with Qatar.
The reason behind this drastic move is the accusation that the capitol, Doha, is an active supporter of terrorism within the region and of Iran.
Implications on Qatar
All Qataris who reside in the Kingdom of Saudi Arabia (KSA), Bahrain and UAE have been given two weeks to leave. Qatari diplomats were only given 48 hours to leave both Egypt and the UAE. The borders with the tiny gulf state have all been closed, causing great concern for the country’s food imports (Doha relies on 40% of its food imports from Saudi Arabia) and Egypt has closed its airspace to Qatari planes with others expected to follow, causing massive travel disruption for the country’s key airline, Qatar Airways.
The country’s state-owned flag carrier faces the prospect of being boxed-in, due to the fact that the ban surrounds the country. Saudi Arabia, Bahrain and UAE have all banned flights, which leads the country to face an increase of costs and flight time; the average journey time to Europe has increased from 6 hours to 9 hours.
Qatar’s construction projects are also likely to be affected. The 2022 World cup to be held in Qatar is approaching and all key materials needed to finalize preparation were being supplied by Saudi. The closure of the borders will push up prices and cause huge delays.
Qatar and OPEC
Qatar is an active member of the Organization of Petroleum Exporting Countries (OPEC) since 1961. How will this affect oil prices?
Firstly, there is the potential that the current OPEC agreement to limit current oil production could collapse. If that happens oil prices could potentially fall. However, Qatar’s is one of the smallest oil producers in OPEC, with estimated proven reserves of 25 billion barrels which is dwarfed by Saudi’s 266 billion barrels. For Qatar to really have an impact on the current agreement it would have to be backed by other smaller members like Algeria and Nigeria. And even if Qatar was to increase production, they still face the impossible mission of getting production out with all the boarder restrictions.
Qatar and Oil Prices
The main danger to the region and indeed to Oil prices, is that increased tension could lead Qatar to branch out to Iran for support which would no doubt sour diplomatic matters further. This is likely because Saudi Arabia being backed by the USA. US President Donald Trump said in a recent visit to the kingdom that Iran was to blame for the instability in the region.
However, the most likely outcome is that the small country of Qatar with its 2.7 million population, will negotiate and could be encouraged for a leadership change in Doha. This could appease its former Arab partners.
Either way, the region and its ongoing impact on oil prices will always be there.