Key Arab allies on Monday cut ties with Qatar, the world’s top seller of liquefied natural gas (LNG), accusing it of supporting extremism and sending shockwaves through the energy industry.
“Qatar embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, Islamic State and al-Qaeda, and promotes message and schemes of these groups through their media constantly,” Saudi state news agency said.
The rift did not immediately affect tanker shipments, but benchmark Brent crude futures prices rose around 1 percent to over $50 per barrel on concerns about a widening rift in the Arab world. The move comes as the Organisation of the Petroleum Exporting Countries (OPEC) recently agreed to extend crude oil production cuts in order to tighten the market and pop up prices.
It was not immediately clear how the political crisis would affect policy-making at OPEC, of which Saudi Arabia as the world’s biggest crude exporter is seen as the de-facto leader. A Saudi oil industry source said the action was unlikely to have a large impact on OPEC decision making, noting that other political disputes within the group, including between Saudi Arabia and Iran, had not prevented OPEC from agreeing on oil policy.
Traders said it was too early to say if the dispute would have any impact on LNG shipment within the region, with both Egypt and the UAE taking regular cargoes from Qatar. Qatar meets almost a third of global LNG demand and Egypt, which struggles to meet its electricity needs, has imported an average 857,000 cubic metres per month of LNG from Qatar since January 2016, according to shipping data.
Credit rating agency Moody’s Investors Service is concerned that the rift between Qatar and other regional states could have an impact on Doha’s credit rating, if trade and capital flows are disrupted, a senior analyst said. “There’s a high degree of uncertainty. There’s not much clarity on what could resolve this spat between Qatar and other GCC countries,” Mathias Angonin said in Dubai.
“The last tension ended with no credit implications,” he said, referring to a row when Saudi Arabia, the United Arab Emirates and Bahrain withdrew their ambassadors from Qatar in March 2014. “But this time around blocking sea, air and land (routes) shows a credit-negative escalation. And were concerned that could have a credit impact if it disrupts trade and capital flows.”
Late last month, Moody’s downgraded Qatar’s credit rating by one notch to Aa3 from Aa2 with a stable outlook, citing increasing external debt and uncertainty over the sustainability of the country’s growth model over the next few years.
