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The diplomatic crisis in the Middle East might have far-reaching repercussions for the region and the global energy markets. But the Saudi led blockade of Qatar, the world’s largest exporter of liquefied natural gas, will only result in disruption if the situation aggravates further and international sanctions are put on Qatar.

This does not seem likely in the current situation. Despite US President Trump’s incitement of the GCC countries, Qatar remains an important US ally with its largest military base in the region based out of the tiny gas-rich emirate.

Another factor going in favour of Qatar is the sheer size of its contribution to global LNG exports. According to the International Group of Liquefied Natural Gas Importers (GIINGL), Qatar exported roughly 80 million tons of LNG in 2016. That is equivalent to almost one third of the global LNG supply.

And then there are the customers. The list includes Japan, China, India, and a host of European countries with enough political clout to ensure a befitting response should any attempt is made to stop Qatar’s energy exports to these regions. For now, even with Saudi and other Emirati waters off-limits to Qatar, it can continue using the Iranian route or sail through the Strait of Hormuz as long as Oman does not join the Saudi led embargo.

However, the ban will result in additional refuelling costs and delivery time in the medium to long term as the UAE’s port of Fujairah is one of the key ports for the global energy market and is used as a stop-over for carriers heading to Asia, Europe and the United States.

There is an option available to Qatar to retaliate by cutting off gas supply to the UAE via the Dolphin pipeline that accounts for supply of more than 2 billion cubic feet per day. According to Bloomberg, this is equivalent to almost one-fourth of the country’s consumption and can have highly adverse impact with the soaring temperatures in the Middle East set to rise even further entailing increased energy consumption. However, this will result in aggravating the situation further, which will hurt Qatar more in the long term and possibly damage its reputation as a reliable energy supplier.

The other key route is through the Suez Canal, which is so far open to Qatar. Egypt is bound under international law to allow all ships to pass through with the exception of countries it is at war with. However, if for some reason the Suez Canal also becomes off-limits to Qatari carriers, Europe would see an additional three to four weeks increase in shipping times for its energy imports from Qatar.

For Pakistan, the risk does not seem high in the short to medium term. The country imports only 600 million cubic feet per day (mmcfd) of LNG and the route via Iran will not be affected ensuring a reliable supply.

Qatar Petroleum has issued assurances to all its importers including Pakistan of reliable energy supplies, and for the time being it looks like the Emirate will be able to honour its commitments. However, with the global supply glut persisting in both the LNG and oil markets, a prolonged siege by its neighbours will surely hamper the Qatar’s economic prospects.

Copyright Business Recorder, 2017

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