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Dr. Cyril Widdershoven is a long-time observer of the global energy market. Presently, he holds several advisory positions with international think tanks in the Middle…

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Anti-Qatar Threats Could Jeopardize OPEC Meeting

The OPEC meeting on June 22nd could become a major showdown of internal conflicts. The media has been focusing on the possible split between the Arab producers and Iran, and the growing tendency of Russian companies to lower production cut compliance.

However, the simmering inter-Arab conflict around Qatar could become a major issue that could blow up OPEC’s deal.

The last days, French newspaper Le Monde reported that Saudi Arabia has threatened to launch military action against Qatar, if Doha will continue to purchase the Russia's S-400 anti-aircraft missile system. The French paper stated that Saudi King Salman has even sent a letter to French president Emmanuel Macron warning that military action could be taken if Qatar purchases the S-400. King Salman reportedly has asked France to intervene.

The Saudi warning comes as surprise, as Saudi Arabia and its main allies the UAE, Egypt and Bahrain, have always refused any real military action. Arab media has been indicating some indirect military threats, but they never were acknowledged by the anti-Qatar alliance.

The current crisis, which has been lingering on for about one year now seems to be heating up. No reaction yet has come from the other anti-Qatar allies, but it can be seen as an open warning supported by the others.

Qatar has openly stated that the Russian S-400 system will be purchased soon. Strangely enough, Saudi Arabia has also been discussing this topic with the Russians.

The ongoing crisis between the two Wahhabi countries is far from over. In addition to Saudi threats, UAE’s minister of foreign affairs Garghash has also become very vocal and has been openly accusing Qatar of lying to the media. Bahrain, Saudi Arabia’s little brother, also increased its criticism on Doha, accusing it of meddling into internal Bahraini affairs.

For Qatar, the situation is dire. Even though media sources are stating that Doha has been able to mitigate most of negative results of the Arab blockade, which prevents air traffic, trade and investments, the effects have been disastrous for the local economy. Prices have increased, investments are constrained, and Doha was forced to use its foreign assets, mainly of the Qatar Investment Authority (QIA), to support local businesses and ongoing projects. The situation could worsen in coming months as the negative effects of the U.S. sanctions on Iran stand to impact Qatar as well. Related: New Technology Could Wipe Out Trillions In Fossil Fuel Investment

Washington will likely be focusing on the possible economic and financial links between Doha and Tehran. The latter is currently one of the economic lifelines that keeps Doha afloat. The U.S. sanctions could also constrain Turkish-Qatari trade as Turkish companies are on the radar of Washington too due to their links with Iran.

For OPEC’s internal cohesion these developments are not a good sign. A possible strategic alliance between Qatar and Iran could become a main breaking point at the end of June.

If Iran, Qatar and Venezuela, possibly even supported by Iraq and Oman, would opt for a reassessment of the current production cut deal between OPEC and Russia, the oil market would become extremely volatile.

Russian oil companies already are already reflecting a falling compliance, and a possible deal between Russian operators and the Qatar-Iran axis could prove to be a disaster and destabilize markets. Related: The Soccer Player Saving Egypt’s Energy Sector

A showdown is on the horizon. The stakes have been raised the last couple of days, leaving little room for maneuvering. Again, an internal GCC rift, supported by an outsider (Iran) could put a bomb under a hard-fought and functioning Russia/OPEC strategy.

Moscow might convince Iran to keep compliance high, but history has shown that OPEC’s future is sometimes not built on market fundamentals, but on the political views of Iran and Saudi Arabia. The 2007 OPEC Heads of State meeting in Riyadh could be revisited, analysts should go back in their archives and reread what happened there.

On the sidelines, a non-OPEC and non-oil producing Arab country could also be playing a pivotal role. The ongoing instability and threats inside of the Hashemite Kingdom of Jordan could undermine the Vienna meeting even further. The economic and political crisis in Jordan, mostly seen as an internal conflict between the Jordanian government parties, could add to the divide in the Arab world. A destabilized Jordan, always one of the leading political and strategic leaders of the Middle East, could further destabilize the region.

By Cyril Widdershoven for Oilprice.com

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