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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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The Qatar Blockade Is Threatening The OPEC Deal

Qatar

The blockade of Qatar could persist for quite a long time, according to the foreign minister of the UAE, who insisted that the Gulf States that have imposed the punitive barricade are not looking for a “quick fix.”

The UAE Minister of State for Foreign Affairs Anwar Gargash told Bloomberg earlier this week that the blockade would be in place for “weeks, months…as long as it takes them to realize that this is not a crisis that we are looking for a quick fix. This is a crisis that we want to get to the bottom of, and we want to take away Qatar’s huge, huge support for this extremism and terrorism that we are seeing everywhere.”

Despite the bluster, the blockade for the past month and a half has not gone according to plan. Qatar has still been able to import food and other necessities, while its exports of oil and gas have gone on uninterrupted. Moreover, the blockade by Saudi Arabia, the UAE, Bahrain and Egypt has not succeeded in isolating Qatar. In fact, Qatar has grown closer to Turkey and Iran, a development the Gulf States were hoping to avoid.

"As with their disastrous war in Yemen, Saudi Arabia and the UAE radically overstated their prospects for success and failed to have a plausible plan B in case things did not go to plan," wrote Marc Lynch, of George Washington University, according to the Washington Post. "The anti-Qatar quartet seems to have overestimated Qatari fears of isolation from the GCC and their own ability to inflict harm on their neighbor."

The U.S. government has been trying to lower the temperature in the region and help resolve the crisis diplomatically, U.S. President Donald Trump’s vocal attacks on Qatar notwithstanding. Secretary of State Rex Tillerson shuffled between Kuwait, Qatar and Saudi Arabia last week to mediate, and while it wasn’t initially clear that he had come away with anything concrete, the U.S. and Qatar did sign an agreement to combat terrorism financing, a move that would seem to offer the Gulf States some consolation while also simultaneously taking away a bit of their leverage. Related: U.S. May Halt Oil Imports From Venezuela

On Tuesday, the Gulf States revised their demands against Qatar, a sign that international pressure is starting to wear on them. The original 13 demands have been trimmed to just 6, which no longer include the shuttering of Qatar-based news outlet Al-Jazeera. But Gulf officials scrambled to maintain an appearance of resolve and strength after the revision. “Of course we are all for compromise but there will be no compromise on these six principles,” said Abdallah Al-Mouallimi, Saudi ambassador to the U.N., according to the Wall Street Journal.

Qatar feels that it won the initial round against the Gulf States in the court of international opinion. “It’s not because they are showing a sign of good faith as much as responding to the heat they received for the unreasonable demands they initially made,” Qatar’s ambassador to the UN said on Tuesday, the WSJ reported.

Qatar has maintained that the blockade will have a minimal impact on its export of oil and gas. "Despite the illegal siege currently enforced on Qatar, [it] has never failed a single shipment and has not compromised on its longstanding image of being a reliable supplier of energy to all corners of the world," Qatar’s energy and industry minister Mohammed al-Sada said earlier this month at an industry conference.

If anything, the blockade has spurred Qatar to get more aggressive about its production levels. In early July, Qatar announced plans to ramp up natural gas production by 30 percent over the next few years. It is soliciting interest for an expansion of the massive North field, which stretches into Iranian waters (where it is known South Pars). Also, French oil giant Total SA just began work on a Qatari oil field. “We aren’t reluctant to invest” in Qatar, Total’s CEO Patrick Pouyanne said a few weeks ago. “We are here to make profits.”

What remains to be seen is how the standoff affects compliance with the OPEC cuts. Qatar is not a major oil producer, but has cooperated with its regional rivals within OPEC to restrain output, posting high compliance rates. However, earlier this week, Ecuador, another OPEC member, announced that it would no longer adhere to the group’s cuts because of the financial burden of doing so. The blockade of Qatar could yet push the Persian Gulf nation to also pull out of the agreement. At that point, it would be just a matter of time before the whole thing started to unravel.

However, that is still speculation at this point. Qatar is still complying with its commitments and has not seen oil and gas shipments interrupted. But with the promise from the Gulf States to keep the blockade up for a long period of time, compliance through March 2018 is not guaranteed.

By Nick Cunningham of Oilprice.com

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