Why the Qatar feud is a nightmare for natural gas importers

A dangerous diplomatic showdown is unfolding in the Persian Gulf that pits once-brotherly Gulf monarchies against one of their own: tiny Qatar, the world’s leading exporter of liquefied natural gas.

The stakes are high. Should the dispute escalate and affect Qatar’s energy trade, the importing world risks the loss of up to 30 percent of its LNG supply and a damaging spike in natural gas prices. Qatar exports 78 million metric tons of LNG per year through joint ventures with ExxonMobil, Shell, Total and ConocoPhillips.

{mosads}The crisis is based on an overreaction by Saudi Arabia and the United Arab Emirates (UAE) over some mildly pro-Iran comments attributed to the Qatari ruler. Common sense ought to prevent the quarrel from disrupting the tiny sheikhdom’s prodigious gas exports, or its modest trade in oil.

But with the U.S. president egging on the anti-Qatar contingent, the possibility cannot be dismissed.

If the reported Saudi closure of Qatar’s sole land border — across which 40 percent of Qatar’s food is imported — is augmented by a sea blockade, global LNG markets would have to brace for impact. A blockade would be an act of war and unlikely without U.S. acquiescence, given the two giant U.S. military bases in Qatar.

One wonders how the dispute managed to reach such extremes.

Qatar is, after all, a Sunni Muslim-led monarchy in the vein of its neighbors. It is member of the Gulf Cooperation Council (GCC) trade and defense union, as are its three main antagonists — Saudi Arabia, the UAE and Bahrain. Egypt has also signed onto the anti-Qatar agenda.

One answer is that Qatar is stubbornly independent, weak militarily and incredibly rich. Qatar is a tiny sliver of a country with just 300,000 citizens amid a total population of 2.3 million. Per capita income, at $129,000 last year is the highest in the world.

Qatar’s Gulf Arab neighbors have watched with dismay as Doha, with the help of the U.S. military and big international oil companies, parlayed its part-ownership of the world’s largest natural gas field into a source of autonomy from its neighbors, particularly Saudi Arabia, which once called its shots. 

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The Pentagon bolstered Qatar’s sense of security by moving the U.S. Central Command forward headquarters from Saudi Arabia to the giant Al-Udeid Airbase outside Doha. The American military presence may have contributed to Qatar’s stubborn unwillingness to submit to its neighbors’ demands.

Gulf hardliners have long been biding their time to rein in Qatar, which has used its gas export revenues to fund a foreign policy that has placed it at odds with prevailing views among governing elites in Saudi Arabia, UAE, Egypt and elsewhere. 

For instance, Qatar took a contrarian stance during the Arab Spring, backing the Muslim Brotherhood in Egypt. It has allowed Hamas, the Taliban — and, for a time, Israel — to maintain offices in Doha.

Qatar is also on cordial terms with Iran. It argues that doing so makes prudent policy when the two countries must share their main source of wealth. Iran controls about a third of the massive gas field that underpins Qatar’s position as a top global gas supplier.

Most irritating to its GCC neighbors is Qatar’s creation of the Al-Jazeera TV network, particularly its freewheeling Arabic-language news channel, which shattered the Arab world’s once-strict state monopolies over regional news. 

Al-Jazeera has increased Qatar’s soft power and influence by supporting Arab uprisings against autocratic governments and by airing unflattering coverage of neighboring regimes. The channel remains frustratingly popular with Gulf citizens. Now, Qatar’s antagonists appear to want Al-Jazeera closed down for good. 

President Trump may have enabled the crisis by giving full throated support for Saudi Arabia and lending a sympathetic ear to anti-Iran hysteria in the region. By doing so, Trump has unwittingly signed onto narrow sectarian and national agendas that may not align with American interests — or with stability of energy markets and the Gulf region, two huge strategic priorities. 

While tiny Qatar is under unprecedented pressure, Doha is not without some cards to play.

Qatar has powerful friends outside the region. Besides the U.S. military and the oil majors operating joint ventures from Qatari territory, major Asian powers — Japan, China and South Korea – depend on Qatari natural gas to keep the lights on. These parties all share a common interest in resolving the intra-GCC spat, and in keeping the gas flowing. 

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All three Asian powers are also big importers of oil from Saudi Arabia and the UAE. Unlike Trump, they can be assumed to be working behind the scenes to smooth over differences. None of the countries want to see energy security undermined, or economic growth endangered by a needless jump in prices.

Closer to home, Qatar’s exports of 2 billion cubic feet per day of gas via the undersea Dolphin Pipeline comprise about a third of the UAE’s total gas demand. Qatari gas is crucial to generating the electricity powering the air conditioners that keep Abu Dhabi and Dubai livable in smothering heat that can reach 120 degrees Fahrenheit.

The possibility that Qatar could retaliate for its land-border closure by halting gas exports to the UAE ought to be focusing the minds of policymakers in Abu Dhabi right now. Without gas from Qatar, the UAE would find itself burning very expensive diesel fuel in its power plants and maybe even rationing electricity for some customers. 

In short, the incentives favoring a peaceful resolution to the crisis far outweigh those that could exacerbate it. One hopes that countries that depend so thoroughly on global markets will find ways to resolve their dispute without damaging those markets.

Jim Krane is the Wallace S. Wilson fellow for Energy Studies at Rice University’s Baker Institute for Public Policy. Follow him on Twitter @jimkrane. 

The views expressed by contributors are their own and not the views of The Hill.