How the Middle East rift over Qatar could affect the energy markets

A sudden escalation in tensions between Qatar and other Gulf nations won't immediately upend oil and natural gas flows, but it does raise risks and make the outlook for the region less certain analysts say.

Oil prices were lower on Monday as the diplomatic crisis added to concerns about oil exporters' deal to limit output and boost crude prices.

Saudi Arabia, the United Arab Emirates, Egypt, Bahrain and other nations cut diplomatic ties and transportation links with Qatar in the steepest escalation since the nations recalled their diplomats from Doha in 2014. The nations are protesting Qatar's support for Islamist groups like the Muslim Brotherhood, alleging the tiny constitutional monarchy on the Persian Gulf is supporting terrorism.

Qatar is a member of both the Gulf Cooperation Council and OPEC, which is coordinating an oil production cut among oil-producing nations to end a global crude glut that has left many Gulf countries with deficits.

Iran, the third largest OPEC member, immediately denounced the Gulf states' actions. Qatar has positioned itself as an intermediary between Iran and other Gulf nations.

It is possible Iran could quit the deal in protest, but its production has topped out around 3.8 million barrels a day. It could struggle to increase output significantly following years of sanctions imposed over its nuclear program.

Applying pressure on those exports would require the Saudi-allied nations to impose some sort of blockade on Qatar. That would mark a significant escalation, especially given that Doha hosts a critical U.S. military air base.

The Gulf states, which export vital food and building supplies to Qatar, can exert considerable pressure on Doha and may not be as lenient as they were during a 2014 diplomatic rift, some say.

Source: Bloomberg Pro Terminal

Jr Trader Ivan Ivanov

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