Qatar Crisis – A Concern for the Asian Market?

Qatar has been facing an economic embargo for almost two months with its neighboring countries—including Egypt, Saudi Arabia, United Arab Emirates, and Bahrain. Its isolation is the result of speculation that Qatar supports terrorist organizations and interferes in the international affairs of other countries in the region.

This dispute is likely to trigger multiple issues in Qatar, the first of which might be an immediate retreat in foreign investments and other external funding, estimated to account for 36% of total liabilities. This could greatly impact Qatari Banks’ liquidity. Further, this has already complicated the import/export scenario significantly, especially its food supply. Companies like Maersk, Evergreen and OOCL have all withdrawn their activities from Qatar indefinitely.

Commodities like liquefied natural gas (LNG), helium and sulfur will be affected in the near-term. In fact, Qatar holds a pole position in the exports of LNG. Qatar exports most of its LNG to Japan, China, and India, who use these in abundance for power generation. Qatar exports nearly 75 to 80 million tons of LNG every year, which is about 30% of the global supply. Despite this crisis, Qatar plans to boost its LNG production by 30% over the coming year, increasing its supply base even further. GEP expects minimal impact on the LNG trade, other than a marginal increase in the cost of shipping, as LNG vessels need to refuel.

Qatar also exports approximately 25% of global helium use. Due to this crisis, Qatar suspended helium production in mid-June. However, production resumed by July and now takes a longer and more expensive export route through Oman. Helium is a co-product of natural gas and accounts for 0.05% per unit of natural gas. The US remains the major production hub of helium due to the abundant availability of natural gas in the region. Overall, the present global shortage has been covered with the supply coming from the US and a new supply of helium recently found near Tanzania. However, if these restrictions extend for a long period, it might have an impact on the price of helium by end of 2017. 

Qatar also exports sulfur, which is used in multiple industries, mostly for fertilizers and metal processing. It contributes to approximately 7-8% of total global exports, and the closure of multiple ports across Saudi Arabia, Bahrain and the United Arab Emirates (UAE) for ships to and from Qatar has reduced vessel availability in the country significantly, impacting the exports of sulfur in the short-term.

The global oil market is less affected, as Qatar’s contribution is diminutive in comparison to Saudi Arabia and UAE. They contribute only about 3% of the total oil produced by OPEC countries. Additionally, looking at the present glut in the oil market, there is no immediate threat to an increase in the oil prices. Moreover, there is a chance that Qatar breaches the oil cut agreement if the rift continues for a longer duration.

In the last few years, Qatar’s polymer exports were significant, exceeding two million metric tons and accounting for more than 10% of the Gulf Cooperation Council’s (GCC) total polymer exports. Asia was and continues to be the GCC’s major market for polymers, taking in more than 50% of the total each year. Many polymer market players across Asia (with a large buyer pool across southeast Asia), especially polyethylene, have raised apprehensions about the timely arrival of cargo from Qatar due to the diplomatic row within GCC. Also, Qatar exports a lot of volume of linear alkyl benzene (LAB) to parts of northeast Asia. LAB importers are concerned about the long-standing impact of the blockade on Qatar shipments. The Middle East continues to be a large exporter of paraffin and LAB products.

Overall, looking at various facets of the Qatar export market—oil, LNG, petrochemicals and other chemicals, and energy—will have the least impact as of now. However, buyers of polymers and other chemicals from Qatar might feel the pinch of more expensive routes, longer lead times and untimely arrival of cargoes.

The LNG market is highly regional, with Qatar having long-term contracts with Asian buyers. If a shortage of LNG occurs, Asian buyers might switch to Indonesia or Australia to meet their requirements for the short-term. Similarly, Asia heavily requires on Qatar for its supply of helium. Buyers of helium from Qatar might have their supply shortened for the time being, and this could affect helium prices in the short term. So overall, the Qatar blockade is currently expected to deplete the global supply by around 25-30%, threatening a supply shortage and price increase for several downstream industries.

The timeframe of this crisis remains uncertain and the main agendas remain opaque. Repercussions may impact many other countries, but we can be assured that at a holistic level it will have a major effect on various parts of Asia in the short term.

Sources:

• http://www.bbc.com/news/world-middle-east-40173757
• https://www.theatlantic.com/science/archive/2017/07/qatar-helium-production/532788/
• http://www.firstpost.com/world/gulf-diplomatic-crisis-how-natural-gas-wealth-reserves-ensure-qatar-remains-stable-3567927.html
• https://thepeninsulaqatar.com/article/08/06/2017/Gulf-crisis-not-to-affect-Qatar-s-LNG-and-oil-exports-Expert
• http://www.philstar.com/business/2017/06/07/1707600/qatars-crisis-impacting-business-and-millions-people