The story might sound, at first, a bit like David vs. Goliath: The little country of Qatar, one of the smallest oil producers in the Middle East, is currently locked in a diplomatic conflict with two of OPEC’s largest oil producers—Saudi Arabia and the United Arab Emirates (U.A.E.)—and their cohorts in the area, Bahrain and Egypt. But instead of wielding a slingshot, this “David,” according to its adversaries, is more likely to carry a bomb-filled backpack.
Those larger countries have accused Qatar of supporting various terrorist and sectarian organizations that destabilize the region, such as al-Qaida, ISIS, and the Muslim Brotherhood. Saudi Arabia has also pointedly criticized Qatar’s relationship with Iran, Saudi Arabia’s arch enemy.
As a result of Qatar’s perceived affiliations—which it strongly denies—with “the bad guys,” Saudi Arabia has closed its borders with Qatar, severing land, sea, and air contact with the tiny peninsula. Others have followed suit. The U.A.E., for instance, no longer allows ships carrying Qatari crude to enter its oil ports.
The effects of the ban
The ban imposed by the Abu Dhabi Petroleum Ports Authority extends beyond vessels carrying the Qatari flag and owned or operated by Qatar. In early June, that Port Authority issued a statement that said, “all vessels arriving from, or destined to Qatar, regardless of its flag,” would also be denied entry into any of the Petroleum Ports.
Needless to say, these actions have had repercussions both within the country of Qatar, as well as beyond its borders.
Food for Qatar’s 2.5 million residents comes mainly from imports, which arrive on trucks crossing its border with Saudi Arabia or on ships from the U.A.E port of Jebel Ali. While the Qatari government has assured residents that steps have been taken to enable life to go on as normal, it’s been reported that wary shoppers have been clearing supermarket shelves and stocking up, just in case.
A closer look at the impact on shipping
For shippers in the area, the restrictions imposed on Qatar have caused all sorts of logistical issues, including the disruption of the accepted industry practice of co-loading oil cargoes from different countries onto a single mega-tanker.
The tankers, called Very Large Crude Carriers (VLCC), can hold up to 2 million barrels of oil, usually achieved in loadings from up to four separate locations. On a VLCC before the ban, Qatari crude might share the ride with Emerati blends—an arrangement which kept shipping costs lower. But now, because of the ban, oil from Qatar and U.A.E. can’t be loaded on the same VLCC. So, oil traders will have to resort to using Suezmax tankers, which are smaller and more expensive—even more so now, because the ban has produced a greater demand for them.
Ever on the lookout for a cost-effective work-around, traders and refiners have begun to explore ship-to-ship transfers, in which crude from smaller vessels is loaded onto VLCC in the neutral waters of Oman.
Traders also worry that Egypt might try to block tankers carrying Qatari cargoes from using the Suez Canal on their way to ports in Europe and beyond. An international agreement currently in place prohibits Cairo from taking such action, but still, it’s a concern.
The issue of re-fueling
And then there’s the matter of where Qatar-linked vessels can re-fuel. With Fujairah in the U.A.E. now off limits, Qatar, the world’s biggest LNG seller, is moving to send its LNG tankers as far afield as Singapore and Gibraltar for re-fueling. A move likely to increase costs and delay deliveries.
While this David vs. Goliath face-off continues to wreak havoc on global supply chains, for Qatar, its people, and its customers around the globe, a diplomatic solution can’t come soon enough.