What do rising Middle East tensions mean for OPEC?

19 June 2017

Friction in the Middle East appears to be hitting concerning levels. At the beginning of June, Saudi Arabia, the UAE, Bahrain and Egypt severed ties with Qatar. 

Qataris were given two weeks to leave the respective countries and, probably most significantly, the closure of Qatar’s only land border by the Saudis threatens to disrupt supplies of food (40% of which flow through from Saudi) and other supplies into the country. The UAE has also blocked access to Qatar flagged vessels using its bunkering facility at Fujairah, which will cause some disruption to shipping, especially LNG tankers. Qatar is the largest exporter of LNG in the world, providing a third of its LNG needs.

Relations between Qatar and a number of its close neighbours have certainly been strained following its (and Turkey’s) apparent backing of anti-government movements during the Tunisian and Egyptian “Arab Spring” uprisings in 2010. Qatar’s media outlet Al Jazeera has adopted an editorial focus on critiquing the poor governance in the region and particularly Egyptian president Sisi and his treatment of the Muslim brotherhood. 

However, the catalyst for the recent rupture was Qatar's softer stance on Iran and its decision to garner closer ties with Iranian President Rouhani following his electoral success, an act that has antagonised the Saudis.

Although the Saudis are regarding as an important ally to the US in the region, Qatar is of strategic importance also. The US has its largest concentration of military personnel in the Middle East in Qatar’s Al Udeid Air Base, an air base that cost over US$1bn to develop and which provides command and control of air power throughout Iraq, Syria, Afghanistan and 17 other nations. The loss of such a strategically important facility would be a real blow to the US military. So the coordinated move by the Saudis, UAE, Yemen, Libya, Bahrain and the Maldives has certainly put the US in a tricky spot. 

Although the Saudis are regarding as an important ally to the US in the region, Qatar is of strategic importance also.

As far as something that may jeopardise the OPEC agreement, I doubt that this is an issue.

OPEC has experienced a multitude of political and military conflicts between its members and this has never had an impact on its binding agreements over its 57 year history. The group withstood military hostilities between Iran and Iraq in the 1980s as OPEC embarked on their initial quota system. In 1990, the group agreed to halt the production of 4.3Mbbld in the same year that Saddam Hussein’s invaded Kuwait. Most recently we have seen an unprecedented level of collaboration between OPEC nations, in their most recent unilateral cutting of production, in spite of renewed hostility between Saudi Arabia and Iran.

As far as OPEC are concerned, spats between the group's nations is very much a case of “business as usual” and we doubt that this latest issue will lead to a collapse of the agreement.