Qatar-Gulf Crisis: Geoeconomic Implications

by Jim Lobe

In light of the fast-moving events in the Gulf over the past couple of days, LobeLog interviewed Sara Vakhshouri, a Gulf expert who specializes in the region’s energy markets. A long-time contributor to LobeLog, Vakhshouri is president of SVB Energy International, a Washington-based strategic energy consulting firm that provides critical advice on the global energy market to private companies, governments, think tanks, investment banks, and media organizations.

Jim Lobe: You indicated in a tweet on Tuesday that Iran stands to gain a lot from the Saudi-led actions against Qatar. In what ways is it likely that Iran can or will take advantage of this turn of events?

Sara Vakhshouri: Even though historically there have been differences and disagreements between Qatar and Saudi Arabia particularly with regard to their foreign policy and approach toward the conflicted areas in the region, the current diplomatic rift between Saudi Arabia and Qatar is unprecedented. Any rift between the GCC members weakens the Arab nations particularly Saudi Arabia’s policy and approach toward/against Iran.

The current conflict between Saudi and Qatar also drags other Arab countries in to this game; UAE, Egypt and Bahrain have supported the Qatari isolation. This again weakens the ties between the Arab nations and GCC members, which again reduces the influence and effectiveness of GCC policies, especially those against Iran.

While I don’t think that Iran sees this as an opportunity to poke or provoke Saudi Arabia, the current situation creates a strategic opportunity for Iran to weaken the ties among GCC members and to have an impact on Saudi Arab alliances against Iran and Iran’s interest in the region.

The current situation could also offers economic profits for Iran. Saudi Arabia revoked Qatar Airways license to fly over or land in Saudi Arabia. Iranian officials estimate that this could increase Qatar Airways’ use of Iranian airspace up to 20%, which means higher air transit income for Iran. In addition, the 40% of Qatar’s food supplies that come from Saudi Arabia could be replaced by Iran. It’s the closest and most available logistic partner Qatar could chose for supplying its immediate needs.

JL: But is there some risk undertaken by Qatar if it does move closer or become more dependent on Iran as a result of this crisis?

SV: Even though there has been a close relation between Qatar and Iran and, on the other side, historical disagreement with Saudi and its Arab allies, most of Qatar’s strategic depth is located alongside the Saudi Arabia and UAE borders. Also, the historical, cultural, economic, trade and energy ties between Qatar and other GCC members make it hard to imagine that the current status quo would last long. With the help of other Arab nations this conflict would most likely be resolved soon. Qataris realize that the price of choosing Iran could well be the loss if its Arab neighbors, particularly Saudi Arabia. The largest US military base in Middle East is located in Qatar. By getting very close to Iran and directly defying Saudi Arabia, Qatar will damage its relation with US especially under the Trump administration.

This mostly looks like a strong message from Saudi Arabia to anyone who wants to have close ties with and benefit from its relation with the Kingdom. The Saudi government has invested significantly in its relations and alliances with different Arab and non-Arab countries. Qatar’s isolation is a strong message that any country that chooses to go against Saudi interests in the region will pay a heavy price—the complete disconnect from any relations or any commercial and political ties with Saudi and its Arab allies.

The current Saudi attitude is very much like the US approach toward those countries that are threatening its national interest. It seems that the new leadership in Saudi Arabia has put an end to one-sided investments in its relations with other countries and is very keen to make sure they receive a return on every dime they invest outside their borders. The kingdom’s new approach to pursuing its national interest is to form and invest in alliances and determine whether their allies comply with their conditions.

In this case, even though they support Saudi policy, the UAE and Egypt are heavily reliant on gas imports from Qatar. Yet, they are still backing Saudi Arabia in isolating Qatar. One-third of Egyptian LNG imports used to meet the country’s electricity demands, for example, is imported from Qatar.

JL: What geo-economic implications are there to this crisis, particularly with respect to the regional and global energy perspective?

SV: We do not expect that Qatar’s LNG supply to non-Arab consumers will be interrupted, but the change of trade flow and replacement of natural gas exports to UAE could have an impact on LNG prices. UAE imports about 1.8 billion cubic feet/day of gas from Qatar via the Dolphin pipeline. This is a significant volume. Even though there is no shortage of supplies in the LNG market, which is bearish at the moment, replacing the amount that Qatar supplies with non-Qatari LNG could have an impact on global prices.

Egypt’s story is different, even though this country is heavily dependent on its LNG imports from Qatar. Egypt has no direct deals with Qatar, as traders like Glencore, Vitol, and Trafigura not only deliver the Qatari LNG to Egypt but also have legal ownership of the cargo from the time it is onloaded at Qatar’s port until its delivery. These traders can also replace Qatar’s LNG with non-Qatari LNG in deliveries to Egypt, if necessary.

JL: Given the fact that Iran and Qatar share a hugely productive gas field, Tehran presumably considers Qatar’s fate much more important to its national interest than Bahrain, for example. Do you think that Tehran would react more aggressively if the Saudis actually intervene militarily or support a coup in Qatar in order to make it much more responsive to Saudi interests?

SV: Iran and Qatar have historically had good relations even though Iranian officials on many occasions complained that Qatar is extracting more natural gas from their shared gas field. At the same time, however, Iran knows very well that it suffers technical disadvantages in exploiting its side of the field (South Pars) and that exploration and development of the Qatari side began decades before and are thus far more advanced. It is thus entirely understandable for Qatar to be way ahead of Iran in total extraction of natural gas from this reservoir. At the same time, Qatar is not alone among the GCC nations in maintaining good relations with Iran. Kuwait and Oman have also enjoyed generally good ties with Tehran. In some cases, they either supported Iran’s policies or, in any event, didn’t oppose them.

Obviously, if there is any Saudi intervention or pro-Saudi coup in Qatar, it is not hard to imagine that Iran would react immediately either directly or indirectly through its proxy groups. Moreover, today’s twin Islamic State attacks against Iran’s parliament and the late Leader’s shrine in Tehran — two key and well-guarded targets that may been chosen precisely to undermine confidence in the regime’s ability to maintain security — could possibly radicalize Iran’s discourse and approach toward what it perceives as extremism and any threat to its domestic security and broader national interest in the region, especially regarding Syria, Iraq, and Yemen. That possibility takes on added force given last month’s declaration by Saudi Deputy Crown Prince and Minister of Defense Mohammed bin Salman that effectively closed the door to any possibility of negotiations or dialogue with Iran. “We are a primary target for the Iranian regime,” he was quoted as saying. “We won’t wait for the battle to be in Saudi Arabia. Instead, we’ll work so that the battle is for them in Iran.”

Given the context, it’s not difficult to imagine that Iran will take extreme measures both internally and externally to secure its borders and fight against the Islamic State and whoever it believes are its supporters. We must wait and see.

Jim Lobe

Jim Lobe served for some 30 years as the Washington DC bureau chief for Inter Press Service and is best known for his coverage of U.S. foreign policy and the influence of the neoconservative movement.