Oil in anticipation of new war in Persian Gulf

Oil in anticipation of new war in Persian Gulf

The current diplomatic rift between Qatar and other Persian Gulf countries will have an insignificant effect on world markets, but the potentially possible prospect of its escalation into a military clash between Arab states can lead to an increase in oil prices due to the destabilization of one of the key areas of oil production, the energy experts told Vestnik Kavkaza.

An associate professor of the Graduate School of Corporate Management of RANEPA, Ivan Kapitonov, drew attention to the fact that the price spike caused by the severance of diplomatic relations between Qatar and Bahrain, Egypt, the UAE and Saudi Arabia (Yemen and the Maldives also joined them) ended yesterday. "And it has not yet continued to decline as wee see. In 2014, there were similar problems in the Arab countries' relations, but it did not affect the price situation, that is, oil prices continued to fall," he said.

According to Ivan Kapitonov, the market is still affected by pessimism, which arose after too weak impact of the prolongation of the deal with OPEC. "The signing of an agreement on the extension of current production quotas instead of an agreement on an additional reduction of quotas has not yet been fully developed by the market. In general, the market is inclined to return to quotes which were before the meeting of the Russian Federation and Saudi Arabia, that is, about $48 per barrel," the associate professor of the Graduate School of Corporate Management of RANEPA noted.

A leading analyst of the National Energy Security Fund, a lecturer at the Financial University under the Government of the Russian Federation, Igor Yushkov, stressed that the situation may change depending on the development of the conflict between the Arab states. "If the events are in line with a diplomatic conflict, it is unlikely that they will have any effect on oil prices. But now there are fears that Qatar will strengthen its positions with some kind of alliance with Iran - and if it moves into a military phase, the Strait of Hormuz can be blocked," he said.

Saudi Arabia's destabilization as a result of the military conflict is of main concerns in this regard. "If Qatar and Iran start organizing instability in the most important Saudi regions and spur rebel movements in Yemen, production and exports from Saudi Arabia will decrease, and oil prices will rise. But, of course, it is a more fantastic scenario. Most likely, Americans will act as an intermediary and force both sides to agree among themselves, because there are large American bases in Saudi Arabia, and their relations have improved after Trump's visit, and there is a large US military base in Qatar as well," Igor Yushkov recalled.

According to the expert, a sharp price spike to the previous levels was caused by too weak effect produced on traders by the diplomatic scandal. "Traders quickly realized that it does not affect the market yet, and started selling futures. I think that now the market will be more influenced by the growth in production in the US," the expert said.

The deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, noted that Qatar is not a significant oil supplier in global terms. "Even a possible blockade of Qatar's supplies from neighboring countries will not lead to any shortage of oil on the market. And now such a blockade is not even planned. The only impact on the hydrocarbon market could be linked to LNG," he expects.

"It may happen if Egypt stops buying Qatari gas, which accounts for up to 60% of Egypt's gas imports - but these are not very large volumes that can cause minor price fluctuations. Speculators and investors working in the market can be scared only by a threat of military actions in the Persian Gulf, which right now seems unrealistic to me," Alexey Belogoriev predicts.

A senior analyst of 'Uralsib Capital', Alexei Kokin, called on to proceed from the premise that this conflict will not move into the military phase. "In this case, its impact on the oil market is likely to be insignificant, because Qatar is a relatively small oil producer, its current quota at OPEC is about 600 thousand barrels per day, and the maximum that can happen in case Qatar leaves this deal , - it will increase its production to the previous level, that is, by 30 thousand barrels per day," the expert explained.

He clarified that Qatar, which produces about a third of the world's export of liquefied gas, produces a rather significant amount of condensate. "But again, the condensate is tied to the gas by volume, and it is unlikely that there will be any changes due to the severance of diplomatic relations," the senior analyst of 'Uralsib Capital' pointed out.

"In the longer term, if Qatar is not able to receive goods because of the blockade, it may have problems with maintaining the export infrastructure. But it will not happen soon, and does not linked to oil directly," Alexei Kokin concluded.