"Forget Terrorism": The Real Reason Behind The Qatar Crisis Is Natural Gas

Tyler Durden's picture

According to the official narrative, the reason for the latest Gulf crisis in which a coalition of Saudi-led states cut off diplomatic and economic ties with Qatar, is because - to everyone's "stunned amazement" - Qatar was funding terrorists, and after Trump's recent visit to Saudi Arabia in which he urged a crackdown on financial support of terrorism, and also following the FT's report that Qatar has directly provided $1 billion in funding to Iran and al-Qaeda spinoffs, Saudi Arabia finally had had enough of its "rogue" neighbor, which in recent years had made ideologically unacceptable overtures toward both Shia Iran and Russia.

However, as often happens, the official narrative is traditionally a convenient smokescreen from the real underlying tensions.

The real reason behind the diplomatic fallout may be far simpler, and once again has to do with a long-running and controversial topic, namely Qatar's regional natural gas dominance.

Recall that many have speculated (with evidence going back as far back as 2012) that one of the reasons for the long-running Syria proxy war was nothing more complex than competing gas pipelines, with Qatar eager to pass its own pipeline, connecting Europe to its vast natural gas deposits, however as that would put Gazprom's monopoly of European LNG supply in jeopardy, Russia had been firmly, and violently, against this strategy from the beginning and explains Putin's firm support of the Assad regime and the Kremlin's desire to prevent the replacement of the Syrian government with a puppet regime.

Note the purple line which traces the proposed Qatar-Turkey natural gas pipeline and note that all of the countries highlighted in red are part of a new coalition hastily put together after Turkey finally (in exchange for NATO’s acquiescence on Erdogan’s politically-motivated war with the PKK) agreed to allow the US to fly combat missions against ISIS targets from Incirlik. Now note which country along the purple line is not highlighted in red. That’s because Bashar al-Assad didn’t support the pipeline and now we’re seeing what happens when you’re a Mid-East strongman and you decide not to support something the US and Saudi Arabia want to get done.

Now, in a separate analysis, Bloomberg also debunks the "official narrative" behind the Gulf crisis and suggests that Saudi Arabia’s isolation of Qatar, "and the dispute’s long past and likely lingering future are best explained by natural gas."

The reasons for nat gas as the source of discord are numerous and start in 1995 "when the tiny desert peninsula was about to make its first shipment of liquid natural gas from the world’s largest reservoir. The offshore North Field, which provides virtually all of Qatar’s gas, is shared with Iran, Saudi Arabia’s hated rival."

The result to Qatar's finances was similar to the windfall that Saudi Arabia reaped from its vast crude oil wealth.

The wealth that followed turned Qatar into not just the world’s richest nation, with an annual per-capita income of $130,000, but also the world’s largest LNG exporter. The focus on gas set it apart from its oil producing neighbors in the Gulf Cooperation Council and allowed it to break from domination by Saudi Arabia, which in Monday’s statement of complaint described Qataris as an “extension of their brethren in the Kingdom” as it cut off diplomatic relations and closed the border.

In short, over the past two decades, Qatar become the single biggest natural gas powerhouse in the region, with only Russia's Gazprom able to challenge Qatar's influence in LNG exports.

To be sure, Qatar has shown a remarkable ability to shift its ideological allegiance, with the FT reporting as recently as 2013, that initially Qatar was a staunch supporter, backer and financier of the Syrian rebels, tasked to topple the Assad regime, a process which could culminate with the creation of the much maligned trans-Syrian pipeline.

The tiny gas-rich state of Qatar has spent as much as $3bn over the past two years supporting the rebellion in Syria, far exceeding any other government, but is now being nudged aside by Saudi Arabia as the prime source of arms to rebels.

 

The cost of Qatar’s intervention, its latest push to back an Arab revolt, amounts to a fraction of its international investment portfolio. But its financial support for the revolution that has turned into a vicious civil war dramatically overshadows western backing for the opposition.

As the years passed, Qatar grew to comprehend that Russia would not allow its pipeline to traverse Syria, and as a result it strategically pivoted in a pro-Russia direction, and as we showed yesterday, Qatar’s sovereign wealth fund agreed last year to invest $2.7 billion in Russia’s state-run Rosneft Oil, even as Qatar is host of the largest US military base in the region, US Central Command. This particular pivot may have also added to fears that Qatar was becoming a far more active supporter of a Russia-Iran-Syria axis in the region, its recent financial and ideological support of Iran notwithstanding.

As a result of the tiny nation's growing financial and political "independence", its neighbors grew increasingly frustrated and concerned: “Qatar used to be a kind of Saudi vassal state, but it used the autonomy that its gas wealth created to carve out an independent role for itself,” said Jim Krane, energy research fellow at Rice University’s Baker Institute, quoted by Bloomberg.

Furthermore, Qatar’s natural gas output has been "free from entanglement" - and political pressure - in the OPEC, the oil cartel that Saudi Arabia dominates.

“The rest of the region has been looking for an opportunity to clip Qatar’s wings.”

And, as Bloomberg adds, "that opportunity came with U.S. President Donald Trump’s recent visit to Saudi Arabia, when he called on “all nations of conscience” to isolate Iran. When Qatar disagreed publicly, in a statement the government later said was a product of hacking, the Saudi-led retribution followed."

To be sure, in a series of tweets, Trump himself doubled down on the "official narraitve", taking credit for Qatar's isolation (perhaps forgetting that a US base is housed in the small nation).

The cynics may be forgiven to assume that if Trump is tweeting that the reason for Qatar's isolation is "to end the horror of terrorism", even as the US just signed a $100+ billion arms deal with the single biggest supporter of terrorism in the world, Saudi Arabia, then indeed the Trump-endorsed "narrative" is to be dismissed outright.

Which again brings us back to nat gas, where Qatar rapidly emerged as the dominant, and lowest cost producer at a time when its neighbors started demanding the commodity on their own, giving the tiny state all the leverage. As Bloomberg adds "demand for natural gas to produce electricity and power industry has been growing in the Gulf states. They’re having to resort to higher-cost LNG imports and exploring difficult domestic gas formations that are expensive to get out of the ground, according to the research. Qatar’s gas has the lowest extraction costs in the world."

Of course, with financial wealth came the need to spread political infludence: "

Qatar gas wealth enabled it to develop foreign policies that came to irritate its neighbors. It backed the Muslim Brotherhood in Egypt, Hamas in the Gaza Strip and armed factions opposed by the UAE or Saudi Arabia in Libya and Syria. Gas also paid for a global television network, Al Jazeera, which at various times has embarrassed or angered most Middle Eastern governments.

And, above all, "gas prompted Qatar to promote a regional policy of engagement with Shiite Iran to secure the source of its wealth."

And here the source of tension emerged: because as Steven Wright, Ph.D. Associate Professor at Qatar University told Bloomberg, “you can question why Qatar has been unwilling to supply its neighboring countries, making them gas poor,” said Wright, the academic, speaking by telephone from the Qatari capital Doha. “There probably was an expectation that Qatar would sell gas to them at a discount price.”

It did not, and instead it took a step backward in 2005, when Qatar declared a moratorium on the further development of the North Field that could have provided more gas for local export, adding to the frustrations of its neighbors.

Qatar said it needed to test how the field was responding to its exploitation, denying that it was bending to sensitivities in Iran, which had been much slower to draw gas from its side of the shared field. That two-year moratorium was lifted in April, a decade late, after Iran for the first time caught up with Qatar’s extraction rates.

As Qatar refused to yield, the resentment grew.

“People here are scratching their heads as to exactly what the Saudis expect Qatar to do,” said Gerd Nonneman, professor of international relations and Gulf studies at Georgetown University’s Doha campus. “They seem to want Qatar to cave in completely, but it won’t call the Muslim Brotherhood a terrorist organization, because it isn’t. And it isn’t going to excommunicate Iran, because that would jeopardize a relationship that is just too fundamental to Qatar’s economic development.

* * *

Whether nat gas is the source of the Qatari isolation will depend on the next steps by both Saudi Arabia and Iran. Saudi Arabia, along with the United Arab Emirates and Egypt - are all highly reliant on Qatari gas via pipeline and LNG.

According to Reuters, traders startled by the development, have begun to plan for all eventualities, especially any upsets to piped gas supplies from Qatar to the UAE. The UAE consumes 1.8 billion cubic feet/day of Qatari gas via the Dolphin pipeline, and has LNG purchase agreements with its neighbor, leaving it doubly exposed to tit-for-tat measures, industry sources and traders said.

So far flows through Dolphin are unaffected but traders say even a partial shutdown would ripple through global gas markets by forcing the UAE to seek replacement LNG supply just as its domestic demand peaks.

With LNG markets in bearish mood and demand weak, the UAE could cope with Qatar suspending its two to three monthly LNG deliveries by calling on international markets, but Dolphin piped flows are too large to fully replace.

 

"A drop off in Dolphin deliveries would have a huge impact on LNG markets," one trader monitoring developments said.

And since it all boils down to who has the most leverage as this latest regional "balance of power" crisis unfolds, Qatar could simply take the Mutual Assured Destruction route, and halt all pipeline shipments to its neighbors crippling both theirs, and its own, economy in the process, to find just where the point of "max pain" is located.

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Beowulf55's picture

My boy?  I didn't vote for that nigger from Kenya and I didn't vote for Trump.  In fact........I DON'T VOTE FOR ANYONE THAT WANT TO TELL HOW TO LIVE MY LIFE.......

SO.......FUCK YOU AND YOUR INNUENDO.

 

 

Herdee's picture

Qatar's pipeline will cross over to Iran.

Muad'Grumps's picture

It's really about what the nat gas will be denominated in...USD or RMB.

Consuelo's picture

+

 

Protection of phoney currency, whilst simultaneously serving as the Talmud's chaos-sowing goat in the A-rab world...

OCnStiggs's picture

Soooo the BILLION dollar ransom story was bogus????

earleflorida's picture

'believe half of what you see (and at tymes half of that?)...

and, nothing that you hear'

Gorgeous's picture

FT reported it.  Pretty quickly.

LA_Goldbug's picture

This makes perfect sense as the gas in the North Field doesn't understand that a dividing line was drawn on a map. Hence if Qatar does not produce the gas as hard as Iran, then the gas migrates to where the pressure is low, Iran. Qatar can not wait years to deal with this issue and did what was best for it.

Ben Tornilloed's picture

Gas expands it doesn't migrate.

LA_Goldbug's picture

PV=nRT so yes.

But in the industry we use the word migrate quite often when thinking of long distance movement. Though when referring to a gas cap we do use the word expansion AND migration.

", gas evolves in the reservoir (see Solution gas drive reservoirs) and migrates to the top of the structure to add to an existing primary gas cap or to form a gas cap. "

http://petrowiki.org/Gas_cap_drive_reservoirs

".... this study focused on the pore structure of tight sandstone and gas migration in hydrocarbon-bearing reservoir in Kuqa depression of Tarim basin."

http://library.seg.org/doi/abs/10.1190/ice2015-2209288

LA_Goldbug's picture

Ben, is Blue Bell Ice Cream still edible ? When I was last in TX that stuff was going down the drain. More air in it than cream

poeg's picture

You can count on one thing herein, Russia will not allow the US, House of Saud nor any other to threaten their natural gas exports to Europe. Want a world war? There's where it starts. Just so long as there's a common man or woman left with a cannister of nerve gas waiting there to roll it into the 0.001%'s nest when they crack the blast doors.

wisehiney's picture

Russian flag spotted on on Standing Rock Sioux Reservation.

DaNuts's picture

http://uk.reuters.com/article/qatar-china-yuan-idUKL5N0XB2D220150414

 

Qatar opened the Middle East's first centre for clearing transactions in the Chinese yuan on Tuesday, saying it would boost trade and investment between China and Gulf Arab economies.

 

The launch of the region's first renminbi clearing center in Doha creates the necessary platform to realise the full potential of Qatar and the region's trade relationship with China," Qatar's central bank governor Sheikh Abdullah bin Saud al-Thani said at a ceremony.

It seems like the Bankers didn't like this one bit.

Megaton Jim's picture

Sounds like someone just screaming to be "Liberated and Democratized!"

ScotlandTheBrave's picture

It's not about oil or NG...that shit can be controlled with if you control the trading currency.  Qatar has violated the first rule of the cartel - you can't leave the cartel.  It's the PETRO-DOLLAR cartel that the Qatar rulers have pissed off.  SA with our help will be invading Qatar before long under the pre-tex of stoping a terrorist funding country.  Mark my word.  We did the same to Sadam and Kadahfi.  They started playing outside the PETRO-DOLLAR room and got their asses handed to them.

directaction's picture

The USA cannot bomb its way out of this monumental mess. 

Ghordius's picture

it can try, and every bomb is a profit for those who push for trying -> mission accomplished

shimmy's picture

Only idiots believe the whole terrorism narrative shit for things like that.

Not as though sites like ZH are really helping given any incident that may deal with a supposed "terrorist attack" in any western country gets such huge coverage while everything else gets no coverage. Even when it comes to the whole terrorism narrative, the majority of attacks happen in the middle east with MUSLIMS as the victims yet ZH doesn't give a shit about that. 

Those on the left have their Russia boogeyman shit to push and those on the right have the terrorism boogeyman shit to push. Nothing but fear porn everywhere you go on the net. 

Ghordius's picture

Only idiots believe the whole terrorism narrative shit for things like that

Only idiots believe the whole Islam narrative shit for things like that

Only idiots believe the whole Russia narrative shit for things like that

Only idiots believe the whole - insert simple- narrative shit for things like that

and? there are plenty of idiots. and a whole industry, advertising, that gives them the impression they don't need to know anything, just be good consumers

and this is a very good place to meet them, and see what shit they believe this week

HominyTwin's picture

Oh, no! The Eurotard himself is here to grace us with his presence. The Eurotard's modus operandi: never, ever address any issue in any article ever, and insult everyone.

besnook's picture

if you want to see real btshtcrzy go over to brietbart. zh is the most reasoned site on the net with regard to the real story in the mideast.

Mustafa Kemal's picture

Thanks, I was wondering about this exactly.

GlassHouse101's picture

PetroEuro - 1
PetroDollar - 0

IranContra's picture

No. It is about bringing the main terror sponsors down:

The biggest state sponsors of terrorism are Iran, Qatar, and Britain, and all three work closely together. Here are the President's most recent tweets about Qatar's blockade by several Arab countries. This will expose British intelligence:

During my recent trip to the Middle East I stated that there can no longer be
funding of Radical Ideology. Leaders pointed to Qatar - look!— Donald J. Trump (@realDonaldTrump) June 6, 2017

So good to see the Saudi Arabia visit with the King and 50 countries already paying off. They said they would take a hard line on funding...— Donald J. Trump (@realDonaldTrump) June 6, 2017

...extremism, and all reference was pointing to Qatar. Perhaps this will be the beginning of the end to the horror of terrorism!— Donald J. Trump (@realDonaldTrump) June 6, 2017

mary mary's picture

Iran Contra.

In Iran Contra, Ollie North, working out of the basement of the Reagan/Bush White House, stole missiles from the USA military and sold those missiles to Iran, which the USA had deemed an "enemy nation".  He took the cash from Iran and went to Central American and bought cocaine and smuggled it into inner cities in the USA.  He then used that cash to buy weapons for the Nicaraguan Contras.  When Congress investigated all this, it ended up "inviting" Panama's Manuel Noriega to testify.  Noriega responded that if he were forced to come to the USA to testify, his testimony would implicate Americans "in the highest office".  George Bush Sr.  As soon as George Bush Sr. became President, he sent the USA military to invade Panama and capture Noriega, and put Noriega in prison for the rest of his life.

Iran Contra.

IranContra's picture

Over 10 downvotes! I/Trump must have hit a nerve. Well, Iran/Britain/Qatar spies can run (out of money), but they can't hide.

IronForge's picture

Not really.  We simply have called out your Gross Conceptual  Error

DjangoCat's picture

The main sponsor of terrorism is the USS of A.  I agree we need to bring them down.

surf@jm's picture

Or sell its output in Yuan........

DjangoCat's picture

Bring down the USD... Bitcoin.

dogismycopilot's picture

The minute Qatar tries to fuck with Dolphin Pipeline exports, you will see Saudi M1 tanks rolling into Doha and the ruling Al Thanis will be hunted down like dogs. 

Right now the Qataris are thinking, `we can get our food and imports from Oman or Kuwaiti flagged ships so fuck you we will not declare Muslim Brotherhood terrorists'...but I think the Kuwaitis definately will follow the Saudis, but the Omanis will hold out for as long as the Sultan is alive....but as he has no heirs and is in in ill heath, that might not be long.

Look for the Qataris to not back down. I expect the Qataris to come back with a bold response.

I think the Russians will sit this one out as pissing off the UAE is not in their geopolitical interests. 

 

 

Cutter's picture

Good observations. Not so sure Moscow will sit this out, though, it's simply too juicy an opportunity.

This could put the great game of US/Russia competition in the Middel East completely back into play.

The Qataris knew this was coming, had been warned multiple times by the Saudis and us, yet they ignored the warnings. Which mean they have made a conscious decision to move out of the US/Saudi orbit and into the Russia/Iran orbit.

The wild card will be our base. Look for the Qataris to make noise about not extending the basing agreement with the US which expires in 2024. If they really want to be wild, they could quietly suggest they may lease it to Moscow or Beijing, or both. That would really get our attention.

Also look for noise about building a pipeline into Iran, which would then connect Qatari gas, to Russia/Turkeys Turkish stream pipeline, giving them access to the European market. It would cost Gazprom, but if Moscow can reduce US influence in the Middle East while expanding its own, they may see this as a win.

And the domino wild card is Iraq. They are ok with us at the moment, but they really owe their allegiance to Tehran.

The Qataris just opened the door to dramatically diminished US influence in the Middle East and a Russia/Iranian crescent.

DjangoCat's picture

Being a westerner, and with my economic interest being served here, one would think I should approve of US/Nato attempts at complete hegemony in the region.  I do not.  The move is impelled by the greed and loutishness of the bankers and MIC, and renders little to those of us underneath, except more and more debt.  May they rot in hell. 

Volkodav's picture

       you overrate saudi tankers

 

 

Sky flyer's picture

Can we invade a country we already have over 10,000 troops and a huge air base in? That should be easy. Like cancer take over from within.

Pasadena Phil's picture

It's always about oil. Terrorism is about oil too. It will always be about something more than "friendship". It will always be about competing national interests. So get over it. Life on earth has always been a bare-knuckle competition for existence and always will be.

So long as the US becomes energy independent and a major oil exporter, this will become less and less of a problem for us. You would think that ZH would grasp that but.....

Isolationism doesn't work. The best option is to be the biggest bad-ass on the block, protect our borders, maintain a free and thriving modern domestic economy and give something for the barbarians to worry about. Being the strongest means not having to fight big wars. In a perfect world, we could all join hands and sing kumbaya. This isn't that world.

slightlyskeptical's picture

Maybe so, but I will always be fighting for that perfect world. It is a choice that can be made but unfortunately a better existence for all is not part of the brainthink of those calling the shots.

opport.knocks's picture

Sorry boys, "The single biggest exporter of terrorism" is still the USA, by far. Sometimes they wear the uniform, sometimes they do not.