"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.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mendigo's picture

Those pipe routes would seem to explain everything about recent history in me - royal cluster fluck.

Clearly us is antagonist - has no justification for meddling.

If three countries could behave sanely the world would change.

Guess thats not going to happen.

Gallumhrasha's picture

ughh so that $1 billion dollar ransom was fake. so much fake news lol

SmittyinLA's picture

It was Trump not gas

mrtoad's picture

I stopped reading when i saw the words "Assad regime".

Gravatomic's picture

The Obama regime, there let's keep reading...

silverer's picture

We need to see "Assad democracy" or "Assad republic" or "Fearless Leader". Yeah, that's it.

Boxed Merlot's picture

... stopped reading when i saw the words "Assad regime"...

Too bad, this is the kind of reporting that makes ZH worthwhile. Ferret out the "news", and in this case, being somewhat true to the "investment" roots, the "follow the money" narrative shows the old James Bond themes of ME oil / gas / pipeline routes continues to pay dividends.

I can imagine Mr. Trump trumpeting his value on this development in that now, for the first time in how many years(?), the US actually "exported" NG from our shores recently?

What kind of harbinger does this represent?

At least one can say ZH is connecting the dots.

jmo.

Cordeezy's picture

So will Qatar still get the World Cup!

www.escapeamazon.com

e_goldstein's picture

You sure about that? 

KSA has been at woar with Yemen for a while, and now they are muscling Qatar.

Looks to me that KSA is trying to expand their territory across the penninsula.

Faeriedust's picture

Add into the equation that KSA intervened to put down a rebellion in Bahrain five years ago.  Basically, other nations in the peninsula are "independent" to the extent that they don't buck the orders from Riyadh.  Problem being that the belligerent young Defense Minister knows about as much OR LESS about running two or three simultaneous wars as your average 17-year-old military history buff.  He's young, pig-headed, and arrogant.  And very likely to destroy his country.

landauer's picture

Interesting to learn that Georgetown University is in Qatar of all places. The old alma mater of Bill Clinton and John Podesta, where the Jesuit ethos emphasises the interchangeability of wrong and right. This might begin to explain some of Qatar's more unlikely manoeuvers.

ToSoft4Truth's picture

Qatar needs weapons.  Americans need s jobs.  Trump is a negotiator.

 

Happy Days are here!!!! 

mary mary's picture

I bet all the top tier arms dealers have already arrived in Qatar.  By the way, where is Hillary?

ClickNLook's picture

Hillary is getting drunk with Kathy Griffin and their making prank calls to Comey.

mary mary's picture

Fact: camel gas is the most powerful weapon in the solar system.

Fact: the old story about the camel sticking his nose under the tent is a red herring.  The camel sticks his other end under the tent, and the gas drives everyone out of the tent, and then the camel moves in a dozen of his relatives, who go on Welfare and complain about everything and demand Sharia Law.

ClickNLook's picture

So, it was not terrorism after all, it was territorism.

vegas's picture

Human life is cheap; just ask all the Arab nations that behead people. Like in everything else, just follow the money, and nat gas is very upsetting to the Saudi's.

 

www.traderzoogold.blogspot.com

Ms No's picture

It seems there are three motivations, fossil fuel control, greater Israel and globalism.  Greater Israel and fuel monopoly are essentially steps toward globalist subjugation of the whole blue marble.  They want everything.  They damn near have it too.

 

KweeBohNoh's picture

"Follow the money!"
There is no truer axiom influencing and explaining political and geopolitical events.

Fireman's picture

"Well, it ain’t Iran’s truly honest elections which swayed the Amir of Qatar, Tameem bin Hamad `Aali Thaani, to switch loyalties to Iran.  And, it wasn’t anything to do with the largest American military base in the region at Al-‘Udayd.  In fact, the switch to Iran while hosting the U.S. would seem an unlikely coupling.  But, not if you are a mini-state on the verge of self-destruction through a disadvantaged economic position.

You see, folks, once the natural gas pipeline is completed from Iran, across Iraq, to Syria’s coast, Qatari gas will be so expensive that the country will float on its cash reserves for a couple of years and then, implode.  No more Qatar.

Hmmmm.  The Iranians thought.  What if we let the Qataris in on the deal?  What if we share the natural gas pipeline?  What if we can drive a wedge between Qatar and the rest of the Arabian trash on the Gulf?  Wouldn’t that be British of us?"

 

 

https://syrianperspective.com/2017/06/whats-behind-the-qatari-maneuver-i...

 

 

caracas comes to doha

 

https://dohanews.co/qatar-residents-rush-to-stock-up-on-food-after-borde...

 

CosmicSauce's picture

Nice job on the article. Thank you

Faeriedust's picture

If KSA is making ultimatums it knows that Qatar can't/won't concede, then like the Austrians on the eve of WWI, it doesn't expect or even want concessions.  It wants an excuse for war.  All the more likely in the hands of this brash young defense minister/deputy crown prince and his doting father.  They have already demonstrated their overconfidence in Yemen.  Quite possibly the spark for this outburst was nothing more than the Really, Really Big arms deal that Trump just negotiated with them -- a secure supply stream of up-to-date Big Boy Toys.

If we're lucky, the Prince will insist on flying a jet, get himself killed, and Daddy will then die of a stroke, leaving the old Crown Prince in charge, which might be enough to stabilize the Kingdom and let Business As Usual return.  Otherwise, KSA will overextend itself in regional empire-consolidation, fall HARD, and half the world's oil market will be tied up in the resulting wars.  Because ever since Salman came to power, the Kingdom has been tottering on the edge of elite idiocracy.The King is known to have Alzheimers, leaving Prince Muhammad  king in all but name.  Small, socially backward countries under absolutist rule aren't known for their ability to train world leaders, and Prince Muhammad has received absolutely no education outside of his own country.  The government of the world's number one oil producer is thus being run by an ignoramus in the name of an idiot.

The Dogs of Moar's picture

Why should Qatar concede? It has a mutual defense treaty with Turkey.

Don't you think Erdogan would love to fight KSA?

Son of Captain Nemo's picture

Only read today that matters... And why you will only see escalation at the border(s) of Syria and Iraq (https://southfront.org/us-led-coalition-air-force-bombed-government-troo...) continuing to indiscriminately maim and kill in a vain attempt to control "what it can't control" ANY LONGER...

Hear that sound?... It's the sound of something hitting the ground from 50,000 feet Only it's not the NYSE... It's the bond market. And USD is about to do it's last "sword dance" with the Tel Aviv Kikes and Riyadh towel heads FOR GOOD!!!

Aubiekong's picture

#1 financier of terrorism is Saudi Arabia...

squid's picture

Its always that way in life....

Once you start peeling in onion, its never inside what it looked like outside.

 

Squid

The Dogs of Moar's picture

The real reason for the crisis in the Persian Gulf is the new Emirs(2013) willingness to consider closer relations with the Russian/Iranian/Turkish block.

You aren't going to get that story from the MSM