Could Persian Gulf diplomatic rift disrupt oil shipments?
The diplomatic rift that has emerged in the Persian Gulf begs the question whether the dispute could disrupt oil shipments.
That depends on whether the storm blows over quickly or becomes ingrained. The worst case scenario would be for it to escalate into armed conflict that could draw Iran into the affray.
A Saudi-led alliance that includes the United Arab Emirates, Bahrain and Egypt on Monday said it was breaking off diplomatic and commercial ties with Qatar, accusing the Gulf neighbor of backing terrorism.
Oil jumped about 1% after the news but later gave up gains.
Saudi Arabia, Bahrain and the UAE are members of the Gulf Cooperation Council. GCC members Kuwait and Oman are maintaining ties with Qatar.
The immediate detonator for the rift was a report by the Qatar’s official news agency quoting Qatari Emir Sheikh Tamim Al Hamad Al Thani as praising Iran and chiding U.S. President Donald Trump’s stance against Iran.
Qatar claimed the news agency’s website had been hacked and that the report was false. Qatar has backed Iran in its dispute with the U.S.
In a recent visit to Saudi Arabia, Trump praised the kingdom and urged Muslim leaders to step up their drive against terrorism.
CNN quoted Gayle Tzemach Lemmon, senior fellow at the Council of Foreign Relations, as saying one theory is Saudi Arabia may have been spurred to act against Qatar after being emboldened by Trump’s visit.
Gulf countries make up 5 of the top 10 oil producers in the world. Saudi Arabia is the second largest producer in the world after Russia with output in April of 9.95 million barrels a day. Together, Gulf countries combine to produce over 24 million barrels a day.
The world’s energy needs are still very much dependent on oil coming from the Persian Gulf. Should the rising tensions escalate further, we might witness a surge of tens of percent in the price of crude.
The latest Gulf War in the early 1990s saw crude prices rise by 230% in three short months, a scenario which could replay itself with the disruption of oil production by armed conflict.