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Saudi Arabia, Bahrain, UAE and Egypt Cut Diplomatic Ties with Qatar

Source: 6/14/2017, Location: Middle East

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Since Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic ties with Qatar on Monday 5 June 2017, and moved to close off access to the Gulf country, there have been a few developments.

UAE, Saudi Arabia and Bahrain, the Egyptian government has banned all vessels carrying the Qatari flag from passing through Egyptian ports. Shipments from the US or the EU to Qatar are not prohibited.

This has further impacted the oil and gas sector, particularly with LNG trade and Qatar being the world's biggest LNG producer - at least one tanker has had to change course and UK gas prices have spiked. Nevertheless, analysts do not see an interruption in supply in the LNG market.

Last week, Qatar’s stock market shrank by about US$11 billion in value and the Doha index tumbled 7.1 percent, while the Qatari riyal has been falling on worries of capital outflows. The regional Central Banks have started to respond: the UAE Central Bank issued instructions for freezing accounts, deposits, investments of designated terrorists, terror organizations, and increased "know your customer" requirements for dealings with certain Qatar-based banks. Bahrain has taken similar measures. The Saudi Arabian Monetary Agency has ordered lenders in the country not to increase their exposure to any Qatari clients.

Turkey has approved bill allowing troops to be deployed in Qatar and approving an accord between the two countries on military officer training cooperation, and Qatar is in talks with Iran and Turkey to secure food and water supplies.

As Qatar grapples with deepening diplomatic isolation, Japanese liquefied natural gas buyers are pushing the world’s largest seller for cheaper supplies. Both Jera Co., one of the biggest LNG purchasers, and Tokyo Gas haven’t decided if they’ll sign new deals with Qatar to replace current contracts that begin expiring in 2021, according to executives from both companies. The buyers are insisting on less-expensive cargoes and greater purchasing flexibility from the Middle East nation, which relies on oil and gas for about half its gross domestic product.

The demands from Japan, its largest LNG customer, may add pressure on Qatar after neighbors including Saudi Arabia severed diplomatic ties and cut travel by land, sea and air. The hard-nosed bargaining tactics aren’t related to the diplomatic tensions, but the result of a global LNG glut that’s forcing producers to offer concessions, which sellers such as Total and Anadarko Petroleum signal may be necessary to lock up customers.

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