As Saudi Arabia and its key allies on Monday cut ties with Qatar, the world’s top seller of liquefied natural gas (LNG), stoking concern over any supply disruptions to neighboring countries spilling over into global gas markets.
Saudi Arabia, along with the United Arab Emirates and Egypt – both highly reliant on Qatari gas via pipeline and LNG – and Bahrain said they would sever all ties including transport links with Qatar, an escalation on past diplomatic spats.
They accuse Qatar, which supplies roughly a third of global LNG – natural gas that has been converted to liquid form for export – of supporting extremism.
U.S. Secretary of State Rex Tillerson, who accompanied President Donald Trump on his trip to Saudi Arabia last month, was CEO of Exxon Mobil – Qatar’s key Western partner in building its giant LNG export plants.
As the rift lifted oil prices, LNG traders took a wait-and-see approach, alert to potential disruption of regional energy flows but erring on the assumption that any trade shocks could be contained given well supplied global markets.
In a arelated development, Qatar’s state airline is set to become the biggest loser from the diplomatic breakdown in the Persian Gulf — with competitors in Dubai and Abu Dhabi also set to suffer.
Some 76 daily flights are likely to be grounded, of which 52 are operated by Qatar Airways, after Saudi Arabia, Bahrain, Egypt and the United Arab Emirates suspended ties with Qatar, according to data from scheduling firm OAG.
Some 30 per cent of the carrier’s revenue could be affected, aviation analysts at Frost & Sullivan estimate.
Among Qatar Airways operations set to be shut is a shuttle to Dubai that operates 14 times a day.
Plans to bar Qatari jets from entering airspace over the countries that could be even more problematic, inflating expenses by forcing significant diversions and putting the viability of some routes in jeopardy.
“Diverting around closed airspace means higher fuel costs and longer flight times,” said Mark Martin, head of Dubai-based Martin Consulting. “Destinations in Africa and across the Indian Ocean may no longer be sustainable as part of the Qatar Airways network.”
Earnings at Qatar Air, like other Gulf carriers, are already being squeezed as the low price of crude weighs on economic growth in the region and hurts demand for travel among oil-industry executives.