In a potentially important move on Monday, the biggest oil producer in the world – fellow US ally Saudi Arabia- and several other countries including the United Arab Emirates, Egypt, and Bahrain cut diplomatic ties with Qatar, while halting all transportation with the country. They declared that the reason for the steps were Doha’s ties to terrorist groups and the risks that the country poses to the region. Rumors surfaced yesterday that the Saudi leadership sent a 24-hour ultimatum to Qatar through the Kuwaiti government, with unspecified demand. Although the rumors were later denied, fears of further sanctions and trade disruptions still weigh on global sentiment.
What Triggered the Crisis?
Tensions have been mounting between Saudi Arabia and Qatar (and Iran) since the Arab Spring, as the opposing powers scrambled for authority amid the turmoil, with both sides accusing the other of funding terrorists and destabilizing the region. The current escalation began shortly after the diplomatic visit of Donald Trump to Saudi Arabia, where he urged cracking down on extremists, and their political allies. The POTUS tweeted the following message after the move:
“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 extremism, and all reference was pointing to Qatar. Perhaps this will be the beginning of the end to the horror of terrorism!”
On an interesting note, the Qatari Foreign Minister stated that the crisis was, at least, partly triggered by fake news planted on a government website allegedly by Russian hackers. He told CNN that:
“Whatever has been thrown as an accusation is all based on misinformation and we think that the entire crisis being based on misinformation, because it was started based on fabricated news, being wedged and being inserted in our national news agency which was hacked and proved by the FBI.”
Some analysts say that the fight for the natural gas market and the broader energy segment is behind the move, with Qatar being the biggest LNG (Liquefied Natural Gas) seller of the world. With several LNG projects soon entering the market in the US, a potential disruption of the market might be the common interest for the biggest players.
The Effects on Financial Markets
Whatever is behind the Saudi’s move, it certainly put the price oil and natural gas in focus once again. Oil has been falling ever since the extension of the OPEC’s production cut two weeks ago, and it continued lower after an initial spike on Monday, as investors weighed the effects of the crisis on the fragile OPEC deal.
Crude Oil, 4-Hour Chart
Stock markets sold off globally on the news, while the main safe-haven assets like gold and the Japanese Yen jumped higher. A sustained embargo against the country could influence the price of the related commodities, while further escalation between the countries would certainly give a boost to gold, and other safe-haven assets, while putting pressure on stocks and risk-on currencies. Stay tuned for more updates!
Images from Wikimedia