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Here’s what you need to know about Saudi Arabia’s spat with Qatar

Rising geopolitical tensions in the Middle East should be good
for a pop higher in oil prices, right? Not necessarily.

Oil futures saw a knee-jerk rise after Saudi Arabia, Bahrain,
United Arab Emirates and Egypt broke diplomatic ties with Qatar in a
coordinated move, accusing the country of backing terrorist
activities. But the bounce didn’t last, with crude slipping into negative territory in
early U.S. trading hours. Yemen’s Saudi-backed government
followed suit later.

But the tensions still have important implications that could
affect commodity and financial markets in the days and weeks

West Texas Intermediate crude for July delivery


 on the New York Mercantile Exchange, the U.S.
benchmark, was down 47 cents, or 1%, to $47.19 a barrel. August
Brent crude

LCOQ7, -1.08%

the global benchmark, declined 61 cents, or 1.2%, to $49.34 a

Simply put, Qatar isn’t a major player when it comes to crude.
Though a member of the Organization of the Petroleum Exporting
Countries, the country produces just 680,000 barrels a day, or
around 2% of total OPEC output. It is, however, the world’s
largest exporter of liquefied natural gas.

What sparked the rift?

Tensions between Qatar and its Arab neighbors, most important,
Saudi Arabia, have been running high for years. Qatar’s backing
of the Muslim Brotherhood in Egypt and elsewhere were seen
helping fan the flames of the so-called Arab Spring in 2011.
Doha has also offered support to Iran-backed Hamas and has
served as a haven to groups such as al-Qaeda-linked Syria
Conquest Front and Afghanistan’s Taliban, according to The Wall
Street Journal.

Saudi Arabia and its allies have fallen out with Qatar before,
most notably in 2014, but moved to repair the rift. The current
rupture comes after Qatar’s state-controlled news agency
published comments attributed to the nation’s emir that praised
Iran. Qatar later denied the emir made the remarks and said the
state news agency had been hacked, but state-linked media
continued to publish the remarks, news reports said.

Relations between Saudi Arabia and Iran have been strained for

“The catalyst for the recent rupture was Qatar’s softer stance
on Iran and decision to reach out to Iranian President Rouhani
in the wake of his electoral success. With this action, Qatar
had in essence, crossed Saudi Arabia and UAE’s two most
important regional red lines,” Croft wrote.

What does Saudi Arabia and its allies want?

The Saudi-led alliance is unlikely to back down without some
change in the Qatari government’s orientation and policies,
including the expulsion of Qatar-based Hamas and Taliban
leaders and wanted Egyptian clerics, wrote Firas Abi-Ali,
senior principal analyst at IHS Markit, in a Monday note.

That would be a tall order, however, for Qatar to fill, Abi-Ali
wrote. Qatar “is likely to initially attempt to create the
illusion of complying without fully doing so, but this will
likely trigger a more stern response,” he said.

The conflict potentially puts the U.S. in a bind. Saudi Arabia
is the closest U.S. ally in the region, while Qatar is home to
a major U.S. military base that is instrumental in the air
campaign against ISIS.

U.S. Secretary of State Rex Tillerson, speaking in Sydney, said
tensions have been building for some time but played down the

“We certainly would encourage the parties to sit down together
and address these differences,” Tillerson said.

As for the energy implications, the spat isn’t expected to
present a near-term threat to regional energy security, Croft

Egypt remains unlikely to close the Suez Canal to Qatari
tankers and Doha remains “firmly part of the coalition of the
willing supporting OPEC production cuts,” Croft wrote.

See also: Natural gas faces renewed

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