Qatar’s Economy Proves Resilient As Embargo Enters Fourth Month

With the diplomatic rift between Qatar and its neighbors entering its fourth month the situation is stabilizing. Restrictions on vessels calling at Qatar from entering Saudi, Emirati and Bahraini waters led to initial consternation. But these were swiftly relaxed. The remaining restrictions are causing delays and additional expense, but nothing that looks likely to prompt Qatar to alter course (MEES, 7 July).

Qatar’s economy is proving resilient and the IMF still sees the budget deficit easing considerably from 2016. In a 30 August statement, the IMF projected that Qatar’s 2017 deficit will amount to 5.9% of GDP. This is a considerable improvement on last year, when Qatar’s $14bn deficit equated to 9% of GDP. But, it is a deterioration on Q1, when Qatar racked up a 5.1% ($2.1bn) deficit, highlighting the IMF’s expectations of the impact of the continued embargo.

Importantly for global markets and buyers of Qatari oil and gas, its export volumes have largely held up. While Qatar is a medium-sized oil producer at some 600,000 b/d, it is the world’s largest LNG supplier, exporting a record 79.6mn tons in 2016. Although Qatar’s key Asian buyers took lower volumes in July, this looks to have been due to seasonal demand falls rather than any obstructions to supply. Nevertheless, it caused Qatar’s oil and gas revenues to edge down in July to a nine-month low, despite a rebound in refined products export takings.

IMPORTS TAKE A HIT

Although some 61% of Qatar’s imports in the first quarter of the year came from the EU and Asia, the trade embargo imposed following the 5 June rift had a noticeable impact on imports. Egypt joined Saudi Arabia, UAE and Bahrain in imposing restrictions. Qatar imported $1.23bn from the quartet in the first three months of 2017.

The value of Qatari imports then crashed by almost $1bn to $1.61bn in June, a 38% fall, highlighting the immediate impact of the embargo. This edged up to $1.71bn in July, the latest month for which figures are available, as Qatar secured alternative suppliers (see chart). Imports likely rebounded further last month.

But the embargo is hitting Qataris in the pocket. Latest statistics show that food prices have risen since May. Where food and beverage prices were down 1.9% year-on-year in May, they swung to a 2.4% annual increase in June and 4.5% in July. Rerouting imports is causing inflation to rise, but this ought to moderate shortly.

Qatar previously imported a lot of goods across the land border with Saudi Arabia, and from transshipments via the UAE’s much larger import terminals.

Oman has now replaced the UAE as the main hub for transshipments to Qatar, whilst Emir Tamim inaugurated Qatar’s new Hamad Port on 5 September. Hamad Port started operations in December 2015 and in June and July announced new routes to Oman’s Sohar and Salalah ports “to mitigate the impact of actions [the embargo] that may affect the imports and exports to and from the country.”

OIL & GAS REVENUES

With Qatari flagged-vessels able to bunker in Oman, and foreign-flagged vessels permitted to call at Saudi and Emirati ports, the impact on Qatar’s oil and gas export volumes has been minimal. Crude export volumes rose in June and while they’re down on last year this is primarily due to output cuts under the Opec production agreement which came into force in January (see p7).

Export volumes of refined products have dipped from April’s near-two-year high, but this is due to outages at the 146,000 b/d Ras Laffan 1 splitter in Q2 (MEES, 23 June).

With the splitter up and running again, Qatar’s products export revenue soared to $420mn in July, up from just $270mn in June (see chart). This was the second highest this year behind March’s $460mn. Crude revenues remained depressed in July at $680mn. With the fall from May’s $910mn far outweighing the 5.5% fall in the official price of Qatar’s benchmark Qatar Marine grade, and export volumes rising, it appears that the emirate has continued to offer discounts to buyers since the start of the blockade (MEES, 4 August).

For Qatar however, the most important source of export revenues is natural gas. This accounts for more revenues than all other forms of hydrocarbon exports combined, and in July it fell to its lowest level this year. The $2.04bn for gas exports was the lowest level since October 2016, when earnings totaled $2.0bn.

But the drop-off looks to be largely the effect of normal seasonal demand trends combined with a weak spot market.

Qatar’s top two buyers Japan and Korea both took sharply lower volumes in July, which is not out of line with normal seasonal trends as extra buying for the secondary summer demand peak is typically concentrated in May and June.

Japanese imports from Qatar in July (roughly corresponding to June loadings) were 0.72mn tons, down 17% from June’s 0.87mn tons, but level with July 2017. Korea imported 0.96mn tons in July, down from 1.28mn tons in June but up on year-ago levels.

Average prices for both countries’ imports from Qatar, which are largely on a term basis, have been steady at around $8/mn BTU in recent months. Lower offtake under these key term contracts in July means Qatar is left reliant on the spot market for a greater proportion of its sales. With Asian spot LNG prices averaging just $6/mn BTU in recent months and European prices closer to $5/mn BTU, the greater share of spot sales in Qatar’s June and July LNG exports, rather than ‘politics’, is likely the key reason for the fall in Qatar LNG export revenues.

Qatar Imports Crash Following June Diplomatic Rift ($Bn)...

SOURCE: QATAR MINISTRY OF DEVELOPMENT PLANNING & STATISTICS, MEES.

... With July’s Hydrocarbon Revenues At The Lowest Level This Year ($Bn)

SOURCE: MINISTRY OF DEVELOPMENT, PLANNING AND STATISTICS, MEES.