Gulf-Qatar rift: What it means for India and the global oil market

Indian market is one where all oil producers would want to be involved, and especially Saudi Arabia

To get a sense of some of the developments about Qatar look at this piece of statistic plus a bit of news. According to the US Energy Information Administration, production of shale oil in USA is expected to reach 5.4 million barrels a day in June, its highest level in more than a year. The recovery outpaces estimates for every most month since August last year. The piece of news is the fast expanding relationship of Qatar with India.

Shale has put American capital and labour to work, a huge domestic political dividend, after price of crude oil from Opec nations soared past $49 a barrel since the 14-member countries agreed since November 2016 on a production cut. In this environment, the US juice can begin to sell at about $47 a barrel, given its lower quality but enough to bring more and more of its onshore fields into production. 

It is vital for the the Trump administration to ensure that Opec keeps its production capped. Opec can keep it capped if Iran does not open the tap of its vast reservoir too much and that means both USA and Saudi Arabia should be on the same side of the field. The Saudis can ensure their diktat runs with two of the large oil producers—UAE and Kuwait, both of whose royal families are blood relations of Riyadh. But Qatar isn’t, even though its royal family too hails from the same desert. 

And Qatar’s rise is linked to its suddenly deepening relationship with India. There are reasons for it. The first of those is natural gas which Qatar like Iran has plenty of but Saudi Arabia doesn't have much of. And countries like India wanting to use their growing economic clout want the gas to flow. There are no Opec-like restrictions on gas prices and it is cheaper. So, if Qatar plays around with its gas reserves and along with Iran dominating its market, there are enough reasons to make the Saudis worried about their politico-economic hegemony getting cut and the USA worried about its domestic recovery. 

Qatar in the past three years has become almost a strategic ally for India. The Qatar government has offered to fill up India’s strategic reserves for free in exchange for buying its natural gas and easier access for Doha’s capital into the Indian economy. One of those is the one its kind permission given to Qatar Airways to fly as a domestic airline in India. 

In fact the Doha-New Delhi connection has been noticed across Middle East with alarm. The Indian market is one where all the oil producers would want to be involved, and especially Saudi Arabia. The latter’s share of the Indian imports had risen sharply in the post sanctions period. The pole position, Qatar has taken with India and which is like to intensify once the work on the gas pipeline begins in earnest could be a spoke. It is not without reason that UAE announced it will set up a Hindu temple to please the Indian government last year.

If the coming together has been noticed, Doha’s increasing cultivation of Iran has therefore even more reason to get Riyadh worried about the fresh inroads of Iran into the Indian market. And consequently USA. The impact of Trump’s visit has just begun to unravel. Iran hobbling back to regain market share that it has lost since the sanctions on it were imposed would love the support from Qatar to to regain some its role as a power broker, a position it had once enjoyed as one of the five founding members of Opec. Since the sanctions, Opec had become unipolar world with the entire hegemony having shifted to Saudi Arabia. USA has the same reasons to support the Saudis, just as India will for Qatar—the domestic economy.

In this desert storm, India may not face a rising price for its crude but might have to figure out many other choices like how much presence it should for capital flows from other nations of the Gulf. So unlike the Gulf crises of the last century, India is in a new position vis-a-vis the Middle East. A lot of Monday’s developments have got to do with the road to New Delhi too.