Price and market trends: Middle East petrochemical players wary of GCC political rift

17 March 2014 00:00 Source:ICIS Chemical Business

Petrochemical players in the Gulf Cooperation Council (GCC) region are wary of the unexpected recall of foreign ambassadors of Bahrain, Saudi Arabia, the UAE from Qatar over political differences, industry sources said on 7 March.

For the time being, however, it is business as usual in the region that also includes Kuwait and Oman.

“It is a political dispute. We don’t expect serious implications to businesses. Not for now, at least,” a GCC-based petrochemical trader said.

A major polyethylene (PE) buyer in the GCC is not considering stocking up on spot material following this development on the political front.

“We are not worried. We have enough stocks so we are not in any rush. I’m sure they will resolve [the dispute] soon,” a source from the regional buyer said.

Intra-GCC chemicals account for about 9% of the total value of exports in the region. Over the past decade, exports within the region grew at an average of 21.2% per annum over the past decade, according to data from the Gulf Petrochemicals and Chemicals Association (GPCA).

POLITICAL CONFLICT

On 5 March, Saudi Arabia, the UAE and Bahrain stated that Qatar failed to implement an agreement not to interfere in the internal affairs of one another.

“The move to withdraw ambassadors is a major one. Nobody expected such a strong, consolidated action. This never happened before,” a source close to a GCC-based distributor said.

Qatar’s cabinet was quoted in a state media organisation Qatar News Agency (QNA) as saying that the withdrawal of ambassadors by its neighbouring countries “has nothing to do with the interests, security and stability of the GCC peoples but rather a difference in positions on issues” outside of the region.

International media reports cited Qatar’s vocal support for Egypt’s ousted President Mohammed Morsi of the Muslim Brotherhood movement – which is outlawed in Bahrain, Saudi Arabia and the UAE – as the key reason behind the political rift in the GCC.

Qatar, meanwhile, has not withdrawn its envoys in the three countries. Qatar may risk alienating itself from other GCC members in the long term, a source close to a Saudi producer said.

“Tensions between GCC countries are [simmering]. Sometimes it just takes a spark for the dispute to worsen. Qatar may be alone on this,” the source said.

It is not in Qatar’s interest to agitate its GCC brothers, a Dubai-based end-user said.

“Qatar knows its limits. A political dispute can quickly lead to sanctions or decisions to buy less Qatari products,” the end-user said.

Qatar produces 16.8m tonnes of petrochemicals, with PE and fertilisers as its main exports to the GCC, according to GPCA.

The country is the world’s largest exporter of liquefied natural gas (LNG), with natural gas reserves of 885,000 billion cubic feet in 2013, according to data from the Energy Information Administration.

By Muhamad Fadhil