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Gulf blockade: UAE-Qatar ties set to resume within days

Oil and gas ties between two Persian Gulf nations also expected to improve, but no clarity yet whether Qatar will be joining Opec grouping.

The United Arab Emirates is expected to resume trade and travel links with Qatar within a week, ending more than three years of diplomatic stand-off that has impacted economies in the Persian Gulf region.

UAE Minister of State for Foreign Affairs Anwar Gargash said on Thursday that the Gulf nation is “positive” about resuming ties with Qatar.

"The return of movement (of people) and trade between the two countries… will be within a week of the signing," he said.

However, Gargash emphasised that, while some issues could be fixed easily, some others might require longer to resolve.

He added that Qatar is also expected to drop many legal cases it had filed against the UAE during the three-year standoff.

The announcement by UAE came within days of Saudi Arabia and its Persian Gulf allies signing a landmark agreement on regional solidarity and stability, aimed at ending the blockade on Qatar that had isolated the gas-rich nation and stalled peace efforts in the region.

The leaders of the six-member Gulf Cooperation Council (GCC) signed the Al-Ula declaration on 5 January, but the fine print outlining the details of the agreement has not yet been released.

The GCC consists of Saudi Arabia, Qatar, UAE, Bahrain, Kuwait and Oman.

Saudi Arabia on 4 January opened its maritime borders and airspace to Qatar, just hours before signing the historic agreement.

Oil and gas ties between Qatar and UAE are also expected to improve, as the Persian Gulf neighbours could have access to cheaper gas imports from Qatar, which may also change the regional dynamics of the gas market.

The UAE currently imports significant volumes of gas from Qatar via the Dolphin pipeline, but the long-term viability of such imports has been questioned in the wake of the diplomatic stand-off.

As normal relations resume, gas imports from Qatar could be ramped up in the region.

However, one industry source pointed out that the rebuilding of trust between the two countries could take longer than expected, which could delay the flow of trade between the two nations.

“While UAE has dependency on Qatari imports, it would still like to tap its domestic gas resources for securing its energy security,” one industry insider with knowledge of the region said.

However, a second person suggested that cheaper gas imports from Qatar would mean that Abu Dhabi could re-think its costlier sour gas developments like Hail & Ghasha, which are already in the tender process.

Some relatively small spot liquefied natural gas exports from Qatar to the UAE and Bahrain could happen much earlier, before any long-term gas deal is signed between the Gulf countries.

Qatar is spending billions of dollars on increasing the production capacity of its giant North Field, and its production cost is believed to be among the lowest in the Gulf region.

Opec plans

Qatar announced its exit from Opec in 2019, and has been continuing with its oil production and maintenance plans.

However, experts suggest that Qatar is unlikely to stage a comeback to Opec in the short-term and its oil production capacity is relatively low, as compared to other key Gulf-based Opec members.

“With an oil production of around 500,000 bpd to 600,000 bpd, Qatar can still manage to stay out of the Opec group. However, it could lend its support to Opec members at some stage if required,” one industry expert pointed out.

EPC opportunities

Improved Persian Gulf relations could also mean better opportunities and market fundamentals for regional engineering, procurement and construction giants and other oil and gas service companies that had previously scaled down operations due to the Qatar blockade.

Several service companies in the UAE and Saudi Arabia are expected to resume tendering activities in Qatar once trade ties are re-established.

However, another person cautioned that long-term business risks and any future escalation between the Gulf rivals could further jeopardise such trade deals in the region.

The quartet, comprising Saudi Arabia, UAE, Bahrain and Egypt, has been involved in the diplomatic stand-off with Qatar since 2017, alleging Doha's support for terrorism and its growing proximity with the Iranian administration.

In addition to the UAE and Saudi Arabia, the other rival members are also expected to soon normalise relations with Qatar, opening up their borders and resuming trade activities.

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