It seems astonishing that a blockade could happen in this modern day and age. Yet it has. Earlier this week, Saudi Arabia and the UAE, along with Egypt, Bahrain and authorities in Yemen and Libya cut off diplomatic ties with the tiny Gulf state of Qatar. Accusing it of sponsoring terrorism, diplomats were recalled and Qataris nationals were expelled, with the UAE going as far as punishing any online sign of support for Qatar from its netizens. Airspace has been sealed off, while Qatari-flagged ships are being denied harbour. All that is left to Qatar in terms of navigation to the outside world is a narrow aerial and naval corridor leading the country that Saudi Arabia is cross with and cross with Qatar for being friendly with, Iran. With Eid celebrations around the corner, it couldn’t come at a worst time.
Tensions in the Middle East have always been simmering, but kept under boil by international diplomacy. However, in this post-Brexit, Trump world, the rules have changed. The Saudis cosying up to the American president were seen to have emboldened them into making this move. Indeed, Trump tweeted in support of the blockade, but later backtracked – possibly after being reminded that Qatar is home to America’s main Middle East military base, where some 10,000 soldiers are stationed. There were accusations of foreign meddling – from Russia, again. The straw that broke the camel’s back, for Saudi Arabia, was apparently a speech made by the Qatari emir in support of Iran. That is widely believed to have be faked, the product of ‘foreign hackers’ according to the FBI, which is investigating the tensions.
Demand for natural gas to produce electricity in the Gulf states have been increasing, and member states have been paying premium prices for access to LNG. With years of difficulty in developing their own gas wells, Qatar has instead achieved to extract gas at a very low cost. Qatar has also been engaged with Shiite Iran (to the anger of the Saudis) to secure the gas fields for future economic growth, especially the North Fields. Should Qatar offer its neighbours discounted gas rates and share its new found wealth? It is after all the up and coming cleaner energy source of the near future.
The geopolitical implications are threatening. Recent attacks in Tehran were blamed on the Saudis by Iran’s Revolutionary Guards, ratcheting up the tensions as Kuwait and the US furiously try to mediate. Military action on either side is a possibility. But as all sides move to avoid that, the more immediate question is what will happen to Qatar and its massive LNG exports.
LNG is still being loaded and shipped out of Qatar, heading out into international waters from Qatari shores. Originally, the UAE had banned all Qatar-bound and origin ships from entering its waters, but has since limited it to Qatari-flagged ships. This lessens the impact, as international ships could still bunker at Fujairah – the region’s hub – but Qatari ships have to find alternate bunker locations, the nearest being Oman, which has not taken sides yet. LNG prices have not budged much, betting that trade will continue, but may react if it prolongs. Petrochemical exports will also still continue, as a naval blockade has not happened yet.
The main risk will be in cooperation. Qatar is a member of OPEC. It may have the smallest crude oil production within OPEC – some 650 kb/d – but it is a member of an organisation that just recently agreed to extend supply cuts to March 2018. That agreement could now break, especially if Iran and Qatar band together. A move back to free-pumping of oil within OPEC would be disastrous for oil prices. Already, crude oil prices have fallen to levels below that when the OPEC freeze was first announced in November 2016, and will drop even further as American drilling continues. If OPEC is torn apart by this political spat, then the fragile recovery in energy prices will be shattered. Qatar’s energy minister sought to reassure investors over the weekend that his country remains committed to limiting its oil output under an agreement with other major oil producers, despite a widening diplomatic rift with countries such as Saudi Arabia, reports the Wall Street Journal’s Summer Said. “Circumstances in the region shall not prevent the state of Qatar from honoring its international commitment of cutting its oil production,” Mohammed al-Sada said in an emailed statement.
Something interesting to share?
Join NrgEdge and create your own NrgBuzz today
Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.
A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.
Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.
Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.
And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.
That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.
Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.
End of Article
Learn more about this course
An online shop is a type of e-commerce website where the products are typically marketed over the internet. The online sale of goods and services is a type of electronic commerce, or "e-commerce". The construction supply online shop makes it all the more convenient for customers to get what they need when they want it. The construction supply industry is on the rise, but finding the right supplier can be difficult. This is where an online store comes in handy.
Nowadays, everyone is shopping online - from groceries to clothes. And it's no different for construction supplies. With an online store, you can find all your supplies in one place and have them delivered to your doorstep. Construction supply online shops are a great way to find all the construction supplies you need. They also offer a wide variety of products from different suppliers, making it easier for customers to find what they're looking for. A construction supply online shop is essential for any construction company. They are the primary point of contact for the customers and they provide them with all the goods they need.
Most construction supply companies have an online shop where customers can purchase everything they need for their project, but some still prefer to use brick-and-mortar stores instead, so it’s important to sell both in your store.
Construction supply is an essential part of any construction site too. Construction supply shops are usually limited to the geographic area where they are located. This is because, in order for construction supplies to be delivered on time, they must be close to the construction site that ordered them. But with modern technology and internet connectivity, it has become possible for people to purchase their construction supplies online and have them shipped right to their doorstep. Online stores such as Supply House offer a wide variety of products that can help you find what you need without having to drive around town looking for it.
Only the most enthusiastic dry herb advocates will, in any case, contend that smoking has never been proven to cause lung cancer. In case we are being reasonable, we would all agree that smoking anything isn't great for your health wellbeing. When you consume herbs, it combusts at more than 1000 °C and produces more than 100 cancer-causing agents. Over the long run, this causes the development of tar in the lungs and will conceivably prompt chronic bronchitis. Vaporizers take care of this problem which can be found in a good online vaporizer store.
Rather than consuming dry herbs, vaporizers work by warming them to a point where it is sufficiently hot to evaporate the active ingredients. In particular, the temperatures from vaping are sufficiently cool to stay away from the actual burning of the plant matter which contains the cancer-causing agents. Accordingly, people who vape either dry herbs or e-fluids are less likely to be exposed to the toxins that are found in smoke.
Vaping produces less smell and is more discreet.
Every individual who has smoked joints realizes that the smell can now and then draw in the undesirable attention of meddling neighbors! When you smoke, the mixtures and the plant matter are emanated as a part of the thick smoke; this is the thing that creates the smell.
Vaping herbs actually creates a scent, obviously. Nonetheless, the plant matter stays in the oven. Thus, the little from vaping tends to not stick to the wall and clothes due to there being no real smoke. A decent dry herb vaporizer makes it simpler to enjoy your herbs when you're out and about, however, you don't want everyone to know what you're doing!
Further to creating almost no smell, vaporizers, for example, the Relax or Pax look so smooth that you can pull a vape out in the open and those 'not in the know' won't perceive what they are.