The diplomatic impasse between Qatar and its Arab neighbors made co-loading of cargoes at multiple ports in the Middle East difficult if not impossible. It also brought into focus, Fujairah's ability or lacunae thereof to rise above complicated geopolitics of energy and shipping markets and maintain its hallowed status as a global bunkering hub. For Qatar, it is going to be a tightrope diplomatic walk between Iran and its Arab neighbors before the spat ends and it is business as usual again.
Qatar imbroglio: a sea of troubles for energy and shipping markets
Welcome to the Snapshot, our series examining the forces shaping and driving global commodities markets today.
To be, or not to be, that is the question,
Whether 'tis nobler in the mind to suffer,
The slings and arrows of outrageous fortune,
Or to take Arms against a Sea of troubles,
Shakespeare's Hamlet, was in a different kind of dilemma more than 400 years ago. Ship owners and charterers alike have been a facing a billion dollar question of undertaking or not undertaking a voyage to or from Qatar ever since Saudi Arabia, Baharain, UAE and Egypt cut off diplomatic ties with the oil and gas rich country. There have been a plethora of charges and counter charges for more than a week now but the Sea of troubles has been never ending.
CONCERN OVER SHIP BAN TO/FROM QATAR VIA FUJAIRAH
Of particular concern was the ban last week on direct sailing of ships to and from Qatar by Fujairah port in the UAE, where thousands of ships load bunker fuel and partial cargoes of crude and oil products are loaded. All hell broke loose.
Co-loading of partial cargoes of crudeoil, and oil products in multiple ports of Middle East, is a standard practice, and all of a sudden it took a hit. More than a hundred super tankers, or VLCCs, that typically load 2 million barrels each, load crude from the Middle East every month.
While the global oil trade has diversified in a big way in recent years, the latest crisis has crudely reminded everyone of the persistent prominence and dominance of the Middle East.
Those cargoes which are partly loaded in crude or clean tankers in Qatar, along with one or two ports in Saudi Arabia, Kuwait or the UAE, were recently split for single-port loading.
One LR2 naphtha cargo for mid-June loading was downsized to smaller LR1 for loading in Bahrain and the remainder in an MR for Qatar. In another case, a super tanker was released, and instead two suezmaxes were chartered because the partial cargo loading was to take place in Jebel Dhanna in UAE and Al Shaheen in Qatar. For the VLCC owners that are already reeling under low freight rates, such splits are bad news.
Woes are not restricted to co-loading alone. Fujairah has been the preferred bunkering port in the Middle East because with its huge storage, it is relatively cheaper compared with other ports. A week ago, Fujairah's stocks of heavy distillates and residues totaled almost 11 million barrels.
Bunkering is a major source of revenue for the UAE and by not allowing ships embarking from Qatar or planning to go there to come to Fujariah would have hurt its hub status.
FUJAIRAH MAKES AMENDS TO BLANKET BAN ON QATARI VESSELS
As if mindful of this fact, Fujairah has since made amends to the blanket ban, announcing on June 11 that it is limited to Qatari flag vessels, or owned by Qatari companies or individuals, loading/unloading Qatari cargoes in UAE and shipments of UAE cargoes to Qatar. If this isn't confusing enough, last heard, the ban still applies to Fujairah's VLCC jetty which is operated by Abu Dhabhi National Oil Company.
Abu Dhabi, which is part of UAE, has had its share of flip flops. On Thursday, Abu Dhabi reinstated restrictions on accepting tankers heading to Qatar or arriving from Qatari ports after briefly easing them.
Qatar is the world's largest producer and exporter of liquefied natural gas , or LNG, supplying large volumes to the Far East. Not allowing Qatar owned or flagged ships to bunker in Fujairah can add to the shipping costs of LNG.
With Qatar's estranged Arab neighbors on one side and its South Pars gas fields neighboring Iran on the other side, the country will have to do some diplomatic tight rope walking in the real sense of the word. And sooner this diplomatic spat ends, the better for all.
Until that happens and beyond, we shall keep an eye on the markets.