Middle East conflict: Gulf states ready to re-shape supply chains?

The Middle East military conflict is only five weeks old, but voices are already asking, will the region ever be the same again, not just geo-politically, but in terms of industry, trade and supply chains?

If the Iran war ends with the ruling regime remaining intact, albeit weakened, the security situation in the Persian Gulf and in particular, the Strait of Hormuz, would continue to be extremely uncertain.

The Gulf states, the UAE, Qatar, Bahrain and Kuwait, as well as Saudi Arabia and Oman, are currently in the unprecedented position of being in the firing line of Iranian missiles and drones which has marked the end of the established order in the region based on relative stability and peaceful co-existence – at least on the surface.

Attack on LNG Production Complex

One of the most damaging and consequential attacks came on March 19 when a missile hit the massive Ras Laffan Industrial City liquefied natural gas (LNG) complex in the Qatari desert, reducing the state’s export capacity by 17%, notably to markets in Europe and Asia.

Repair work is expected to cost about $20 billion a year in lost revenue and take up to five years to complete.

This significant blow to the national economy and also much further afield- Qatar accounts for 20% of global LNG production – coupled with the unpredictability as to future relations with Iran, has led Qatar to mull new logistical options and routes for exports and lessen dependence on the waterway through the Strait of Hormuz which Iran has blocked to the vast majority of ships since the outbreak of hostilities.

Political Will…Or Will Not

Rashid Al-Mohanadi, a non-resident fellow at the Doha-based Middle East Council on Global Affairs, an independent policy research institution, is advising the Qatari government on the potential re-shaping of the state’s LNG supply chain.

“Even in the event of a ceasefire, the Iranian threat is not about to disappear,” he said in a media interview and the onus is now on Qatar to find ways to export its natural gas which by-pass the Strait of Hormuz, he explained.

Al-Mohanadi believes there are several possibilities. “The first would be to send gas via pipelines to ports located outside the Arabian Peninsula. And at these ports, build infrastructure to liquefy the gas so that it can then be transported by ship.”

Another is "sending the gas to Saudi Arabia, where it could be liquefied for export. There are several options. We already have a pipeline connecting us to the UAE and I think we can still develop the whole of that.”

However, building such infrastructure, which will span several countries, will require a great deal of capital, but Al Mohanadi played down the cost.

“The (real) challenge lies in reaching a political agreement with neighboring countries, which has not always been a given.

“There must be the political will, and I think that after this war ceases, the Gulf states will be inclined to see these projects through to the end,” he added.