Qatar freight embargo raises fears of a barytes squeeze

Published: Friday, 23 June 2017

Could Iran hold the answer to the isolated Gulf state's barytes import worries?

The transport and diplomatic embargo of Qatar, announced early in June, has oilfield services companies worried about their supplies of drilling fluid materials, but others see an opportunity for Iran to jump start its long-moribund mineral sector.

On June 5 Qatar’s nearest neighbours cut off all transport to the country, as well as severing diplomatic links, over the Gulf nation’s alleged funding of terrorism, and its supposed closeness with both the Muslim Brotherhood and the government of Iran.

Participants in the embargo include Saudi Arabia, which shares Qatar’s only land border, as well as Bahrain, which lies a short distance away in the Gulf, and the United Arab Emirates, which contains the regional hub port of Dubai.

Ties were also cut by Egypt, the Maldives, Comoros, Mauritania, the self-declared republic of Somaliland, the internationally-recognised government in Yemen, and the Tobruk government in Libya.

Qatar’s port service has scrambled to establish new routes, which avoid the Dubai hub. Shipping giants Maersk of Denmark and MSC have already announced that they will accept bookings for container shipments from nearby Oman, which has remained neutral in the spat.

But the move raised concerns among drilling fluid providers, as to whether they would be able to source oilfield minerals for use in Qatar’s oil and gas industry.

Fears of a baryte squeeze

As of 2014, Qatar was the world’s fourth-ranked natural gas producer, after Russia, and the 17th ranked oil producer, according to the CIA World Fact book.

Bakers Hughes reported that Qatar had 10 active drilling rigs as of May 2017, out of a total of 391 in Middle East as a whole.

And earlier this year Qatar lifted a 12-year self-imposed moratorium on new activity in the North Field region, potentially spurring new drilling activity.

The North Field is part of the South Pars field, part of which lies in Iranian waters, and is the world’s largest natural gas formation according to the Energy Information Administration (EIA).

Energy exports have made Qatar the richest country per capita in the world, as of 2016, according to IMF figures.

One major oilfield services company told IM that thanks to cargoes being booked before the start of the crises, it has access to three month’s worth of stock from Qatar.

Barytes is a crucial ingredient in drilling muds, used as a weighting agent to maintain formation pressure.

He noted that India, the major supplier of barytes to the Gulf region, does most of its business with Saudi Arabia, which spearheaded the embargo, potentially discouraging shipments to Qatar.

But another barytes consumer noted that demand in Qatar had been supressed since the start of 2017, due to low natural gas prices.

Iran stands to benefit

One exporter which could benefit from a squeeze in barytes supplies in Qatar is Iran.

Qatar’s close proximity to Iran, and the fact that it shares access to the South Pars field, makes it a tempting market for Iranian exporters.

The US Geological survey sees Iran’s barytes reserves at 24m tonnes, the fifth largest in the world, but production has long been squeezed by US sanctions, which restricted access to funding, equipment, and logistics.

With sanctions significantly relaxed in the wake of the nuclear deal last year, several market participants pointed to Iran as a possible source of barytes.

US-based companies operating in Qatar are still prevented from buying Iranian exports, but other players see a way out of their current quandary.

"The Qataris have been supplying from Iranian companies before, but it was very low," an Iranian exporter told IM.

But he said that in recent days, there had been surge demand, nothing that "they are terrified about the situation which they are in, and they are scared they can't find good deals".

An Indian exporter pointed to Iran as a potential competitor across the Gulf region.

"From a product perspective you can’t write it off," he said, noting that Iran can supply "quite a range of grades". "I see no reason it can’t [be a major competitor] he said. 

Industrial Minerals tracks global barytes prices for more information go to our Pricing Database.

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