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Saudi Arabia

How Will Gulf Crisis Play Out? Watch Asia's Energy Markets

An Indonesian oil tanker
An Indonesian oil tanker
David Fickling

Forget the Strait of Hormuz.

The real place to watch the simmering diplomatic battle between Saudi Arabia and Qatar is 5,500 kilometers to the southeast, in the Strait of Malacca between Malaysia and Indonesia. That's because the petroleum market's center of gravity, along with that of the global economy, is in Asia these days. As recently as the 2003 Iraq War, the U.S. and Europe accounted for more than half of the world's oil imports. The share has now fallen to barely more than one-third, as imports by the north Atlantic countries have stood still while those by China, India, South Korea and the Philippines have surged.

That makes the stance of Qatar's major Asian trading partners — Japan, South Korea, India and Taiwan — a crucial factor in how the embargo will play out. More than half of the Emirate's liquefied natural gas exports go to those four countries, or about two-thirds if you add China and Thailand.

To see how this might play out, it's worth considering the dynamics of Asia's gas market, and the differing degrees to which the countries are dependent on Qatar and its Arab rivals.Take Japan. It's Qatar's largest export destination and the buyer of almost a fifth of its traded gas — but Australia and Malaysia are its more important gas suppliers, with the Emirate accounting for just 17% of imports in 2015 and as little as 12% in recent months. Saudi Arabia, by contrast, supplies close to 40% of Japan's crude.

During President Trump's visit last month to Saudi Arabia — Photo: The White House

The disparity is heightened by the fact that Japan is short of oil, and awash in natural gas. Its re-gasification plants are running at about 44% of capacity compared to 88% at its oil refineries. Should Jera Co. choose this moment to press its long-standing case for renegotiation of gas contract terms with Qatar Petroleum, it could find itself with a great deal of short-term leverage.It wouldn't be the first time that the politics of the Middle East have spilled over into Japan's domestic energy sector. A planned government-brokered merger between refiners Showa Shell Sekiyu KK and Idemitsu Kosan Co. foundered last year after Idemitsu's founding family opposed the deal citing Showa Shell's Saudi links.

Taiwan and India depend on Qatar for about half of their gas import

That said, Qatar has some significant cards up its sleeve. While the value and volume of Asia's oil imports may dwarf its gas trade, gas consumers would be wise to be circumspect about taking advantage of the blockade.Even in a country like Japan, where oil-based power generation accounts for an outsized share of the electricity market, losing crude supply mostly pushes up costs for factories and drivers. Losing natural gas supply, by contrast, risks blackouts. Against that backdrop, Asia's utilities are unlikely to want to upset relations with a key supplier by preying on its misfortunes — especially after Qatar's dominance of the global market was reasserted in April by the country's decision to lift a moratorium on the development of its North Field.

There's another point to consider. Japan is unusual in Asia for the diversity of its natural gas supply. Taiwan and India each depend on Qatar for about half of their gas imports, while South Korea isn't far behind on 36%. India and China, meanwhile, are major buyers of Iranian oil, which makes it unlikely they'll be willing to pick sides in what is ultimately a proxy for the deeper dispute between Riyadh and Tehran.

The forces on both sides are finely balanced. Any player who wants to upset the board by using the present crisis to press home an advantage should think carefully before making their move.

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Migrant Lives

They Migrated From Chiapas When Opportunities Dried Up, Orchids Brought Them Home

An orchid rehabilitation project is turning a small Mexican community into a tourist magnet — and attracting far-flung locals back to their hometown.

They Migrated From Chiapas When Opportunities Dried Up, Orchids Brought Them Home

Marcos Aguilar Pérez takes care of orchids rescued from the rainforest in his backyard in Santa Rita Las Flores, Mapastepec, Chiapas, Mexico.

Adriana Alcázar González/GPJ Mexico
Adriana Alcázar González

MAPASTEPEC — Sweat cascades down Candelaria Salas Gómez’s forehead as she separates the bulbs of one of the orchids she and the other members of the Santa Rita Las Flores Community Ecotourism group have rescued from the rainforest. The group houses and protects over 1,000 orchids recovered from El Triunfo Biosphere Reserve, in the southeastern Mexican state of Chiapas, after powerful storms.

“When the storms and heavy rains end, we climb to the vicinity of the mountains and collect the orchids that have fallen from the trees. We bring them to Santa Rita, care for them, and build their strength to reintegrate them into the reserve later,” says Salas Gómez, 32, as she attaches an orchid to a clay base to help it recover.

Like magnets, the orchids of Santa Rita have exerted a pull on those who have migrated from the area due to lack of opportunity. After years away from home, Salas Gómez was one of those who returned, attracted by the community venture to rescue these flowers and exhibit them as a tourist attraction, which provides residents with an adequate income.

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