Chronicle of the Middle East and North Africa

Qatar’s Future Increasingly Uncertain as Diplomatic Row Continues

Qatar- Sheikh Tamim bin Hamad Al Thani
Qataris write comments on a wall bearing a portrait of Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, in Doha. Photo AFP

Wealthy Qatar has so far been able to ride out the nearly six-month economic blockade that was imposed by a Saudi-led bloc in June 2017 by dipping into its financial reserves and expanding its dealings with Iran and Turkey. But as the crisis drags on, the country’s future is looking increasingly uncertain.

Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt abruptly cut diplomatic and economic ties with Qatar, accusing the Gulf state of sponsoring terrorism – a charge Qatar denies. They closed air, sea and land routes into Qatar, although Egypt did not cut off access to the Suez Canal.

There does not appear to be an immediate end in sight. In fact, in November 2017, the bloc expanded an existing blacklist of groups and individuals with alleged terrorist ties to include two more organizations, the International Union of Muslim Scholars and the International Islamic Council for Dawah and Relief, and 11 individuals, including the director of relief and international development at the Qatar Red Crescent. All have allegedly ‘carried out various terrorist operations in which they have received direct Qatari support’.

Qatar has filed a complaint against the UAE with the World Trade Organization over the blockade. The WTO has agreed to hear the case, but the process will likely take months or even years to reach a resolution.

The trade restrictions initially raised concerns of an impending food shortage in Qatar, which imports about 40 per cent of its food through Saudi Arabia and much of the rest through UAE ports. The situation has turned out to be less dire. The International Monetary Fund noted in October 2017, ‘After the initial shock of the [5 June 2017] measures, the Qatari economy and financial markets are adjusting to the impact of the diplomatic rift.’ Likewise, the World Bank observed that the oil and gas sector, which accounts for 80 per cent of exports and 90 per cent of government revenues, has seen little effect from the blockade.

Other sectors have been harder hit, most notably the state-owned airline Qatar Airways. The airline’s CEO Akbar al-Bakr told Bloomberg News that he expects to report an annual loss due to the blockade, which has forced the company to cancel some routes and redirect others to take longer routes, leading to higher fuel costs.

In the short term, Qatar has found shipping routes via Oman and Kuwait, completed the new $7.4 billion Hamad seaport to support alternate trading routes and increased its imports from Turkey and Iran to make up for the lost trade from its Gulf neighbours. As of August 2017, non-food imports from Iran were up by 60 per cent from the year before.

Qatar’s increasing dependence on Iran is a predictable but nevertheless ironic result of the blockade, as one of Saudi Arabia’s major grievances is Qatar’s relationship with Tehran. A list of 13 demands issued by the blockading countries include cutting ties with Iran and shutting down the al-Jazeera news network, which they consider a propaganda tool for Islamists.

Qatar- Blockade of Qatar
A herd of cows, airlifted from Budapest, at the Baladna livestock production farm in the city of al-Khor, northeast of Qatar. Qatar will be self-sufficient in milk by next July, thanks to boycott-busting cows flown in to boost supplies after neighbouring Gulf states severed links with Doha. Photo AFP

Qatar is better positioned than most countries to withstand the economic impacts of the blockade: it is the largest exporter of natural gas and one of the richest country’s per capita in the world. As of July 2017, Qatar had about $340 billion in reserves at its disposal – $40 billion in the Central Bank and $300 billion in the Qatar Investment Authority sovereign wealth fund, according to the Central Bank Governor Abdullah bin Saud al-Thani. However, Moody’s credit rating agency reported that Qatar spent $38.5 billion in reserves to support its economy in the first two months of the blockade. In addition, the ongoing crisis has made investors uneasy, in part because the disruption to trade hurts not only Qatar but also the countries enforcing the blockade.

“The severity of the diplomatic dispute between Gulf countries is unprecedented, which magnifies the uncertainty over the ultimate economic, fiscal and social impact on the [Gulf Cooperation Council] as a whole,” said Steffen Dyck, vice president of Moody’s, following the release of a report that found that the dispute could hurt the credit rating of all members of the GCC, a political and economic alliance that includes Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman.

Investors from the blockading countries have already pulled money out of Qatar, sending the stock index plunging by 22 per cent.

Despite this, Qatari officials have adopted an optimistic tone. In a speech on 21 November 2017, Rashid Ali al-Mansoori, the head of the Qatar Stock Exchange, said, “We passed the blockade shock and are operating as normal.” More than 100 new foreign funds have invested in Qatar since the blockade was imposed, Mansoori added, although he did not say which ones.

Qatari Emir Sheikh Tamim bin Hamad al-Thani also brushed aside the effects, saying, “The negative impacts of the blockade were temporary and our economy has managed to contain most of them very quickly, while adapting and developing itself in the course of the crisis management.”

Meanwhile, Qatar is looking ahead to the 2022 FIFA World Cup, which it will host, and appears to be taking into account the possibility that the political chasm will not have been bridged by that time. Its officials have already urged the blockading countries to allow their citizens to attend the event in the capital Doha.

In the more immediate future, however, Qatar faces another potential row with Bahrain, which is threatening to boycott the GCC summit planned for December 2017 in Kuwait if Qatar attends.

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