Despite facing sanctions from several of its neighbors, Qatar is continuing business as usual, with only minor disruptions. The situation has heightened geopolitical tensions in an already anxious region, but has not significantly impacted businesses in either Qatar or the region. The tiny and extremely wealthy country has already taken action to counter the sanctions and to ensure uninterrupted commerce. The situation is in flux, however, and US businesses need to monitor events closely. A second round of sanctions could seriously jeopardize American operations, as could retaliation by Qatar. Any escalation of the conflict would likely have a broader impact, potentially forcing US companies to reconsider operations in the region.
Last month, several members of the Gulf Cooperation Council (GCC) announced an economic blockade with Qatar, severed diplomatic ties, and prohibited Qatar from using their air space and ports. The sanctions, brought by Saudi Arabia, the UAE, Egypt and Bahrain, include closing Qatar’s border with Saudi Arabia, which is a critical route for food imports into Qatar. It also prevented Qatar from participating in the GCC’s military operations in Yemen.
The ostensible reason for the freeze is to protest Qatar’s support for terrorists – specifically Hamas – and its support for Iran. At the time the GCC countries initiated the sanctions, they provided Qatar with a list of 13 demands which the country was required to meet before July 3. The demands include closing Turkey’s base in the country, shutting down al-Jazeera websites the GCC says supports dissidents, ending support for Hamas and the Muslim Brotherhood, and expelling certain named terrorists. Additionally, the GCC wants Qatar to agree to international monitoring of its financial system to help stop future terrorist funding. The countries also are asking for billions of dollars of payments in compensation for what they call support for dissident groups in their countries.
Qatar has refused to accept the terms, which it calls a violation of sovereignty. In the meantime, it has re-routed flight and maritime routes and its central bank is boosting currency in banks. Turkey has stepped up its military presence in-country, and Iran has started sending food to Qatar.
Kuwait immediately began efforts to negotiate an end to the stalemate, and both the UK and the US are also sending emissaries to work on resolving the problem.
This conflict between Qatar and its neighbors has been smoldering for years. The country freely funds not only Hamas, but also hard-core Islamists in Tunisia, Libya, Syria, Egypt and elsewhere. Another major problem for the GCC is Qatar’s willingness to use al-Jazeera to criticize other governments in the region. In 2014, several GCC countries withdrew their ambassadors from Qatar to protest what they called Qatar’s “meddling” in the region. In the days before announcing economic sanctions, GCC journalists highlighted Qatar’s ties to Iran and its support for Hamas. It also condemned what it called the country’s use of al-Jazeera to foment unrest.
Businesses in the region are operating normally at this juncture, but need to monitor and analyze the situation and prepare for additional problems.
It is unclear how quickly the situation will resolve, and it could continue for at least several months. Neither the government of Qatar nor its GCC frenemies appear inclined to blink, further entrenching the crisis. Qatar has the financial resources to weather the regional turbulence, and has announced plans to increase natural gas production, which has brought international suitors to the country over the last several days. Qatar could also threaten to cut off electricity to the UAE or even step outside OPEC-mandated oil production guidelines. For their part, the four Arab states appear to have decided enough is enough, and was willing to take very public action to lash out at Qatar. They must exact some concessions to save face in this particular conflict.
However, at some level, all sides recognize the value of an end to the isolation, making a compromise possible. The GCC understands it is far better to stand together – in oil, in defense, in trade, and in every other aspect – than to risk standing alone. Qatar would likely agree to some type of monitoring of funds to groups in Europe and the US, and it could also stomach additional editorial control over the Arab-language al-Jazeera sites, possibly mirroring the English language editorial situation. It will not, however, agree to other points, leaving the burden on Saudi Arabia of whether to accept or reject some compromises. US pressure could help bring the Saudis to the table, especially if Qatar signals a willingness to concede on at least some points. Saudi Arabia and its allies cannot fully capitulate, however, without losing standing in the Saudi Arabia-Iran proxy war playing out across the region.
The next several weeks will indicate whether the situation will escalate or reduce. A secondary round of sanctions would significantly complicate business in the region, increasing the risk substantially. Saudi Arabia has stated it is considering implementing additional actions, including barring any company that does business with Qatar from transacting with Saudi Arabia, the UAE, Egypt, or Bahrain. There are also indications that the four countries may target Qatar’s financial sector, which is its most vulnerable point. Either of these would cause disruptions and force major changes in operating procedures for US businesses and others operating in the region.
However, rumors that the four Arab countries could attempt to block natural gas shipments are likely not accurate, at least not now. Prohibiting tanker ships from leaving Qatar would require initiating a blockade of ports or the Straight of Hormuz, raising the conflict to a military level. None of the players are anxious to cross that threshold.
Regardless of the outcome, the current crisis is a clear reminder to businesses to monitor their operating environment, understand risks, and maintain contingency plans.