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Qatar keeps calm, carries on

The crisis is hurting the GCC as a whole, economically and politically, while the targeted country is hanging on

The first time you see the picture, if you arrive in Doha by air, it's lit up in glass panels above each booth at passport control. The image is black-and-white—giving the appearance of a stenciled drawing—of the Emir of Qatar, Shaikh Tamim bin Hamad Al Thani. He looks calm but resolute. Underneath, the slogan in Arabic reads 'Tamim the magnificent'. Thereafter, you see the same image all over Doha, sometimes tiny above the lift buttons in office blocks, other times covering the whole side of a high-rise building.

This public display of admiration for Sheikh Tamim, Qataris and long-term expatriates said, reflects genuine feelings of support for the way in which the country's leader has handled the crisis resulting from the economic blockade. This was imposed by Saudi Arabia, the United Arab Emirates (UAE), Bahrain and Egypt on 5 June. The four states accused Qatar of failing to honour pledges to change some of its domestic and regional policies. They insist the siege will continue until, among other things, Qatar ends its alleged support for terrorism and for the Muslim Brotherhood, and shuts down Al-Jazeera television.

Qatar has rejected the conditions as an infringement of its sovereignty. Shaikh Tamim told the United Nations General Assembly in September that the "unjust" and "illegal" blockade had been imposed "abruptly and without warning", and Qataris considered it "as a kind of treachery". He went on to express "pride in my Qatari people" and foreign residents who had "rejected the dictates" and "insisted on the independence of Qatar's sovereign decision". When he returned to Doha, many thousands of people took to the streets to welcome him.

The Qatari leadership will have been relieved to witness that degree of public support, because the country faces difficulties—even though the energy sector has been unaffected, with oil and gas exports continuing normally. When the blockade was imposed, Saudi Arabia shut its land border with Qatar. This caused an immediate problem because 40% of Qatar's food, including milk and dairy produce, came from the kingdom. Within days, new suppliers were found, food was airlifted from Iran and Turkey, and new shipping routes were established, using Sohar and Salalah ports in Oman as hubs, in place of Jebel Ali in the UAE. Food prices have risen, but today there aren't shortages.

The siege has, however, disrupted travel. Arriving from destinations to the west of Qatar involves a longer flight over Turkish airspace, swinging south down across Iran before approaching Doha from the east. Qatar Airways is facing higher fuel bills because of this, aside from lost revenue on the dozens of daily flights that used to connect Doha with Bahrain, Saudi Arabia and the UAE. "To get to a meeting in our Dubai office," a European businessman in Doha said, "means catching a flight to Kuwait and changing planes there. It's the best part of a day."

Economic survival

The other economic sector hit by the siege is banking. According to economists in Doha, $21bn was withdrawn from Qatari banks in June, as UAE investors and others withdrew deposits, but outflow fell to $10bn in July and $5bn in August. Luiz Pinto, fellow at the Brookings Doha Center think tank and Qatar University, says that "so far, the government has stepped in whenever Qatari banks faced foreign deposit outflows and the non-renewal of other funding arrangements with foreign banks", mainly with transfers from the country's sovereign wealth fund, the Qatar Investment Authority.

The blockade, Pinto continued, had inflicted "a shock" on the economy, but in his view "there's no risk of a Qatari financial collapse. The central bank holds $39bn in international reserves and foreign currency liquidity, and the government holds around $300bn in its sovereign wealth fund. In addition, foreign revenues are firm and the public sector holds $32.4bn, or almost 30% of total deposits, in local currency within the Qatari commercial banking system".

Pinto also dismisses speculation that Qatar might de-peg its currency from the dollar and devalue, saying that "economic factors commonly associated with a currency crisis and devaluation are simply not found in Qatar. The country runs structurally large fiscal and current account surpluses and is able and willing to sustain the dollar peg from its vast sovereign wealth".

There are even outward signs of the economy getting back to normal. The Doha government points to the fact that imports in August were up 40% on July, returning to the pre-embargo level, proving, it says, that new trade channels are in place. But the figures don't tell the whole story—they tell you the value, not the volume. The country is now compelled to spend more—basic imports are much more expensive. In the weeks ahead things will get more challenging. Qatar's economy, leaving aside the energy sector, is living off a construction boom, mostly but not totally, associated with preparations for the 2022 World Cup. Almost everything related to construction is imported, including most of the steel needed. For while Qatar's own steel industry has the capacity to produce around 80% of its domestic needs, most production is tied up in long-term export deals.

Machinery is the crunch

Most importantly, nearly half of all imports are made up of machinery and precision engineering equipment. This has traditionally been sourced from Jebel Ali, where bulk imports and storage capacity have kept prices low. Today, industry in Qatar must re-order and bring equipment through Sohar, where there are very long delays, or direct from the manufacturers in Europe, the US or Far East. Not only will the costs soar with either option, but in many cases new machinery on order will have different specifications, necessitating the expense of fresh designs and alterations to building plans.

In the short term, priority will be given to imports for the energy sector and for projects directly related to the World Cup. But private firms, which began ventures at a time when there was plenty of cash, could be knocking at the government's door for help if costs rise substantially. "It's a horrendous problem if this whole thing doesn't get sorted out," said a Qatari businessman.

$21bn - Amount withdrawn from Qatar's banks in June

For now, the Gulf crisis has reached a plateau, with neither side seeking to escalate it. Qatar hasn't retaliated against those imposing the siege: it's still pumping around 2bn cubic feet a day of natural gas to the UAE through the Dolphin pipeline, although plans to increase the flow to 3.5bn cf/d are now on hold. Former energy minister Abdullah al-Attiyah was the architect of most of Qatar's gas developments. Today he runs the Abha Foundation in Doha, a think tank that bears his name, and in a statement to Petroleum Economist said: "Despite the blockade, we honour our commitments and will continue to supply gas to all of our customers. We like to separate business and politics—it's business as usual wherever possible."

While the blockade is focused on Qatar, the three Gulf states imposing it are also feeling negative economic effects from trade, travel and tourism disruptions. But Nader Kabbani, research director at Brookings Doha, says "economic considerations have, so far, not induced the UAE and Saudi Arabia to de-escalate, even when given opportunities to do so. This suggests that the dispute is more about personalities than anything else."

In other words, it's largely down to the three powerful young men at the centre of the crisis, Crown Prince Mohammed bin Salman of Saudi Arabia and Prince Mohammed bin Zaid of the UAE—the instigators of the policy on Qatar—on the one side; and Shaikh Tamim on the other. The crisis will continue until they can put aside their personal rivalries.

What's clear already is that the implications for the Gulf Cooperation Council are profound. Even if a solution is found soon, there's no chance of a return to the status quo ante. The GCC as a body has shown its impotence by sitting on its hands throughout the crisis. Qatar, for example, will never allow a return to a state of affairs in which it relies on its Gulf neighbours for basic imports. Mutual trust has evaporated. This is perhaps the clearest message inherent in the proliferation of black-and-white images of Shaikh Tamim around Doha.

Source: Petroleum Economist

This article is part of a report series on Qatar. The next article is: Qatar—steady as she goes

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