The trade war in the Persian Gulf. The economical effects of the ban imposed by Saudi Arabia on Qatar

Qatar residents rushed to the stores and made supplies after several Arab States cut diplomatic ties with the tiny emirate in the Persian Gulf, accusing it of backing terrorist groups. EvoNews presents you the economic consequences of the diplomatic conflict.

As a small reminder, six Arabic countries suddenly cut ties with Qatar – Saudi Arabia, Egypt, Bahrain, United Arab Emirates, Yemen and Libya. The Maldives, another Muslim state, also followed this path.

Moreover, their airspace will be closed off to Qatar Airways, the national airline of the emirate. Saudi Arabia – the only country to share a terrestrial border with Qatar – blocked the borders, and this led to huge queues of vehicles.

The problem is that Qatar is relying on its more powerful neighbours, Saudi Arabia and the United Arab Emirates, for food: 40% of it comes from Saudi Arabia, and 80% goes through one or more states in the Gulf. Qatar is also dependent on the sugar imports from the United Arab Emirates.

Moreover, Saudi Arabia shut down the local station of Al Jazeera, and several banks from Saudi Arabia and the United Arab Emirates stopped making transactions with Qatar. According to sources cited by Reuters, the central banks in the United Arab Emirates and Bahrain asked the banks within the country to show a detailed report of their exposure in front of Qatar’s financial institutions.

Despite the fact that plenty of Qatar Airways flights were cancelled, but the company can fly over other countries, such as Iran or Turkey, en route to Europe and Asia.

Plenty of money

Qatar authorities say that food imports are not affected. These might be disrupted, though, if the ban is to last for longer. On the long term, though, the problem might be easily solved by the authorities from Doha, since Qatar is extremely wealthy.

The Gross Domestic Product (GDP) of the country is $170 billion and the state has one of the highest GDP per capita, of over $64,000. Moreover, Qatar started in 2013 an investment plan of $200 billion in order to prepare its infrastructure for the 2022 World Cup, when it will host the competition.

By comparison, Saudi Arabia has a GDP of $646 billion, while the United Arab Emirates has $360 billion in GDP.

The country can import by air or sea anything it cannot take now by land through Saudi Arabia. Qatar has a sovereign fund fueled with the money obtained from oil and gas. Started in 2005, it has the function of investing Qatar’s budgetary surplus. Its sovereign fund has assets of $335 billion, with its main investments being a 17% share at the German group Volkswagen, but it also has minority participations at the British bank Barclays and at the holdings EADS, Total, Engie, Veolia or Air Liquide.

The oil effect

Last year, Qatar Investment Authority, the sovereign fund, invested $11 billions alongside raw materials trader Glencore in Rosneft, Russia’s oil giant, controlled by Moscow. However, MarketWatch meanwhile stated that Russia is to buy back the respective assets.

Qatar and Russia support opposing parties in the Syrian conflict: while Moscow backs President Bashar al-Assad, Qatar supports the moderate rebels.

Disagreements regarding the Islamic State and Syria

On the other hand, Saudi Arabia and Iraq have repeatedly accused the emirate in the past of supporting ISIS and al-Qaeda, while Egypt is bothered by the fact that Doha supported the Muslim Brotherhood. The Muslim Brotherhood even rose to power in Egypt in the past years, but it was outlawed and is now considered a terrorist organisation.

In Syria though, both Qatar and Saudi Arabia are supporting the rebels that oppose Assad.

Natural gas and Iran

Although it is a member of the Organization of the Petroleum Exporting Countries (OPEC), Qatar has a relatively low oil production compared to its neighbours, of only 618,000 barrels per days. Its main resource is represented by natural gas, though, with Qatar being the world’s largest exporter of liquefied gas.

By adding natural gas and the condensate – a form of light oil – Qatar has a daily production of 2,4 million barrels per day.

While its neighbours were investing in oil extraction, Qatar was massively investing in the extraction of natural gas and the terminals allowing the export of the ”blue gold” throughout the world.

The proven oil reserves of Qatar are of 25 billion barrels, while the gas reserves are of 25 trillion cubic meters, which is 25,000 billion cubic meters, thus making the country the third richest in gas reserves, after Russia and Iran.

Qatar has a capacity of export of liquefied natural gas of 74 million tonnes per year. According to the U.S. Energy Information Administration, Qatar earned $38 billion in 2014 out of hydrocarbons exports.

The problem is the fact that the emirate of Qatar exploits the world’s largest offshore gas field, North Field, alongside Iran. This is not pleasing to Saudi Arabia, the traditional geopolitical rival in the region.

Fights regarding the border

These are not the only issues between Qatar and its neighbours. In the 18th and 19th centuries, Qatar was dominated by dynasties from Bahrain and Saudi Arabia, having a powerful resentment towards them. Moreover, between 1867 and 1868 there was even a maritime war between Bahrain and Qatar, in which forces in Bahrain and Abu Dhabi (currently part of the United Arab Emirates) bombed Doha and other regions.

Later on, though, Qatar was part of the Ottoman Empire between 1871 and 1915, and after it dissolved, it ended up under British dominance.

Qatar became independent only in 1971, the same year Bahrain became independent from Great Britain as well. Nevertheless, tensions between the two countries continued, with the two fighting over the Hawar Islands in the Persian Gulf. In 1986, the two countries were close to having a military conflict, and they started having diplomatic ties only in 1997. The territorial disputes ended in 2001 at the International Court of Justice, when Bahrain received the Hawar Islands, and Qatar got other territories.

Coup attempts from Saudi Arabia

Qatar is governed by the al-Thani family from mid 19th century and used to be very close to Saudi Arabia. However, the “Gas Revolution” in the 1990’s gave Qatar the possibility of making its own agenda.

Saudi Arabia and Qatar signed in 1965 an agreement regarding the terrestrial border, but this is yet to be ratified. Later on, Qatar even cancelled the agreement in 1992, after armed confrontations at the border between the two countries which led to three deaths, according to The Atlantic.

In 1994, Qatar and Saudi Arabia backed up opposing parties in the Yemen war.

In 1995, Sheikh Hamad bin Khalifa al-Thani took over power from his father, through a coup without bloodshed. Alongside Sheikh Hamad bin Jassim al-Thani, his Minister of the Exterior, Emir Hamad turned Qatar into a global player on the world market of liquefied gas.

Nevertheless, Hamad’s ascension to the throne did not please Saudi Arabia, which supported two counter-coups against it, one in 1996 and another one in 2005. As a result of these, Qatar started distancing itself from Saudi Arabia and followed its own policy.

This is how TV channel Al Jazeera was created, and Qatar started supporting al-Qaeda and several Islamic forces in the region. In 2002, Saudi Arabia took back its ambassador from Doha after Al Jazeera broadcast programmes reflecting the problems in the kingdom. The issue was solved only in 2007.

During the 2011 ”Arab Spring”, Qatar and the United Arab Emirates had disagreements regarding the Muslim Brotherhood: while Doha was supporting the organisation, Abu Dhabi was criticising it. Egypt and Libya then became real battlefields of power between Qatar and the United Arab Emirates.

In 2013, it was time for Emir Hamad to hand over the power to his son, Emir Tamim. Back then, it was hoped for the small emirate to recalibrate the policy towards Saudi Arabia.

However, in November 2013, only five months after Tamim’s inauguration, a new scandal appeared: Egyptian president Mohamed Morsi was removed from power in Egypt, but a series of members of the Muslim Brotherhood were regrouping in Doha.

In 2014, Arab states in the region interrupted once more ties with Qatar due to the Muslim Brotherhood, as well as a result of accusations of supporting ISIS. At that moment, the Emirates branch was hosted by Qatar, as well as several dissidents. A compromise showed up later on: the members of the Muslim Brotherhood in Qatar were moved in Turkey, and the Egyptian branch of Al Jazeera was shut down.

The billion dollar kidnapping

Another tense episode of the relationships between the two parties came in April, when Qatar supposedly paid a $1 billion ransom for the release of 26 members of its Royal Family, captured in December 2015 in southern Iraq while hunting.

The members were held captive by the Kitaeb Hezbollah group, a Shiite militia connected to Iran. Qatar would have negotiated with Iran, Hezbollah and Syrian rebel group Jabhat al-Nusra (an affiliate of al-Qaeda) for their release.

Later on, Iraqi prime minister Haider al-Abadi condemned the deal, claiming that the negotiations were done without approval or involvement from Baghdad.

”Weapons” from Doha

On the other hand, Qatar has its weapons too, which it might use in fights with the neighbours.

First of all, it might increase oil production, which would undermine the efforts of OPEC and producers outside the organisations of stabilising the oil market. Due to this, the price of oil dropped by 1% on the stock markets.

Qatar might also cut off the gas provided to Egypt through methane carriers or the ones delivered to the United Arab Emirates through the Dolphin gas pipe. Over 56 million tonnes of cubic meters of gas are transported on a daily basis from Qatar to the United Arab Emirates, which is a quarter of the country’s daily consumption. Another 5 million pass through it towards Oman. Moreover, 160,000 barrels of condensate are delivered every single day.

Since temperatures already reached 40 degrees Centigrade, the gas in Qatar is vital for starting the air conditioning, especially since the Gulf countries produce electricity based on natural gas, according to Bloomberg.

Using this aspect to force the exit from the diplomatic crisis would affect Qatar’s image as a certain supplier and would remind of the oil embargo in the 1970’s. After the nuclear accident at Fukushima in 2011, Japan used natural gas for compensating the energy production. Qatar has since become a supplier of the world’s third economy.

China has also diversified its base of suppliers, especially after another regional scandal, linked to Iran’s nuclear programme.

Finally, Qatar has one more strategic weapon: it hosts the largest American base in the Middle East, Al Udeid aerial base, where there are over 11,000 American militaries stationed, according to CNN.

It hosts 120 planes and the operational centre of the American armed forces in the region. It was from here that the attacks on the Islamic State in Iraq and Syria were launched, as well as those on the Taliban and al-Qaeda in Afghanistan.

However, Qatar is not alone either: Bahrain is also hosting the Fifth Fleet of the US Navy, while Saudi Arabia is the main ally of the USA in the region and has just signed contracts of over $300 billion, during Donald Trump’s recent visit.