Week of June 9th, 2017

Qatar – GCC Split

What are the Options?


The complex Middle Eastern political situation became even more complex as several nations, led by Saudi Arabia, the UAE, and Egypt broke off diplomatic relations with Qatar and demanded that Qatar stop funding radical organizations like the Muslim Brotherhood and Hamas.

Although the reason behind the crisis haven’t been revealed, some have insisted that it is economic and is a result of Qatar’s massive natural gas reserves. Others claim Qatar allegedly paid up to $1 billion to Iran and al-Qaeda affiliates “to release members of the Gulf state’s royal family who were kidnapped in Iraq while on a hunting trip.” Others blame Russian hacking.

However, given Qatar’s support of groups like the Muslim Brotherhood, and the Saudi, UAE, and Egyptian fear of those groups.

In addition to the suspension of diplomatic relations and expulsion of Qatari citizens, these nations are imposing an isolation of Qatar by closing the border with Saudi Arabia, the suspension of flights to Qatar, and denial of port facilities to Qatari flagged ships or ships of other nations going to or coming from Qatar.

This could be costly for Qatar. According to Bloomberg, 27 of 31 vessels that loaded Qatari crude, condensate in May co-loaded in either Saudi Arabia or the UAE.

Shipping at Egyptian ports was operating normally as of Tuesday, according to Inchcape. The company also said the Suez Canal Authority has advised that there aren’t restrictions on vessels in the waterway since it is an international route.

Separately, Bloomberg also reported that A.P. Moller-Maersk A/S, which owns the world’s biggest container line, said it can no longer get cargo to Qatar as a result of the Saudi-imposed blockade of transport to and from the Gulf state.

It’s important to remember that this isn’t a blockade, which is an act of war under international law. It is a legal action, although it will have an economic cost for countries on both sides of the dispute. It will also make food deliveries to Qatar difficult as Qatar only produces 1% of its food.

In addition, Saudi Arabia’s central bank has ordered lenders in the country not to increase their exposure to any Qatari clients. The United Arab Emirates declared on Wednesday that anyone publishing statements sympathetic to Qatar could be punished with up to 15 years in prison, and said it would deny entry to anyone with a Qatari passport or resident visa.

The situation became even more complex as Turkey approved legislation this week to allow Turkish troops to deploy to a Turkish military base in Qatar. In addition, Iran (which has better relations with Qatar) accused Saudi Arabia of supporting ISIS, which carried out a double attack in Tehran that killed 12.

So, how will other nations respond to this crisis?


The American Response

First of all, forget Trump twitters. This is a complex issue and the State Department will be the main driver in handling this issue.

The US has several critical ties with Qatar. Qatar is the host to the US CENTCOM and about 8,000 military personnel. Qatar has also signed a multi-billion dollar deal to buy F-16 fighter aircraft.

As a result, the US will realize that it is in their best interest to heal any GCC rift and retain good relations with all the GCC nations.

The US policy is that the GCC nations are the bulkhead against what they perceived Iranian expansionism. That is still true today.

A GCC without Qatar would be weaker, especially if Qatar is forced to seek an alliance with Iran. Consequently, the US will do everything to mend relations. That’s one reason why President Trump came out and announced that he would help resolve the dispute on Wednesday.

If Kuwait is unsuccessful in its diplomatic initiative, we can expect the US State Department to make a move to reunite the GCC.

However, if a split is inevitable, we can expect the US to side with the nations with the greater military influence in the region – Saudi Arabia, the UAE, and Egypt. Egypt is also critical because of its relationship with Israel.

Should the US side with Saudi Arabia, expect the kingdom to offer facilities for CENTCOM. Since the US had extensive forces in Saudi Arabia during the first Iraq war, there are facilities that would be readily available is the situation makes it necessary.

However, the chances are that it will not be necessary.


The Cost to Qatar

The economic impact of this crisis to Qatar will be hard to ignore. That’s why a rapprochement with the rest of the GCC is the likely outcome.

The Mitsubishi Bank warned that closure of land/sea/air contacts could have adverse “implications for the airlines, shipping and road freight industries.”

Although not an official blockade, it will be a burden for Qatar.

Saudi Arabia, the UAE, Bahrain and Egypt all said they would stop flights in and out of Qatar, and close their airspace to the country’s airline, Qatar Airways – which makes it the biggest economic loser.

The problem for Qatar isn’t just the loss of business for Qatar Airways, it is being banned from large chunks of airspace: according to a report by CAPA — Center for Aviation, “losing Saudi, Bahrain and UAE airspace would effectively ground Qatar Airways,” CAPA said. That’s because Qatar actually has very little airspace relative to the size of the country.

“It is largely surrounded by Bahrain airspace (the Bahrain FIR), a sliver on the south is managed by Saudi Arabia while the UAE is on the eastern border,” CAPA stated. While losing access to Saudi airspace will force Qatar Airways into the costly maneuver of rerouting its Africa-bound flights, losing access to Bahraini airspace could be catastrophic because it almost completely encircles Qatar.

That said, while the various gulf nations are free to refuse landing rights, it remains unclear if Bahrain and the UAE can legally ban Qatar Airways from their airspace. As signatories to the International Air Services Transit Agreement, Bahrain the UAE can’t legally shut off its airspace to fellow signatory Qatar. Saudi Arabia, however, is not an IASTA member country and can legally shut Qatar Airways out.

On Monday, Flightradar24 reported that neighboring Bahrain notified pilots that it will limit flights to and from Qatar by Qatari aircraft through its airspace to a single air route. This means, even if Qatar Airways isn’t grounded, it will be subject to heavy air traffic congestion.

Qatar Airways’ growth has come by becoming a hub airline, connecting Asia and Europe via Doha. “If a journey to Europe that used to take six hours now takes eight or nine because it has had to change routes, then that makes it far less appealing and passengers might look elsewhere,” says Ghanem Nuseibeh, director at advisory firm Cornerstone Global.

However, the biggest problem is food. Food supplies are a particular issue for Qatar given that the only way into the country is a single border with Saudi Arabia. Every day hundreds of trucks cross the border, and food is one of the main supplies. About 40% of Qatar’s food is believed to come via this route. That may no longer be an option after Saudi Arabia said it will close that border and when the trucks shipments end, Qatar will become reliant on air and sea freight.

“It will immediately cause inflation and that will directly affect normal Qatari people,” says Nuseibeh. “If things start costing significantly more, then you’re going to see the Qatari people putting increasing political pressure on the ruling family for either a change of leadership or a change of direction.” The Cornerstone analyst also pointed out that many poorer Qataris make daily or weekly trips to Saudi to do their grocery shopping as it is cheaper. Clearly a closed border means this will no longer be possible.

Then there are several construction projects that may be threatened, including a new port, a medical zone, a metro project and eight stadiums for the 2022 World Cup. Key materials, including concrete and steel come in by ship but also by land from neighboring Saudi Arabia. The closure of that border could, as with food – push up prices and lead to delays and more unemployment.

The move to end ties bans citizens from Saudi, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen from travelling to Qatar, living there or passing through it, according to the Saudi government. People affected have 14 days to leave. Meanwhile Qataris will have the same amount of time to get out of Saudi Arabia, the UAE and Bahrain.

More significant though would be if Egypt issued a similar ban. According to one recent report about 180,000 Egyptians live in Qatar – with many involved in engineering, medicine and law as well as construction.

The last thing the Qatari leadership wants is hundreds of thousands of hungry, unemployed, dissatisfied Qatari citizens with nothing to do, but complain about the leadership.


Options for Qatar

Qatar has few sound options.

Its first major action was to place its military forces on high alert in case of a Saudi incursion. The Qatari military has brought up 16 Leopard tanks out of storage in Doha in preparation for a potential invasion. Furthermore, the Qatari Ministry of Defense reportedly also sent a letter to Saudi, UAE and Bahraini governments, saying they would fire on any naval ships from those countries that enter into its waters, a US official said.

This protects Qatar from the unlikely chance of a military invasion. However, it doesn’t help solve the problem – preferably in a peaceful way.

Qatar might choose to leave the GCC. However, despite the differences, Qatar and the rest of the GCC nations have much in common.

The easiest option would be to remain in the GCC, but not to participate in some GCC activities like a common military command structure. This would give Qatar the option of becoming more active at a future date.

Obviously, Qatar could leave OPEC. The Mitsubishi bank notes that “a full-fledged confrontation will, without any doubt, put pressure on the current compliance rate of OPEC members to the adherence of the 9-month agreement to cut production” and adds that “whilst Qatar’s pledge was only to cut 30,000 barrels to 628,000 barrels (as part of the OPEC agreement), there are potential risks of Qatar leaving OPEC which could significantly impact oil prices.” In other words, Qatar leaving OPEC might effectively end the influence of that organization.

The other option for Qatar is to form other alliances. However, although Iranian/Qatari relations have been warm, a rapprochement between the two would only worsen relations with the rest of the GCC and the US.

A closer alliance with Turkey is a strong possibility. On Tuesday, Turkish President Recep Erdogan defended Qatar, saying he intends to “develop” ties with Qatar.

“Let me say at the outset that we do not think the sanctions against Qatar are good,” Erdogan said in a speech in Ankara. “Turkey will continue and will develop our ties with Qatar, as with all our friends who have supported us in the most difficult moments,” he added in reference to last year’s failed coup. The support puts Turkey in a complicated position because while the NATO member has close ties with Qatar it also has good relations with the other Gulf states, especially Saudi Arabia.

Turkey’s support for Qatar also has ideological reasons as in the past both have provided support for the Muslim Brotherhood in Egypt and backed rebels fighting to overthrow Syrian President Bashar al-Assad.

In 2014 Turkey set up a military base in Qatar, its first such installation in the Middle East. There are currently about 150 troops stationed there, but on Wednesday, the Turkish parliament passed legislation allowing greater military cooperation between Turkey and Qatar and permitting the stationing of more Turkish troops in Qatar.

An alliance with Turkey solves two problems for Qatar. The first is that additional Turkish troops stationed in Qatar will discourage Saudi Arabia and other nations from contemplating any military solution. The second is that Turkey could act as way point for shipments into Qatar via Turkish aircraft and Turkish ships.

Obviously, other alliances with nations like China or Russia would be beneficial. In fact, the Qatari foreign minister is set to visit Moscow on Saturday and confer with the Russian foreign minister.

Ironically, Russia could benefit from this crisis if Qatar natural gas is unable to reach Europe, opening the market to Russian natural gas.

However, Russia and China are distant and will not be able to contribute to the immediate problem of shipping goods into Qatar.

And, quick relief is a must for Qatar.

Rising food prices, unemployment from economic sanctions, and a history of political unrest could make a coup possible. In 1995, Emir Hamad bin Khalifa Al Thani seized control of the country from his father Khalifa bin Hamad Al Thani, with the support of the armed forces and cabinet, as well as neighboring GCC states.

Although the current ruler, Tamim bin Hamad Al Thani didn’t come to power via a coup, he was the first ruler, in a succession of three Qatari rulers from the Al Thani family, to ascend to power without resorting to a coup.

As a result, the likelihood of a rapprochement with the other GCC nations seems the logical outcome.


GCC Options

Again, mending relations with Qatar seems the likely solution, especially since GCC nations Kuwait and Oman are anxious to solve the problem and avoid a prolonged crisis.

Although Saudi Arabia has threatened a military option, it’s important to remember that the desert kingdom is already militarily involved in a war in Yemen. And, despite the size of the Saudi military, it isn’t capable of fighting two wars at the same time, especially if Turkey decides to send more troops to Qatar.

There is the option of supporting a coup against the Qatari leader Tamim bin Hamad Al Thani, which many of the GCC countries did against previous Qatari leaders. However, coups require planning and civil unrest to work.

This brings us back to the current policy of economic sanctions that will prevent movement of supplies into Qatar. In the short term, they will encourage Qatari leadership to negotiate with the rest of the GCC in order to end the current sanctions. In the long run, they set the stage for a potential coup, which is likely if the sanctions cause political strife.

In the end, it is in the interest of all the nations to make peace. The biggest issue will be allowing the Qatari leadership some face saving options.