Qatar: Diplomatic Dispute Leads to Transport and Business Disruptions; Doha Likely to Make Concessions

Friday Jun. 09, 2017

Qatar: Diplomatic Dispute Leads to Transport and Business Disruptions; Doha Likely to Make Concessions

Map - Gulf Diplomatic Dispute

June 9, 2017
 

Qatar: Diplomatic Dispute Leads to Transport and Business Disruptions; Doha Likely to Make Concessions
 

Executive Summary

The recent diplomatic dispute between Qatar and several other nations marks the most severe row that has emerged out of lengthy historical tensions between Qatar and three Gulf Cooperation Council (GCC) member nations - Saudi Arabia, the United Arab Emirates (UAE), and Bahrain - as well as Egypt. The quarrel peaked on June 5 when the three GCC countries, along with Egypt, suspended diplomatic and transport ties with Qatar. Despite the severity of disruptions, the dispute is unlikely to escalate into military conflict or provoke significant domestic unrest in Qatar. Qatar is now in a tenuous position diplomatically and economically, and will likely be forced to negotiate and make concessions to end the dispute in the near term.

Key Judgements

  • Tensions between Qatar and the four states that first severed ties are not unprecedented and stem from Qatar's controversial support of parties that are typically alienated by fellow Arab governments 
  • Yemen, Libya, and the Maldives followed Saudi Arabia, Bahrain, the UAE, and Egypt's example by suspending diplomatic ties with Qatar; however, disruptions remain greatest in relation to those four states that first announced severing ties
  • The current row is more significant than prior diplomatic disputes due to the disruption of air, land, and maritime transport
  • The severity of the disruptions will likely force Qatar to negotiate with the countries that severed ties within weeks, with the US being a potential mediator in the conflict

Background

The latest development in the ongoing row between Qatar and Bahrain, Egypt, Saudi Arabia, and the UAE began in May, when the Qatari News Agency (QNA) published quotes of a speech by Qatar's Emir in which he reportedly expressed support for Hamas, complemented Iran on its "stabilization" of the region, and said Qatar has a tense relationship with the new president of the US. It is unclear whether the Emir actually made the comments quoted by QNA; Qatari officials claim the QNA website was hacked and that the Emir gave no such speech. Regardless, the report unleashed a media backlash from Saudi Arabia, the UAE, and other Gulf states accusing Qatar of working with Iran to support terrorism in Bahrain and sow division in Saudi Arabia. They demanded that Qatar definitively choose between supporting Saudi Arabia or Iran, Saudi Arabia's regional rival. The diplomatic row escalated on June 5 when Saudi Arabia, Bahrain, the UAE, and Egypt announced that they would sever diplomatic and transport ties with Qatar. The Maldives, and governments in Yemen and Libya later followed suit by severing diplomatic relations.

The dispute between Qatar and the Gulf's Arab countries has been ongoing since at least the Arab Spring in 2011. Qatar and Al Jazeera, a news outlet it sponsors, openly supported the Muslim Brotherhood and calls for regime change in the region. This put them in direct opposition to the GCC's position on regional stability. Qatar also maintains strong ties with Iran, whom Saudi Arabia and its allies see as a major competitor for regional hegemony. Qatar and Iran co-own the South Pars/North Dome Gas-Condensate field, the world's largest gas field, which extends under the border between the two countries and benefits Qatar economically. The four countries that initiated the current row have pointed to this economic relationship as evidence of Qatar's alleged closeness with Iran.

A diplomatic quarrel in 2014 caused the Gulf Countries to withdraw their ambassadors from Qatar; the rift lasted eight months but was resolved after Qatar made undisclosed diplomatic concessions. The 2014 incident escalated due to ongoing Qatari support of deposed former Egyptian President Mohammed Morsi and his Muslim Brotherhood-linked party. While the concessions that Qatar made were not officially announced, they are rumored to have involved Qatar's harboring of Muslim Brotherhood leaders and issuing public support for the post-Morsi Egyptian government.

Impact on Business Operations

The current diplomatic quarrel's primary impact on businesses operating in the region will take the form of major disruptions to air, ground, and maritime transport. Emirates (EK), Etihad (EY), FlyDubai (FZ), Egyptair (MS), Gulf Air (GF), Air Arabia (G9), Air Cairo (SM), and Saudi Arabian Airlines (SV) have cancelled all flights to Qatar. Flights to Qatar originating in Saudi Arabia, Egypt, Bahrain, and the UAE will have to transit through a third country that has not participated in the severing of ties, such as Iran, Iraq, Jordan or Turkey. Qatar has issued reciprocal bans on travel. Many major carriers have offered refunds and rebookings for canceled flights. Residents in Qatar have panicked over the suspension of transport, causing many to rush to supermarkets and stock up on essentials such as food and water; stores are having difficulties replenishing their shelves. Businesses operating in Qatar should secure adequate supplies.

Because consular services for Qatar have been suspended in Saudi Arabia, Egypt, the UAE, and Bahrain, the ability to acquire Qatari visas in these countries will also be affected. Businesses in the region should contact local consulates for the most updated information regarding visas. While some Egyptian banks have ceased dealings with Qatar, Egypt's Central Bank officially stated that banks should continue dealing in Qatari riyals (QAR). Saudi Arabian and Emirati banks have not issued any public statements on banking regulations amid the current rift with Qatar.

Potential for Escalation

Although the diplomatic severity of the row between Qatar and other nations should not be understated, the incident is unlikely to escalate far beyond its current form. Qatar is now placed in a difficult economic position; the country imports 49 percent of its food from the Middle East and relies heavily on the flow of goods and people through its borders and ports. Similarly, there could be severe financial implications for Qatar if additional banks follow the example of those in Egypt and refuse to deal with Qatari lenders. Escalating the dispute would, therefore, not be in Qatar's interest and the country will likely soon seek opportunities for mediation, particularly as economic and diplomatic pressures become more apparent. The US could potentially serve as an arbitrator in the dispute, since the US has significant economic and military interests in many of the countries involved. 

As mediation occurs, Qatar will likely be forced to make several concessions to resolve the crisis. These concessions will almost certainly be political in nature, and heavily related to foreign affairs. However, it is unclear whether any possible concessions could affect the business operating environment in Qatar. Possible political actions that Qatar could take include reducing its support for Iran, the Muslim Brotherhood, or Syrian militant group Jabhat Fateh Al-Sham, as their support for these actors is a primary issue of contention. The country could facilitate these actions by taking a more moderate tone in its media outlets, particularly Al Jazeera Arabic, which is known to have a pro-Islamist bias.

The probability of the recent row developing into military conflict is very low. A conflict between Qatar and Saudi Arabia, Bahrain, and the UAE would violate the charter of the GCC, which requires that all disputes between the member nations are resolved diplomatically through "The Commission for the Settlement of Disputes." Initiating a military conflict with Qatar would also be of little interest to Saudi Arabia and the UAE, who are members of a coalition force supporting President Abed Rabo Mansour al-Hadi in Yemen's ongoing war. Becoming embroiled in an additional costly regional military conflict is of little interest to all countries involved.

Conclusion

The current diplomatic row is unlikely to escalate into military conflict or lead to domestic unrest in Qatar. The economic strain that the severing of diplomatic and transport ties has put on Qatar will force the country to act to resolve the dispute. Neutral parties, such as the US, are likely to step forward to mediate, and Qatar will be pressured to make concessions mostly related to its politics and foreign policy. Although the underlying tensions between the countries are unlikely to be resolved immediately, the intensity of the current political and economic pressure on Qatar will likely force the country to seek resolutions within weeks, as lengthier diplomatic and transport disruptions would have long-term financial implications for the country. While it is difficult to quantify the demands of the four countries that initially coordinated their severing of ties, Qatar could possibly alleviate tensions by reforming its media outlets or by making public statements in support of the GCC and its objectives. Until such concessions occur, in the near term, businesses operating in the region can expect continued disruptions to ground, air, and maritime transport. Consular services for the countries involved in the dispute will also remain limited.

 

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