Counting the Cost

GCC crisis, one year on: What’s the impact on Gulf economies?

We examine the regional economic cost of the year-long blockade on Qatar.

A year ago, the four Arab states of Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed a full land, sea and air blockade on Qatar

Since then, the richest country in the world per person, was forced to tap into its sovereign wealth fund and do everything it could to shore up its economy, banking system and currency.

And those efforts have been paying off.

Earlier this year, Qatar raised $12bn in a bond issue, which showed that despite the rift with its Gulf neighbours, international investors still feel confident betting on Qatar’s future growth.

The peninsula is reshaping supply lines and developing domestic goods while pushing ahead with its $200bn infrastructure plan. The world’s largest exporter of liquefied natural gas (LNG) is also busy forging new long-term supply deals.

So, how has the year-long blockade on Qatar affected Gulf economies?

Ayham Kamel, head of MENA at global risk consultancy Eurasia Group, talks to Counting the Cost.

CTC: How has Qatar weathered the blockade?

Kamel: Qatar is in a much better position right now. It seems that the economic cost of the blockade, or the crisis, has been limited. The government has managed to intervene in certain sectors, it has managed to provide some guarantees and the central bank has provided much-needed liquidity.


by ”Ayham

not really in an isolated position internationally, and that’s a function of both the importance of the gas reserves and gas exports but also the financial cushion that Qatar has through its sovereign wealth fund, the Qatar Investment Authority. It’s in a much better situation today.”]

It is contained, but it’s far from ideal because obviously the position of Qatar, its geography, its trade links. So this is far from a preference, but I think one year after the beginning of the Qatar crisis with the other GCC members, the economy is not crashing and Qatar seems to have adjusted to what is a very challenging situation.

CTC: Can you explain more about how Qatar adjusted to the crisis?

Kamel: The sovereign wealth fund reserves were absolutely important in providing not only stability, but a measure of credibility to the financial sector that Qatar has significant reserves to intervene in the market and help the government manage the crisis.

Obviously, the Qatar gas exports did help the country manage its relationships with a lot of countries and make sure that the trade links and LNG exports are maintained.

But most importantly, on the diplomatic front, we’ve seen an effort to engage with alternative powers – not only the US, but broadly to establish new trade links, try to cement those.

So you have Qatar not really in an isolated position internationally, and that’s a function of both, the importance of the gas reserves and gas exports, but also the financial cushion that Qatar has through its sovereign wealth fund, the Qatar Investment Authority. It is in a much better situation today.

CTC: What is the broader regional effect of the blockade?

Kamel: The impact on the Saudi economy is quite limited, but it’s certainly there. The exports that used to go from Saudi Arabia to Qatar – industrial sector, certainly, agricultural goods, as well – that has gone down. But given the size of the Saudi economy, it’s a very limited impact.

I think you will see that when it comes to the UAE and Dubai specifically, some of the repercussions have been more serious or more tangible. Be it financial transactions being shifted from Dubai to London or New York where Qatar has been involved, so there’s a loss of business volumes there. And certainly when it comes to Jebel Ali and the exports through Jebel Ali, that have now been rerouted to Oman. So, we’ve seen a bit more of an impact there.

I think for the GCC countries at large this isn’t an ideal situation economically.

Certainly, in terms of pure economic cost, the impact on Qatar is heavier than anywhere else. But given the financial reserves, we haven’t seen the Qatari economy crack, we haven’t seen a crisis develop in a way that creates panic in Doha or that forces the government to spend much more significant amounts or foreign reserves to prop up the economy.

CTC: What are the implications on LNG exports?

Kamel: LNG exports have been stable and global demand has been healthy. Qatar’s relationship with most of its energy partners hasn’t been damaged as a result of the Gulf crisis. Unless there’s an actual disruption in [the Gulf], which is unlikely unless we see a confrontation with Iran … then, that LNG export will continue to provide Qatar with much-needed revenues. It’s unlikely to change in the future.

Qatar is also planning to develop or further expand production over the long term. So we will see additional reserves … Certainly, given all these dynamics, I think that the leadership in Qatar has options to strengthen its position over the long term.

Also on this episode of Counting the Cost:

Turkey’s lira: Turkey’s currency, the lira strengthened this week after a major sell-off which saw it hit an all-time low versus the dollar. For ordinary Turks and President Recep Tayyip Erdogan, it’s a big source of worry. He’s been battling to stop the currency crisis in advance of elections this month. Charles Robertson, chief global economist at Renaissance Capital offers his take.

Trade tariffs: Trade relations between the US and key allies have taken a giant step backwards. President Donald Trump’s administration is putting tariffs on steel and aluminium imports from the European Union, Canada and Mexico. They’re threatening to retaliate with tariffs of their own, as fears grow of a global trade war, as Kimberly Halkett reports from Washington.

Oil reset: Oil prices have been falling this week, with the world’s biggest producers looking at a change in strategy. Reports say Saudi Arabia and Russia may increase oil production. Cornelia Meyer, independent energy analyst, discusses a potential reset in the oil market.

Greece’s bailout blues: Greece has signed up for the largest sovereign loan in history to prevent bankruptcy. The latest bailout ends in August but austerity measures will continue for at least two more years. This has caused unrest among union workers, who’ve seen their incomes fall by 15 percent during the eight-year economic crisis, as John Psaropoulos reports from Athens.