How long can Qatar’s economy withstand sanctions?
Some are confident that international firms will intervene on their behalf and force the Saudis to end the crisis. Others are wondering how they let themselves get dragged into this stand-off in the first place
Politics aside, Qatar has so far managed to survive the gripping blockade imposed on it by Gulf heavyweights headed by Saudi Arabia, the UAE, and Bahrain. Iranian planes loaded with foodstuffs have been sent to the country, minimizing damage done to it by the closure of its border with Saudi Arabia, Qatar’s only land border.
After initially dropping by 10% in value, the country’s stock exchange quickly picked up and has since stabilized, while its sovereign wealth fund of US$335 billion remains intact. Qatar is still able to export its liquefied natural gas, generating nearly US$2.7 billion per month for the country’s economy. Macro-level damage remains minimal, but what if the crisis drags on?
Sanctions, written off as ineffective by Qatari economists, will soon start to bite on all sectors of the economy: on tourism, services and banking, and on future investment. They have already had a terrible effect on Qatar’s reputation in global markets. International companies might think twice before doing business again with Qatar — a country that was seemingly transformed, literarily overnight, from a dazzling and stable hub for foreign investment into an outcast in the family of Gulf nations.
Gulf nationals living in Doha have already packed their bags and returned home, dealing a heavy blow to the price of real estate and to cash flows throughout the country. Non-Qatari money amounts to 24% of all deposits in the Qatari banking sector, according to its Central Bank — a high figure, when compared to 1.2% in Saudi Arabia and only 12% in the UAE. Of the country’s 2.7 million residents, only 10% are Qatari nationals, after all. Over 20,000 were from Saudi Arabia, 15,000 from Bahrain and the UAE. They were allowed to buy property and open businesses in Qatar — a privilege now revoked by the Doha Government.
International companies might think twice before doing business again with Qatar — a country that was seemingly transformed, literarily overnight, from a dazzling and stable hub for foreign investment into an outcast in the family of Gulf nations
Qatar’s trade with Riyadh once stood at US$2 billion, but that is now down to zero. It traded US$7 billion with the UAE and US$500 million with Bahrain. Total trade with the Gulf accounted for 86% of the country’s business with Arab countries and 12% of its international trade. If not handled soon, this sea-change will impact on the overall economy of Qatar and the living standards of its citizens, leading to shortages in commodities that Iran cannot provide and a huge decline in exports, which might drag factories and plants into bankruptcy.
Some firms have not stopped doing business with Qatar – firms such as the Dubai-based contractor Drake & Scull International, which has US$136 million worth of projects in the now-sanctioned emirate, including a 343 million dirham (US$93.4 million) contract to build the Doha Metro, which is due for completion by 2020, ahead of the Fifa World Cup. Damac Properties Co, another Dubai firm, is presently involved in the building of a 31-story luxury tower in Doha. It too has not walked away. Abu Dhabi’s Dolphin Energy, which transfers two billion cubic feet of Qatari gas to the UAE and Oman every day, is also still working.
Until recently, there were 70 flights between Qatar and these three Gulf countries every day. That figure has also been reduced to zero as Qatar Airways has been banned from landing in Dubai, Abu Dhabi, Manama, and Riyadh. Qatar Airways is a major contributor to Qatar’s GDP and the closure of Gulf airspace to it will force it to find alternate routes for its flights, at rising costs. As the company finds itself subjected to systematic corporate slaughter, other carriers – including Gulf Air, FlyDubai, Emirates and Etihad Airways – are bracing themselves to take over its market share.
The wise men of Qatar are asking how they let themselves get dragged into such a confrontation with Saudi Arabia — a powerful country that has never lost any of its economic wars in the past. Others, though, remain undaunted: for now, they still ooze confidence, believing Qatar can weather the storm and that, regardless of how long it takes, international firms and heavyweight CEOs in oil, gas, banking, and construction will intervene on their behalf and force the Saudis to end the crisis.