The strangulation of Qatar has failed, it will press ahead regardless

One year after the imposition of the blockade by its neighbors, Qatar is stronger and more resilient.

Quoting the London Sunday Times (June 10) “Qatar it is the top exporter of liquefied natural gas (LNG) and has the world’s third-largest reserves – give Qatar the highest per capital GDP in the world”.

Hundreds of articles and reports carrying the headline “The Siege of Qatar” appeared over the last few months. The headlines sounded like epithets from medieval times, but this is the reality of the blockade of Qatar by Saudi Arabia, UAE, Bahrain, and Egypt. At the time most of us thought the blockade or the siege would be short and swift. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut economic and diplomatic ties with Qatar on June 5 last year. They accused the country of financing terrorist groups and having close ties with Iran. Qatar rejected the charges. The rift prompted Qatar to increase trade with Turkey and Iran.

They blockaders weren’t happy about Qatar’s foreign policies and they didn’t like the output of Al-Jazeera Channel. So they submitted a list of 12 or 13 demands which included inter alia the closure of Al-Jazeera and other media funded and controlled by Qatar. Among their initial demands were that Qatar scales back co-operation with Iran, with which Qatar shares its gas; evict a Turkish military base, and sever ties to the Muslim Brotherhood. They also required Qatar to submit to regular compliance checks.  As for the closure of Al-Jazeera Satellite TV Channel, it must be stated that its uncompromising and hard-hitting reporting had irked the traditional dictatorships in the region. Al-Jazeera’s role in toppling Middle Eastern tyrants cannot be underestimated. So it wasn’t surprising that the closure of the TV channel was one of the key demands of the blockaders.

As expected Qatar stood firm and refused to budge. To the Qataris, the entire exercise was an attack on Qatar’s sovereignty. The boycotters were hoping to strangle Qatar. But Qatar refused to crumble and kneel.

THE ECONOMIC IMPACT AND THE IMPLICATIONS:

The initial impact was shocking psychologically but less so economically. The crisis provided Qatar with an opportunity to reduce its reliance on the GCC (Gulf Co-operation Council) members and look into ways of diversifying its economy and doing more business on a global basis rather than regional basis. Gulf brothers acted the role of the bully against their small sister Qatar. The threat of some military adventure against Qatar still has not disappeared.

Qatar embarked on forging closer co-operation with Turkey, Iran, and South East Asia. Qatar realized that it must succeed without having to rely heavily on UAE and Saudi Arabia. In other words, this crisis had provided Qatar with an opportunity to trade and do business on a global basis. and maintain good relations with the EU and the USA both in economic and political terms.

According to Bloomberg, there is a growing demand by foreign investors in Qatar. “Qatari banks have fared surprisingly well since four Arab nations started a boycott a year ago. It’s thanks to the government and state-owned companies, which increased deposits by about $26 billion since May 2017, making up for a flight of capital after a Saudi-led group of nations cut commercial links with the country. That helped buoy an industry where foreign deposits accounted for about 25 percent.”

As crude oil prices climbed from below $50 per barrel to around US$75 Qatar received an additional bonus which helped to ease the pressure and economic growth is now more certain than say six months ago. According to the International Monetary Fund (IMF) Qatar’s economy is growing by 2.6% this year, up from 2.1 percent.

The Qatar Central Bank latest statement shows that reserves increased to US$ 37.8 billion in March 2018. The commercial assets of Qatari banks rose by 3.4% to $371.6 billion. Nine Qatari banks have increased their profits by 6.6% to $5.77 billion. Qatar National Bank (QNB) group achieved profits in excess of $900 million. Bank assets in Qatar expanded to $378.9bn growing 9.1% year-on-year in February.

Qatar’s fiscal deficit is estimated to have narrowed to about 6% of gross domestic product in 2017 from 9.2% in 2016, the IMF said.

In April the IMF praised Qatar’s economic strength and resilience stating that Qatar’s strategic plans to diversify its economy away from oil and gas are bearing fruits.

The IMF official noted that Qatar has adopted “ambitious strategic plans” to diversify its economy away from oil and gas by increasing the non-oil sector’s contribution to the macroeconomy and reducing reliance on hydrocarbon revenues.”

The country’s foreign exchange reserves with the Qatar Central Bank remained broadly stable at around $38bn in February, equating to six months of import cover. This, obviously, points to a comfortable forex position for Qatar. There was an outflow of capital deposits at the beginning of the blockade, with Qatar Central Bank and other state funds quickly injecting around US$38.5 billion of the country’s US$340 billion reserves into the economy to ease pressure on the exchange rate and cushion the impact of the disinvestment. In terms of liquidity and the Qatari riyal, the market position is sound. The Qatari economy has bounced back quickly.

Qatar’s minister of finance Ali Shareef Al Emadi says the blockade has created more opportunities to promote the local economy. For example, enhancing the dairy produce and food production. The government is supporting local industries with incentives

The London Financial Times reported on April 20 that the anti-Qatar alliance is planning to turn Qatar into a small island. The paper suggested that this threat may be apocryphal.

No one can deny that Qatar has taken a hit. State spending and inflation are rising on more expensive transport, food and construction costs. The national airline, Qatar Airways, is losing money and the government has had to dip into the $300bn assets of the Qatar Investment Authority to meet its extra costs. But Qatar can afford, however, to weather the storm. It is the richest nation per capita in the world. But as the FT argues that the damage to the investment climate in the Gulf has been shared by all.

“But Doha has sensibly resisted the temptation to retaliate. It has also, by most accounts, rowed back on foreign adventurism. Short of volunteering for the vassal status, it is difficult to see what more it could do, beyond some gestures. Rather, the onus should be on the states that created this crisis to bring it to an end.  However, the FT calls on Saudi Arabia, UAE, and Egypt to end the siege of Qatar.”

MASSIVE OIL AND GAS RESERVES

Qatar has a massive wealth of oil and gas and substantial financial reserves, which enable it to withstand the negative impact of the boycott. Rising oil prices and ambitious gigantic infrastructure projects have benefited the economy. Plans to increase production of LNG (liquefied natural gas) by 30% over the next few years becoming a top global player in the export of natural gas.

CNBC reported in July last year that “Qatar Petroleum plans to boost gas production from its giant North Field, which it shares with Iran, by 20 percent. Qatar in April lifted a self-imposed ban on development of the North Field, the world’s biggest natural gas field, and announced a new project to develop its southern section, increasing output in five to seven years”.

That new project will raise Qatar’s total liquefied natural gas (LNG) production capacity by 30 percent to 100 million tons from 77 million tons per year. Global LNG demand was 265 million tons in 2016, according to Royal Dutch Shell’s annual LNG outlook.

The North field will produce 23 million tonnes annually by 2024. Global demand for gas will rise by 5% during the period 2023-2030 according to Bloomberg New Energy Finance. There also other projects which may be ready before 2030 and could produce an additional 362 million tonnes annually.

Experts believe that the infrastructure-investment projects have aided Qatar’s economic growth in the middle of the crisis imposed on it by its neighbors.

According to business media: “Spurred by the blockade, a renewed drive for self-sufficiency will boost investment in many sectors. Qatar’s economy has seen an acceleration of diversification over the past nine months, and investment has occurred in a number of new industries.”

MAJOR INFRASTRUCTURE PROJECTS

The boycott has prompted the world’s biggest liquefied natural gas exporting nation to press ahead with a $200 billion infrastructure plan in preparation for the 2022 soccer World Cup, and other related megaprojects. Additionally, Qatar’s expenditure on major projects relating to health, education, and construction is expected to reach $25 billion this year and awarding contracts to the private sector worth US$29 billion according to official sources in Doha. One such major project is the expansion of Hamad Port, which is the newest and biggest port in the Middle East. Qatar signed agreements with Turkey, China Taiwan, Oman, Australia, Pakistan, Kuwait and other countries to link important shipping lines with Hamad port. According to the Sunday Times, Hamad Port is being tripled in size.  The facility will be able to handle 7.5 million containers a year by 2021, up from 600,000 in the old port near Doha. Trade routes are expanding to 23 new destinations.”

At some point in future, the blockaders will come to their senses and resolve their difference with Qatar. But one cannot deny that the blockade has provided Qatar with the incentive to survive and succeed in the most difficult circumstances.

Nehad Ismail

Nehad Ismail is a journalist based in the United Kingdom. He writes on the economic issues particularly oil and gas. He has a special interest in the Middle East. He worked 15 years in the oil industry and 6 years in the media. He worked in a newspaper and in a TV channel presenting a political program between 2005 and 2010 (Arab News Network). His articles appeared in many esteemed media. He reviewed more than 12 books.
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