June 8, 2017    5 minute read

The Qatari Economy and the Recent Crisis

Shaky Ground    June 8, 2017    5 minute read

The Qatari Economy and the Recent Crisis

Egypt, Bahrain, United Arab Emirates, Yemen, Libya, Maldives and Saudi Arabia recently announced their decision to cut diplomatic relationships with Qatar. This decision has also been approved by other countries such as Senegal, Jordan, Komor Islands and Mauritania. This has been attributed to the fact that Qatar has been supporting terrorist organisations Hamas and Muslim Brotherhood.

Qatar’s Position

Qatar is officially the richest country in the world. Its GDP per capita (after its 1160% growth during the 1970s, then a 53% contraction during the 1980s, and at the end, another 94% increase in the 1990s) rose to $71,481 in 2015, and the total GDP to $166.9bn. Most of this money comes from the export earnings from petroleum and natural gas (60% of the GDP).

This wealth, of course, pushes Qataris to invest in foreign companies. They even had to establish Qatar Investment Authority (QIA) in 2005 in order to invest the revenue from the budget surplus of the government. The current value of the fund now exceeds $335bn in assets.

Private investors and QIA now owns various stakes in German carmaker Volkswagen; retail brands such as Harrods and Tiffany & Co.; international banks and financial institutions such as Barclays, Credit Suisse; and companies in the energy sector such as Rosneft and Shell.

QIA will take the biggest hit from the crisis, and Qatar Airways will follow. Even though only flights to and from Dubai, Abu Dhabi, Riyadh, and Cairo are banned, these routes are crucially vital for the airline.

The bans also mean that they have to change their routes to roam around the prohibited airfields. This will inevitably increase flight durations and fuel costs. Longer flights will dissuade customers to choose other airlines.

The Emir of Kuwait is trying to mediate between Qatar and the GCC countries in order to solve the dispute. It is not possible to say a lot about the future of GCC at this moment as any unpredictable action from one of the parties can make or break it.

Food

Qatar needs to import nearly all of its food products. Before the diplomatic crisis, hundreds of food trucks used to enter Qatar from the Saudi Arabian border. Now Qatar has to import food using airways.

Improving transit costs and the decrease in the number of countries who are willing to supply food to Qatar will increase inflation. Even though Qatar is a wealthy country, most of its 2.7m citizens are workers who are from the low-income group who cannot even afford the current food prices and cross the Saudi Arabian border to shop.

Increasing food prices will put pressure on the government. It has been recently announced that Qatar has just a four weeks of wheat left. They have recently been conducting talks with Turkey and Iran to negotiate food imports.

Construction

Most foreign residents of Qatar are from Saudi Arabia, Egypt, the United Arab Emirates, and Bahrain. They mainly work in engineering, medical, and construction sectors, and they will have to leave Qatar within 14 days of the ban. This workforce loss will become a huge problem for both national and foreign companies.

Another aspect of the crisis will be the 2022 football World Cup. Qatar is the home of the 2022 World Cup. They are building eight new stadiums, a new harbour, and a new medical complex to get ready for the event. Most of the primary materials including steel and concrete used to come from other countries, passing through Saudi Arabia. It will most probably prevent Qatari firms to complete the preparations in time for the World Cup.

The future of the Qatari economy depends on various factors such as talks regarding lifting sanctions and finding alternative allies.

Iran and Turkey

Iran is currently trying to use the conflict as an opportunity to get a reliable ally in the region. Having already offered to ship food to Qatar, tensions between the Gulf countries are beneficial for Iran if it can win over Qatar. Iran is also one of the few countries that support Hamas and the Muslim Brotherhood.

Turkey’s situation is a bit more complicated because the country has a chance to pick a side. It is trying to play the role of a mediator and stay out of this conflict, but the country is also aware of the fact that not choosing a side is as bad as choosing one since it faces reputational damage.

Qatar is known to be helping the Turkish economy under Erdogan’s privatisation plan. Many Turkish firms are partially or fully owned by Qatari investors at the moment. So, Qatar is not an easy-to-give-up ally. After Erdogan and AKP (Justice and Development Party) took power, Turkish exports to Qatar increased to $146m in 2016 coming, from a modest $10m in 2000.

Saudi Arabia, on the other hand, has always been an important ally for Turkey. Despite the recent problems with the United Arab Emirates, Turkey benefits from having allies against terrorist organisations. However, Turkey does not presently think that Hamas and the Muslim Brotherhood are terrorist organisations.

Therefore, Turkey now has the chance to declare them as terrorist organisations and join the anti-Qatar group. This would ameliorate its relationship with UAE and especially Egypt. Egypt openly accuses Turkey, the USA, and Israel of supporting the Muslim Brotherhood, while Turkey accuses the prime minister of Egypt of being a tyrant and an illegitimate leader.

As such, recent events might be a chance for Turkey to make new allies, and whichever side it chooses, it is not going to suffer much.

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