Saudi Allies Have Few Economic Tools to Pressure Qatar

Photographer: Gabriela Maj/Bloomberg

City skyscrapers stand on the skyline in Doha. Qatar traded more with Singapore in 2012 than it did with the three Gulf neighbors - Saudi Arabia, the United Arab Emirates and Bahrain - that withdrew their ambassadors from Doha last week to protest the Brotherhood connection. Close

City skyscrapers stand on the skyline in Doha. Qatar traded more with Singapore in 2012... Read More

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Photographer: Gabriela Maj/Bloomberg

City skyscrapers stand on the skyline in Doha. Qatar traded more with Singapore in 2012 than it did with the three Gulf neighbors - Saudi Arabia, the United Arab Emirates and Bahrain - that withdrew their ambassadors from Doha last week to protest the Brotherhood connection.

Saudi Arabia’s drive to make Qatar abandon its embrace of the Muslim Brotherhood may founder because of the limited leverage the Saudis and their allies can exercise over the world’s richest country.

Qatar traded more with Singapore in 2012 than it did with the three Gulf neighbors -- Saudi Arabia, the United Arab Emirates and Bahrain -- that withdrew their ambassadors from Doha last week to protest the Brotherhood connection. With markets for its natural gas in the U.S. and Asia, and a portfolio of overseas investments that includes stakes in Volkswagen AG (VOW) and Barclays Plc, Qatar is well placed to resist the diplomatic pressure, though it’s vulnerable if Saudi Arabia were to close its land border.

“Direct economic leverage is of little impact,” said John Sfakianakis, chief investment strategist at MASIC in Saudi Arabia, in response to e-mailed questions. “Qatar could go it alone, as long as the world is in need of gas, and as long as they don’t get all their neighbors to be their enemies.”

The dispute has highlighted fissures within the Gulf Coordination Council, whose six members hold almost a third of the world’s oil reserves and host key American military bases including the U.S. Central Command in Qatar. The monarchies usually take care to present a united front, and their rare public sparring over the Brotherhood reflects wider divisions that include how to respond to the rise of Arab reformist movements, and how to calibrate ties with neighboring Iran.

‘Hostile Media’

Saudi Arabia and the U.A.E. view the Brotherhood as a threat to their absolute monarchies, as a group that seeks to bring political Islam to power via the ballot box. Qatar backed the Brotherhood in Egypt when it gained power in 2012 under President Mohamed Mursi, and extended $8 billion in aid.

Saudi Arabia and the U.A.E. welcomed Mursi’s overthrow by Egypt’s army last year. Along with Kuwait, they have pledged about $15 billion to support the new military-backed government. Meanwhile, the Qatar-based television channel Al Jazeera television is still regularly airing programs critical of the army takeover and the Gulf countries that supported it.

Egypt has also pulled its ambassador out of Doha, and won’t restore ties until political demands are met, Foreign Ministry spokesman Badr Abdelatty said today, according to the official Middle East News Agency.

Announcing the withdrawal of their diplomats on March 5, Saudi Arabia, Bahrain and the U.A.E. accused Qatar of failing to take action against those who threaten the security of GCC countries, or to honor a pledge to refrain from supporting “hostile media.” Qatar’s benchmark stock index has dropped more than 2 percent since then.

‘Aggressive Support’

The spat has led Saudi officials to skip scheduled bilateral meetings with their Qatari counterparts in Doha last week, al Hayat newspaper reported today, citing officials it didn’t identify by name.

“Qatar has antagonized much of the rest of the GCC with its significant and aggressive support of the Muslim Brotherhood,” Paul Sullivan, a Middle East specialist at Georgetown University in Washington, said. “Al Jazeera’s increasingly negative tone on the others in the GCC and on the new Egyptian leadership also helped prompt this.”

Qatar is the world’s top producer of liquefied natural gas, and its main customers are Japan, South Korea and India. Trade with Saudi Arabia and the U.A.E., the biggest Arab economies, was worth a combined $6.4 billion in 2012, according to data compiled by Bloomberg, less than 5 percent of Qatar’s total.

Qatari banks don’t operate in Saudi Arabia, according to the Saudi central bank, unlike those from the U.A.E., Bahrain and Kuwait.

Food Security

One area where the Saudis and Emiratis do have some leverage is over Qatar’s imports. They could “cause quite a bit of inconvenience if they wanted to” by choking off the flow of fresh produce from Saudi Arabia or goods shipped via Dubai, said Salman Shaikh, director of the Brookings Doha Center, in a phone interview. The U.A.E. and Saudi Arabia were the second and third-biggest sources of Qatar’s imports in 2012, after the U.S.

Qatar hired consultants last year to draft food-supply contingency plans in the event of a disruption to regional trade routes, with scenarios including the closing of the Saudi border. The move wasn’t a response to threats of regional unrest, Jonathan Smith, head of communications at Qatar’s National Food Security Program, said at the time.

The GCC was created in 1981. Efforts to negotiate a closer union, removing customs barriers and setting up a common currency, had already stalled by the time the Arab revolts broke out in 2011.

Oman Resistance

The spectacle of longstanding Arab regimes being swept away that year prompted Saudi Arabia’s King Abdullah to step up the pressure for Gulf integration, on the grounds it was essential for the security of the monarchies. Qatar, though, isn’t the only one of the smaller GCC partners to have reservations about the idea.

Kuwait has traditionally been tolerant of the Muslim Brotherhood. Oman, which has rebuffed Saudi plans for a unified GCC, maintains cordial ties with Iran and hosted President Hassan Rouhani this week. “They have an independent foreign policy,” Sultan Al-Qassemi, a U.A.E. columnist and political commentator, said in a phone interview. “The Saudis underestimated their apprehension.”

Qatar, where Emir Sheikh Tamim Bin Hamad Al Thani, 33, took over from his father last year, has pursued higher-profile initiatives and flaunted its independence from the Saudis. As well as supporting Mursi, it was active in the Libyan and Syrian wars. And like Oman, it has cultivated ties with Iran, Saudi Arabia’s main regional rival.

Non-Negotiable

Last month, Qatar and Iranian announced plans to establish a free trade zone, as well as a joint political committee on regional matters.

Qatar Foreign Minister Khalid bin Mohamed Al-Attiyah said this week that the country’s foreign policy wasn’t “negotiable.”

“The initial reaction was defiant,” said Abdulkhaleq Abdullah, an Emirati academic and author of “The Gulf Regional System,” in a phone interview. “Qatar is asked to reverse 15 years of policy, of being anti-status quo, of having an alliance with the Brotherhood, of going it alone. To change all that means that the Qatar you and I know will no longer be there.”

To contact the reporters on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net Ben Holland, Francis Harris

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