100 Days of the Big Gulf Feud: Now Pick Sides
A spectacular display of acrobatics and pyrotechnics marked the opening of Qatar’s new $7.4 billion port last week, but it was the timing that was more striking than the extravaganza.
With officials invited from Iran, Kuwait and Oman, the Sept. 5 event sent a defiant message: Qatar won’t be confined by a Saudi-led embargo and you’re either with us or against us.
“Today we are stronger and more determined,” Qatar’s transport and communications minister, Jassim bin Saif Al-Sulaiti, told an audience of Qatari officials, western diplomats and foreign businesspeople in an air-conditioned bubble to guard from the searing heat. “We don’t wait for the sea to calm; we learn how to sail through the storm.”
Rather than turn the desert peninsula into a subservient vassal state, the feud with Saudi Arabia has split the Gulf after 100 days in a way that looks increasingly permanent. The schism is forcing executives, bankers and investors as well as foreign-policy makers to rethink their approach to what’s been the most cohesive and stable part of the Middle East. The longer it goes on, the tougher the choice will be over whose side to take.
The six members of the Gulf Cooperation Council -- Saudi Arabia, Bahrain, Qatar, Oman, Kuwait and the United Arab Emirates -- often aired disputes publicly, though never anything on this scale.
The Saudis, U.A.E. and Bahrain along with Egypt accused Qatar of supporting terrorism, a charge the government in Doha has vehemently denied, and cut off ties. As an Emirati minister put it in July: look at it as a new network of relationships replacing an old one.
Now, a wrong step might antagonize either side of the standoff, according to people doing business in the region. Most spoke on condition of anonymity because of the tension as the longer-term consequences unfold.
“Qatari businesses in particular will prefer to use new trade routes and partners that avoid the U.A.E. and Saudi Arabia,” said Allison Wood, a London-based Middle East and North Africa analyst at the Control Risks strategy firm. “Multinational business will also think more carefully about how they approach the GCC and the way they set up their operations and investments across the GCC.”
The council was founded in 1981 as the countries looked for ways to confront the threat of Iran following the Islamic Revolution two years earlier. As well as effectively sounding the GCC's death knell, the schism could potentially cost hundreds of millions of dollars in future contracts. A fifth of the world’s oil supplies come from the GCC countries and their money runs deep through western companies and financial markets.
Saudi Arabia is creating what it said would be the world's largest wealth fund and preparing to sell a stake in its national oil company. Qatar is spending billions on turning Doha into a regional hub ready to host the soccer World Cup in 2022. Its sovereign wealth fund already has been a big revenue generator for investment banks.
The GCC states “will buy the political backing of multinationals and countries by doing business with them, even if it’s not in their interests,” said Jassim Al-Saadoun, head of Kuwait-based Al-Shall Economic Consultants.
Big companies have done business across the Gulf. India’s Larsen & Toubro Ltd., for example, is building a stadium for the World Cup in Qatar and has major infrastructure projects in the U.A.E. and Saudi Arabia. France’s Bouygues SA won a contract to build sewage tunnels in Qatar while another of its businesses built the Ritz Carlton hotel in Dubai.
Mitsubishi Heavy Industries, one of the large Japanese manufacturers working in the Gulf, is always paying attention to geopolitical risks, spokesman Shimon Ikeya said this week. The Tokyo-based company has won contracts in recent years to supply large-scale chillers to cool water in Medina, Saudi Arabia, and is part of a group building a metro system in Doha.
“There are no problems at the present moment,” Ikeya said. “We do not believe that the diplomatic break between Qatar and Saudi will affect our global business.”
Some foreign banks that serviced Qatar from Dubai are looking at setting up offices in Doha and handling clients in Oman and Kuwait from there, two bankers said.
Already some are sending staff from offices in London, New York and Hong Kong to meet with Qatari clients because it’s getting harder for Dubai-based bankers to travel to Qatar or because some Qatari clients are refusing to deal with people from Dubai, they said.
Qatar’s banks, meanwhile, are keeping track of which foreign partners have maintained business with them and which ones have scaled back lending. The central bank wants to draw up a list that may be used when deciding who to give future business to in Qatar, according to three bankers briefed on the matter.
“Trade and financial links have been weakened and are unlikely to be revived even if the political row is resolved,” said Farouk Soussa, London-based chief economist for the Middle East at Citigroup Inc.
Kuwait has led mediation efforts to solve the crisis. Qatari shipping company Milaha started a new weekly cargo service linking the new Hamad Port in Doha, which formally opened last week after months of operation, with Shuwaikh Port in Kuwait.
Oman, Iran and Turkey all increased trade with Qatar via sea and air to help mitigate shortages of food and basic supplies in the weeks following the June 5 boycott. Trade between Oman and Qatar increased 2,000 percent in three months, according to a report by the Chamber of Commerce published in the Times of Oman. Turkish President Recep Tayyip Erdogan’s office said Qatari Emir Sheikh Tamim Bin Hamad Bin Al Thani will visit Ankara on Sept. 14 to dicuss their relationship.
But even though Qatar reacted quickly to limit the fallout, imports fell 40 percent in June from a year earlier and 35 percent in July, official data show. The Saudi-led bloc’s measures have exacerbated a broader slowdown in Qatar triggered by lower energy prices, with economists expecting gross domestic product to expand at the slowest pace since 1995 this year. Reserves of foreign currency meanwhile tumbled 30 percent in June, the most recent data.
In short, the direct impact of the closure of land, sea and air links on the Qatari economy has been acute, Moody’s said in a report published on Wednesday. The protracted rift also has negative implications for credit ratings across the GCC, it said.
Qataris say they are adjusting to what has become normality. Business is picking up again as new routes -- and friends -- are found.
“Naturally the start was logistically challenging,” said Garrett Walsh, chief executive officer of Kuwait-based Mezzan Holding Co., which has a catering, water and snacks business in Qatar. “However, we were able to find alternative routes. Our supply lines are now back to normal.”
Qatar announced the Hamad Port project in 2007 as the world’s richest nation per capita deployed more of its vast income from selling natural gas on turning the capital into a hub. It also spent money buying stakes in global banks including Barclays Plc and Deutsche Bank AG, carmaker Volkswagen AG and Paris Saint-Germain soccer club.
The port sprawls across 26 square kilometers (10 square miles) of desert, 14 times larger than the old Doha harbor, and the goal is to compete with Jebel Ali in Dubai. At last week’s formal opening, a slick movie depicting Qatar’s prosperous growth from pearl trader to gas-rich giant turned the venue into a huge cinema screen.
“Ships that weren’t being used are now being used all the time -- the marine business is booming,” said Omar Al-Hammadi, 20, a Qatari finance and accounting student who works in his father’s marine business. Qatar has now developed the facilities to refuel and service ships rather than use Dubai, he said. “Businesses have been told to prepare for the long term.”
— With assistance by Kiyotaka Matsuda, and Alaa Shahine