Financial news

Is The Qatar Blockade Coming To An End?

By  | 

Via Oilprice.com

The Middle East’s massive energy reserves have made it the center of many key geopolitical events throughout history. The presidency of Donald Trump has transformed the power dynamics in the region with the ‘outsourcing of Washington’s foreign policy’ as an important part of the current President’s plan. The U.S. has largely withdrawn from the Middle East in the last few years while encouraging its allies such as Saudi Arabia and Israel to pick up its role regarding the containment of Iran.

Riyadh, however, interpreted Washington’s acquiescence as a carte blanche to deal with unrelated issues which it deemed as problematic such as Qatar’s independent foreign policy. Saudi Arabia’s ambitious crown prince Muhammad bin Salman has been the cause of several miscalculations costing the country financially and damaging its reputation. The timing of these missteps couldn’t have been worse for Saudi Arabia as Riyadh attempts to modernize the country’s economy with hard-earned cash from the partial IPO of its oil giant Saudi Aramco. Low investor confidence is partly attributed to the region’s unstable political situation.

In 2017, the Saudis imposed a land, air, and sea blockade on Qatar together with Bahrain, the UAE, and Egypt. Doha’s unexpected de facto exile from the GCC was intended to isolate the tiny country diplomatically and increase financial costs in order to force the country to accept the bloc’s demands. The Sunni states objected to Qatar’s independent foreign policy and support for the Muslim Brotherhood while insisting on the closure of Al Jazeera Media Network. Instead of yielding, however, Doha strengthened its military alliance with Turkey, improved political relations with Iran, and established alternative sources to import essential products.

READ ALSO  Oil rises as markets wait on virus impact; U.S. stocks fall

Although the blockade was intended to revise Qatar’s foreign policy, the opposite seems to be happening. The political and financial costs seem to be becoming unsustainable for the bloc itself. Especially Saudi Arabia and the UAE are in a financial and political predicament due to the war in Yemen. What was supposed to be a quick campaign to oust the Houthis from southern Yemen, escalated into a quagmire and the planet’s worst humanitarian disaster.

Furthermore, the low price of oil decreases the resource-dependent countries’ income during a time when the budget deficit is growing. Riyadh, in particular, is highly dependent on the export of oil. Also, the price of the commodity strongly influences the success of Saudi Aramco’s IPO. While the UAE’s economy is more diversified, the worsening investment climate has taken its toll on the country’s finances.

Although Qatar produces some oil, it has less reason to fear the low price of the commodity, because it is the second-largest producer of LNG in the world. The country’s planned investments will increase its production capacity even further in the coming years. Qatar produces 77 million mt/year of LNG which will increase to approximately 126 million mt/year by 2027 making it the largest LNG producer in the world.

Natural gas has the advantage that it is seen as an important ‘bridging fuel’ during the energy transition while oil increasingly faces scrutiny and competition from electrical vehicles. Therefore, Qatar’s resource-dependent economy is in a better state than its rivals’. Related: Are Energy Stocks Hot Again?

On Tuesday, December 10 the annual GCC meeting was held in Riyadh. During the past two gatherings, lower-ranking officials represented Qatar during the summit. However, a breakthrough could be around the corner. Saudi Arabia’s King Salman sent a written invitation to sheik Tamim of Qatar to attend the gathering. The nation’s Prime Minister and Interior Minister attended the conference, although there was no mention of an end to the boycott.

READ ALSO  Harley-Davidson's sales growth struggle sends shares tumbling

Qatar could be the big winner of the rapprochement as Doha clearly won’t steer away from its independent foreign policy. The country’s finances are healthier and its international standing is strong as it will host the World Cup in 2022. Also, Washington’s wavering support for Saudi Arabia and Turkey’s unwavering support for Qatar rule out military action.

The failing strategy of the blockading countries is clear. Doha could offer the Saudi-led bloc some face-saving measures such as acquiescing to implement the unpopular 5 percent VAT increase which had been agreed earlier by the GCC. However, that seems a small price for Qatar to pay which will see a lifting of the blockade while none of the demands are met. Yet again, Saudi Arabia seems to lack the necessary strategic, economic, and military capacity to become the leader of the Arab world. 

By Vanand Meliksetian for Oilprice.com

More Top Reads From Oilprice.com:




Print Friendly, PDF & Email

Hold dit netværk orienteret