Economic, diplomatic blockade on Qatar
Economic, diplomatic blockade on Qatar to cause significant disruption to businesses with regional operations
Saudi Arabia, the UAE and Bahrain on 5 June announced that they would close their airspace and territorial waters with Qatar in 24 hours. Saudi Arabia also closed the land border with Qatar, which is Qatar’s only land border with another country. Qatari nationals have been given 48 hours to leave Saudi Arabia, the UAE and Bahrain, and these countries’ nationals have been given 14 days to leave Qatar. The three Gulf states and Egypt also ended diplomatic ties with Qatar.
- Companies active in or dependent on intra-Gulf trade routes to Qatar (via sea, air or land) will face significant disruption to their operations and supply chains as a result of the de facto economic blockade. Qatar imports a large proportion of its food general goods, and construction materials from other Gulf countries. If the stand-off continues, the possibility of stock shortages will increase in the next few weeks.
- Exports of LNG from Qatar to major markets in Asia and elsewhere are unlikely to be affected by the crisis at this point. Qatar can access international waters via the Strait of Hormuz without crossing Saudi, Emirati or Bahraini national waters.
- The evolution of the crisis will depend on the Qatari emir’s response, which will hinge on the level of domestic support he enjoys, and the position of other countries, such as Kuwait, Oman, Turkey and the US. An escalation would see the Qatari emir, Tamim bin Hamad Al Thani, retaliate after gaining domestic and international support – this could lead to further attempts by some GCC countries to isolate Qatar commercially and a potential formal suspension from the Gulf Cooperation Council (GCC).
- Any de-escalation to the crisis is likely to require a leadership change in Qatar. Such a resolution would likely be triggered by, first, a consensus within the Al Thani family that mediation or smaller concessions would not appease Saudi Arabia and the UAE and, second, signals from the US that it would not pressure these countries to back down.
- Companies affected by the blockade should consider engaging their crisis management teams to assess the immediate impacts to their personnel and operations, monitor events as they unfold, and consider key measures to ensure business continuity. Should a further escalation materialise, companies should reconsider their business model across the GCC by re-evaluating relevant business partnerships and cross-border dependencies between Qatar and the rest of the GCC.
Impact on aviation
Direct commercial flights between Qatar on the one hand and Saudi Arabia, the UAE, Bahrain and Egypt have been banned, as has Qatar’s access to Saudi air space.
Qatar Airways flights from Doha to Africa, Latin America and South Asia and South East Asia are likely to experience the greatest delays because they will likely have to reroute to avoid Bahraini, Egyptian, Emirati and Saudi airspace. Further steps against Qatar would require Saudi Arabia and its partners to block non-Qatari carriers from using their airspace for all flights to and from Qatar.
Impact on business and logistics
Companies active in or dependent on intra-GCC trade routes to Qatar (via sea, air or land) will face significant disruption to their operations and supply chains as a result of the de facto economic blockade. This will particularly affect organisations that have large trans-border volumes of traffic or have significant retail operations in Qatar, such as logistics companies, cargo airlines, shipping companies, and retail and consumer goods companies.
The UAE and Saudi Arabia are by far Qatar’s largest import markets in the GCC, particularly for food and construction materials. The closure of the land border crossing between Saudi Arabia and Qatar – Qatar’s only land border crossing – will be likely to create long queues on either side of the border. This will cause delays well beyond a potential lifting of the blockade in a de-escalation scenario.
The operations of companies with large numbers of employees travelling frequently between Qatar and other GCC countries will also be significantly affected by the closure of direct flights between these countries, as will any companies employing GCC nationals in Qatar or Qatari nationals in other GCC countries.
The impact on LNG and oil markets
Qatar can access Iran’s territorial waters and international waters in the Gulf. Its LNG vessels can avoid Bahrain, Emirati and Saudi territorial waters. Qatar’s key markets are Japan, South Korea, India and China. These exports are unlikely to be affected.
Further obstacles to Qatar’s ability to export LNG would require Iran to close its territorial waters or a broader international maritime blockade of Qatar. However, there are no indications that these will happen. It is more likely that Bahrain, Saudi Arabia and the UAE would seize Qatari LNG – or another shipping vessel unrelated to the sector – if the vessel entered their territorial waters. This will increase market perceptions of risks to global energy supplies, though the extent to which it causes an actual risk to supply would depend on whether Qatar and the other GCC states took further action.