How Qatar Weathered the Gulf Crisis

In June 2017, Bahrain, Egypt, Saudi Arabia, and the United Arab Emirates cut diplomatic ties with Qatar and instituted an economic and trade embargo that closed Qatar’s only land border and heavily restricted the sea and airspace open to Qatar-bound traffic. This was not the first time that frustration over Qatar’s distinctive foreign policy had led to a crisis. In 2014, Bahrain, Saudi Arabia, and the UAE withdrew their ambassadors from Doha, angered by the country’s post–Arab Spring policies such as its perceived support for the Islamist movements. Although this disagreement was settled nine months later, the Qatari leadership learned a lesson: it could happen again.

The embargo nevertheless caught most regional and international observers off balance. And just one day after the it was announced, U.S. President Donald Trump shocked both Doha and his own secretaries of state and defense by issuing a series of tweets that backed the move and suggested that Qatar supported extremism. Qatar, like many small Gulf states, has a defense and security posture that depends on its partnership with the United States. In the face of intense pressure from larger and more conventionally powerful countries, Qatar appeared to be overmatched.

One year later, however, it seems that Qatar has outplayed its rivals. The 2014 crisis taught Doha the importance of developing contingency plans. In response to the most recent regional power play and Trump’s unexpected decision to support the blockade, Qatar accelerated efforts to diversify its economy, broaden its international partnerships, and reduce its vulnerability to external shocks. Although the embargo is still in place, Qatar has proved more resilient than most people anticipated.

NEW PARTNERSHIPS   

For decades, heavily interlinked social and commercial ties have bound the Gulf states together. One of the most immediate impacts of this crisis was to disrupt these long-established connections. Before the blockade, up to four-fifths of food imports entered Qatar either directly across the land border with Saudi Arabia or indirectly through shipping routes that ran through Emirati ports such as Jebel Ali. But in June 2017, the Saudis and Emiratis closed their ports to Qatar-bound shipping and the UAE banned Qatari vessels from the regional bunkering and refueling hub of Fujairah. These restrictions also affected the tankers that had previously carried cargoes of Qatari crude oil alongside those of Kuwait, Oman, Saudi Arabia, and the UAE. It is important to note, however, that Egypt did not block Qatar from the Suez Canal or compel the 300,000 Egyptians who live in Qatar to leave, as the Bahrainis, Emiratis, and Saudis did to their (far smaller) national groups. Either move would have caused enormous complications to Qatar’s ability to export of Liquefied Natural Gas (LNG) to key European markets and damaged the functioning of the Qatari bureaucracy, which employs many Egyptians.

With most of its traditional trade routes shut down, Qatar had to make alternative arrangements. The country had already begun the process of diversifying its regional and international partnerships after the first Gulf crisis in 2014. Leveraging the significant resources of Qatar Investment Authority and related entities, Qatari leaders ramped up investment across Asia, Europe, North America, and Russia. Qatar bought into flagship entities in France, Germany, and the United Kingdom such as Paris Saint-Germain, Deutsche Bank, and the Canary Wharf financial district in London; became a cornerstone investor in the Agricultural Bank of China; invested in tourism, energy, and infrastructure projects in Southeast Asia; and launched joint food, security, business, and investment ventures in India. These links facilitated the subsequent restructuring of Qatari trading and shipping routes. India, for example, created a direct container service to connect Qatar with two Indian ports within ten days of the start of the blockade.

Qatar’s enormous natural gas reserves and its position as the world’s largest exporter of LNG helped it bring in a wide array of external partners with a direct stake in the country’s continued security and stability. By 2017, Qatar was the second-largest supplier of LNG to both China and Japan, and a key supplier for India, South Korea, and the ASEAN states. Belgium, France, Italy, and Poland also buy significant amounts of LNG from Qatar. In March 2017, Poland’s state-owned oil and gas company agreed to double its gas imports from Qatar to reduce its reliance on Russia. Perhaps nowhere has the Qatari energy influence been felt more than in the United Kingdom. Not only did Qatar account for 93 percent of British LNG imports between 2014 and 2016 but it also became the majority shareholder of the South Hook Gas company, which operates the LNG Terminal in Wales that receives the shipments.

These energy deals and investments made it difficult for the anti-Qatar quartet to secure any international, or even meaningful regional, buy-in for its attempt to isolate the country, apart from the initially productive outreach to members of Trump’s inner circle. This sent a message that Qatar remained open for business.

Doha adapted quickly to the new normal. Trade between Qatar and Oman grew by 144 percent in 2017, as shipping was rerouted through Omani ports. Trade with Iran, China, Pakistan, and Turkey also increased significantly in the aftermath of the blockade. And in February 2018, Qatar Petroleum announced that it would expand LNG production from 77 million tons a year to 100 million tons a year by 2024, generating widespread interest from Europe and North America and opening the possibility for additional markets in the medium to long term.

SAFETY FIRST

Qatar also took pragmatic measures to bolster its security by buying more military equipment and developing new partnerships. In 2014, Qatar purchased nearly $24 billion worth of weaponry from China. As the second crisis unfolded, Qatar augmented its defense capabilities by acquiring a short-range ballistic missile system from China, which it publicly displayed during the Qatar National Day parade in December 2017. More important in the short term, however, was Qatar’s relationship with Turkey. In 2014, the two countries began negotiating a military cooperation agreement, and in April 2016, Turkey opened a military base in Qatar—its first base in the Middle East since the Ottoman era. Just two days after the blockade began, the Turkish parliament held an extraordinary session to ratify agreements to station Turkish troops in Qatar and permit the Turkish military to train Qatari security forces. Within weeks, Ankara dispatched Turkish troops to Doha for joint training exercises, raising the cost of any potential military action by sending a clear signal to Qatar’s adversaries that Doha would not stand alone against any assault.

During the first six months of the blockade, the Qatari military also finalized multibillion-dollar deals to purchase new fighter jets from France, the United Kingdom, and the United States. These three deals massively augmented Qatar’s air force and associated support and training facilities. They had a political component as well. The French deal was signed during  President Emmanuel Macron’s December 2017 visit to Doha and signaled France’s support for Qatar despite the embargo. Meanwhile, Qatar’s $6.7 billion deal with the United Kingdom secured the production of Typhoon fighter jets (which are manufactured in the UK) into the 2020s and safeguarded thousands of jobs at BAE Systems, a major British defense company. This deal also involved the creation of a joint squadron that integrated, for the first time, pilots from the Qatari Emiri Air Force with their counterparts in the British Royal Air Force to expedite training on the newly purchased planes.

The deal with the United States sent an even more powerful message. Although negotiations for a $12 billion defense sale began long before the blockade, the agreement was finalized just eight days after Trump blasted Qatar on Twitter. This provided a timely opportunity for the Department of Defense and the State Department to publicly reaffirm Qatar’s value as a U.S. partner. A State Department spokesperson noted that the deal was “a tangible show of support for our defense relationship.” The Qatari government responded to Trump’s tweets by visibly increasing its cooperation with the U.S. government on issues of common interest and concern. In July 2017, Qatar became the first Gulf country to sign a memorandum of understanding with the United States on counterterrorism; a few months later, it held the first U.S.-Qatari counterterrorism dialogue in Washington, D.C., and in January 2018, it inaugurated a U.S.-Qatari Strategic Dialogue. Against the backdrop of these moves, Trump reversed his position. In a January 2018 telephone call with Qatari Emir Tamim bin Hamad Al Thani, the president praised Qatar as a partner in the fight against terrorism and called for a quick resolution to the Gulf crisis.

The isolation of Qatar shows how a small state under intense pressure can leverage its resources to increase national resilience.

In addition to forming new partnerships, Qatar has accelerated its efforts to become more self-sufficient. In March 2018 the Qatari Ministry of Defense created an investment arm, called Barzan Holdings, to manage strategic procurement, create new partnerships with defense and security companies, and support research and development. A key objective of Barzan Holdings is to build human and technological capital in Qatar. For example, Barzan and Turkish defense contractor Aselsan signed a partnership agreement to cover some technology transfer and localize research and development in Qatar. The blockade also led to a substantial expansion of Qatar’s food-processing and agricultural capacities. These developments have made the country more food secure and allowed it to overcome its reliance on Saudi Arabia for imported agricultural products.

A CHANGING GULF

These measures have allowed Qatar to weather the embargo. In fact, on the one-year anniversary of the crisis, Qatar had a smaller fiscal deficit, a substantive increase in foreign reserves, an improved trade balance, and a fully recovered banking sector. To be sure, the crisis has not been cost-free: Qatar Airways, in particular, reported a substantial (but undisclosed) loss for 2017–18 as the closure of much of the regional airspace around Qatar led to a significant rise in operating costs. Overall, however, the country has emerged relatively unscathed. The isolation of Qatar shows how a small state under intense pressure can leverage its resources to increase national resilience. Of course Qatar’s deep pockets and reserves of oil and natural gas outstrip the resources available to most small states. Still, countries such as Norway, Singapore, and Taiwan can learn from Qatar's efforts to diversify its political, economic, and security ties. (Indeed, the Gulf crisis has already provoked a robust debate on this topic in Singapore.)

The crisis has also reshaped the politics of the Persian Gulf in ways that will have far-reaching implications. For 36 years, the Gulf Cooperation Council was the most durable regional institution in the Middle East. Today it is damaged, probably beyond repair, and a hawkish new axis that runs from Riyadh to Abu Dhabi has taken its place. Dubai, meanwhile, has taken a hit to its reputation as a place to do business independent of political or geopolitical considerations. Above all, the attempted isolation of Qatar has deepened divisions among the Gulf states just as Trump has withdrawn the United States from the Iran nuclear deal and urged U.S. partners in the region to form a unified front against Tehran. With all parties dug in and Kuwaiti mediation efforts unlikely to resolve the crisis, the standoff over Qatar has become an era-defining moment that heralds the fragmentation of the regional consensus and introduces new elements into the political, economic, and security structures of the Gulf.