2017 Qatar Diplomatic Crisis

Dariya Alton – Article Contributor and Analyst following Qatar

Micah Allison - Article Contributor and Analyst following Qatar

Sydney Scott - Article Contributor, Editor and Team Leader following Qatar

On June 5th, Saudi Arabia, the UAE, Bahrain, and Egypt announced an economic and diplomatic blockade on Qatar. The blockade has resulted in the cessation of all imports and exports between the countries and Qatar, as well as the removal of all Qatari citizens from their land.

The blockade is a result of accusations that the kingdom was supporting terrorism, specifically through its admitted funding of the Muslim brotherhood. The allegations include providing weapons and funds to these groups in exchange for the release of hostages. When the Gulf states presented Qatar with a list of demands, the Kingdom insisted that it would not comply with any measures that threatened its sovereignty. The blockade was announced shortly after this response.

While Qatar argues that the blockade has served as an excellent opportunity to open up trade relations with other countries, financial reports suggest otherwise. Since the blockade was announced, Qatar has reportedly spent 38.5 billion US dollars investing into its own economy. As this amount comprises approximately 23 percent of its GDP, this is not a sustainable solution. With no resolution in sight, Qatar’s economic troubles are likely to continue.

Potential Business Risks

The economic blockade presents risks to both existing and prospective construction projects in Qatar. The primary risks to the construction sector are materials shortages and transportation costs.

Historically, Qatar has relied almost exclusively on Saudi Arabia and the UAE for construction related imports, with 70 percent of its construction materials being imported from these countries. Closure of the border has forced the Qatar to seek out new trading partners in Oman, Kuwait and Iran for these supplies. Since these countries primarily import materials themselves, it is unlikely that these partners will be able to meet Qatar’s demands. Meanwhile, construction for the 2022 World Cup is underway, and the demand for supplies is at an all-time high. Alternative import strategies could result in delays for ongoing projects. Companies invested in Qatar must be aware of the need to find new import partners and of the potential risk of delayed projects. Losing access to these crucial imports is expected to delay projects significantly, including for the 2022 FIFA World Cup.

There is an added complication of increased travel costs paired with less frequent flights both in and out of Qatar. Qatari flights are not permitted to fly over Saudi Arabia, and the necessary detour is increasing expenses, while decreasing the frequency of flights a daily basis. This will have a considerable impact in Qatar, as many laborers reside outside of the country. International companies must also take these additional costs into consideration for personnel who fly in and out of Qatar from abroad.

Yet, the blockade presents an opportunity for international material companies to increase profit margins. The Qatari demand for materials is high and the supply is low, therefore increasing material prices comes with low risk. This is an opportunity for unlikely partners with Qatar to begin a working relationship.

The diplomatic crisis will continue to contribute to an unstable business environment in Qatar. While the crisis is not expected to escalate to military conflict, businesses should keep the political climate in mind and have a contingency plan to protect investments should the situation escalate. For the time being, businesses will have to seek new trading partners, and absorb the costs of project delays and transportation.