And just like that, the embargo of Qatar is over. Qatar’s Emir Tamim Al Thani flew to Saudi Arabia to attend the 5 January GCC Summit at Al Ula, where a declaration was signed to bring an end to the embargo which had been in place since 5 June 2017 (MEES, 9 June 2017). The evening beforehand, Qatar and Saudi Arabia had agreed to reopen their airspace, land and sea borders to each other.
Within the GCC, Saudi Arabia, the UAE and Bahrain all severed diplomatic relations with Qatar in June 2017. Kuwait and Oman remained neutral and have spent the subsequent years seeking to mediate an agreement between the parties. Egypt has also agreed to restore relations with Qatar after cutting off ties in 2017.
Ultimately there have been no winners from the events of the past three and a half years, with all involved countries and the GCC as a whole suffering from the instability. But Qatar’s position within the GCC is arguably stronger now than it was beforehand. It has diversified its trade routes to end its previous over-dependence on Saudi Arabia and the UAE and it has now demonstrated its ability to withstand the toughest diplomatic measures its neighbors were able to impose.
As to why the protagonists have decided to now restore relations after more than three years, the precise reasons are unclear. But what is clear is that Qatar has acquiesced to none of the 13 demands issued to it back in 2017, and to that extent it appears to be the other side which has blinked first.
Whether or not this week’s agreement will prove sufficient to repair the damage caused to the GCC is unclear. Certainly, there are no indications that the underlying issues which caused the rift have been addressed, and that could lead to future flareups. Qatar remains a close ally of Turkey, whose rivalry with the UAE and Saudi Arabia has if anything deepened since 2017, and this could yet be a source of considerable friction.
When the borders were closed in 2017, Saudi Arabia and its allies were hopeful that the resultant shortage of goods would force Qatar to concede to its demands. While Qatar’s imports have never been dominated by supplies from its neighbors, prior to the embargo the other GCC states still supplied a solid chunk of Qatar’s overall imports. In the first half of 2017, around 17.5% of total imports were sourced from other GCC states, of which the UAE and Saudi Arabia were the largest suppliers (see charts 1 & 2).
In the initial days and weeks the embargo undoubtedly caused considerable upheaval and bare supermarket shelves. But food security has long been high on Qatar’s agenda and the government was swiftly able to find alternative suppliers. It has also boosted the domestic agricultural sector in order to reduce the need for imports.
Overall as a result of the embargo, other GCC countries’ share of Qatar’s imports had fallen to just over 3% by the first half of 2020 (see chart 3).
Over time, flows from the UAE and Saudi Arabia will likely rise, but a swift return to early-2017 levels seems unlikely. Having ended this vulnerability, Doha is unlikely to return to the status quo ante.
As for where Qatar turned to instead of its neighbors, imports from Asia and the US have increased the most. There has also been a marked increase in imports from Europe.
The point of origin of the goods isn’t the only critical factor, as Dubai’s Jebel Ali in particular was a key port for re-exporting goods to Qatar. Oman has stepped into the breach on that front.
QATAR’S IMPORTS: TALE OF THE EMBARGO
1: Qatar Imports By Origin: Some 17.5% Came From GCC Countries In The First Half Of 2017
2: Qatar Imports From GCC Countries Collapsed From Mid-2017 And Has Not Recovered Since ($Bn)
3: Qatar Imports By Origin (%): The GCC Supplied Just 3.3% In The First Half Of 2020
EXPORTS FLOWED UNIMPEDED
In the early days of the embargo, efforts were made to curtail Qatar’s exports of oil and LNG to global markets, with Qatari-flagged or owned vessels banned from the embargoing countries’ ports. However, Qatar’s critical role as the world’s largest LNG supplier meant that such efforts were always likely to be in vain, with MEES stating at the time that “Qatari exports through the Strait of Hormuz will continue unabated” (MEES, 9 June 2017).
Given that its exports are dominated by LNG and oil, Qatar’s key markets are the large hydrocarbon-importing economies in Asia. These accounted for nearly 75% of total Qatari exports in the first half of 2017, and that has only risen to 80% in 1H 2020 (see charts 4 and 5).
Exports to the GCC meanwhile fell from 8% of the total to less than 5% over the same period. However, it was notable that despite the embargo, the UAE remained Qatar’s largest market within the GCC, routinely taking more than $200mn worth of goods each quarter (see chart 6).
This is because Qatar supplies the UAE with around 1.8bn cfd of natural gas through the Dolphin Pipeline, and flows continued despite the embargo. A further 200mn cfd also transits through the UAE to supply Oman. Meanwhile, Qatar also ships substantial volumes of LNG to Kuwait. Since the embargo, Qatar has typically exported between $500mn-$800mn per quarter.
Data intelligence firm Kpler shows that exports of Qatari LNG to Kuwait surged above 2mn t/y for the first time last year. Indeed, they nearly reached 2.5mn t/y and are set to rise further under last year’s 15-year Sale and Purchase Agreement (SPA) for 3mn t/y once the Al Zour import terminal opens.
As these trade flows show, the impact of the embargo on Qatar’s imports and exports has been handled with relative ease by Doha.
If there was any impact on Qatar’s role as key energy supplier, it was in reinforcing its resolve to expand domestically and overseas. Within weeks of the embargo’s start, Qatar doubled its gas expansion plan, announcing that it would increase LNG capacity from 77mn t/y to 100mn t/y (MEES, 7 July 2017), and has since further expanded the scope of the project. It has had no trouble in securing interest from international majors in the expansion, and has also agreed to work with US JV Chevron Phillips on petrochemicals plants domestically and in the US (MEES, 9 August 2019). It has also embarked on a major overseas upstream expansion drive, partnering with majors across the globe (MEES, 30 October 2020).
Looking ahead, one potential area of intra-GCC trade that could benefit is of Qatari oil exports to Dubai. Prior to the embargo, Qatar was a key supplier of condensate to Dubai's 140,000 b/d Jebel Ali condensate splitter.
SPOT THE DIFFERENCE: QATAR’S POST-EMBARGO EXPORT EVOLUTION
4: Qatar Exports By Region In 1h 2017 (%)
5: Qatar Exports By Region In 1h 2020 (%)
6: Qatar's Exports To GCC States ($Bn): The New Normal?
STABLE INVESTMENT ENVIRONMENT
As for the next steps, it is far from clear how things will move forward from here, but observers generally don’t expect big developments any time soon. However, there will likely be some further symbolic gestures of reconciliation in the coming weeks and months. Michael Stephens, Associate Fellow at RUSI, says that the unnecessary vitriol of the last three and a half years has been very damaging for the credibility of the Gulf states.
Saudi Arabia has been tentatively seeking to bring an end to the dispute for more than a year, although close ally Abu Dhabi has taken a firmer stance. But it is difficult to disentangle intra-GCC positioning from the political transition in the US. Mr Stephens says that for the incoming Biden administration the “internal GCC squabbling is an unnecessary sideshow to its more pressing regional concerns such as Iran.” Ending the Qatar embargo helps serve as an olive branch to the next US government.
Nevertheless, with Saudi Arabia having first moved to end the embargo prior to the US elections, this is more than just an attempt to secure goodwill with the Biden administration. “As far as ending the embargo goes, 90% of this is about money, and 10% about politics,” says Mr Stephens.
Saudi Arabia is keen to attract foreign investment to develop and diversify its economy under Crown Prince Muhammad bin Salman’s flagship Vision 2030 policy, but investors have been deterred by perceived policy volatility over issues such as Qatar. Former energy minister Khalid al-Falih was appointed Minister of Investment in February 2020 with the explicit mandate of increasing FDI (MEES, 28 February 2020).
Mr Falih said in November that FDI levels in the first half of 2020 had increased by 12% year-on-year. Ending the Qatar embargo may help the government’s efforts to boost investment flows into the Saudi economy, especially if it is able to secure some high-profile investment agreements with Qatar.
GCC GAS GRID?
Looking ahead, Saudi Arabia has voiced backing for a GCC gas-grid in recent months, despite having obstructed previous efforts (MEES, 29 May 2020). Prior to the embargo Riyadh was also considering importing gas from Qatar, but Qatar has since decided that its gas expansion project would solely be directed to expanding LNG capacity from 77mn t/y to 126mn t/y (MEES, 29 November 2019).
Qatar Petroleum CEO Saad al-Kaabi told MEES in 2017 that before June 2017 “I was talking with the UAE about supplying them with additional volumes. And following a preliminary discussion I had made an offer to possibly supply Saudi Arabia with LNG, or some other form of gas. We didn’t talk prices, but it would have been at market rates.”
“Once the embargo happened we decided to just go full-fledged LNG. Later on, if they want to buy LNG, they can, but I am no longer going for the pipeline option. That [the imposition of the embargo] was the pivotal moment which made the decision clear” (MEES, 8 December 2017).
Nevertheless, the Dolphin pipeline could still form the foundation of a GCC-wide gas grid given that it already connects half of the members. Moreover, Mr Kaabi has stated in recent months that Qatar’s abundant gas supplies mean that it could yet push beyond its 126mn t/y LNG target. Qatar could yet therefore form part of a wider GCC gas-grid and increase supplies, if volumes are priced at market rates.