The Qatar Situation: Part II

The Qatar Situation: Part II

Last week, we discussed a short history of Qatar and its geopolitical imperatives. This week, we will analyze the events precipitating the blockade, the blockade itself, the GCC’s demands and the impact thus far on Qatar. We will examine how the situation has reached a stalemate and, as always, we will conclude with market ramifications.

The Precipitating Events
As we discussed last week, a combination of conditions have allowed Qatar to avoid domination by Saudi Arabia, the generally recognized leader of the GCC. Qatar has powerful allies outside the region, friendly relations with Iran, is demographically unified and has an economy that isn’t dependent on oil, all of which have allowed Qatar to follow independent policies. This situation has persistently angered Saudi and UAE leaders. Beneath these national concerns are also long-standing tribal rivalries.

However, these differences have been in place for a long time. It appears that there were three events that led the GCC, Egypt, Yemen and Sudan to react and initiate the blockade.

The offensive quotes. Inflammatory statements attributed to the Emir of Qatar, Tamin bin Hamad al Thani, were posted on Qatari government websites. The quotes were supportive of Iran, Hamas, Hezbollah and Israel. The statements were designed to offend. They called Iran an “Islamic power,” which would legitimize Shiite Islam, an apostasy to conservative Wahhabist Sunnis that are politically dominant in Saudi Arabia and powerful in other GCC states. And, any public support for Israel by an Arab sovereign is damaging. In response, Qatari officials immediately claimed they were hacked and, in mid-July, U.S. officials agreed with them—the U.S. claims the UAE orchestrated the hacking.1 The UAE has denied the charge, but U.S. officials claim they have evidence that senior members of the UAE government discussed the plan and its implementation. Because al Jazeera has been banned throughout the GCC and other nations, the public in these countries may not know the statements were probably planted. In fact, the statements were so egregious that they border on incredulous. Although Qatar has reasonably good relations with Iran, we doubt any Sunni would be so complimentary to Iran as to call them an Islamic power. Supportive statements for Hezbollah and Israel appear highly unlikely as well. In other words, it’s hard to believe that any head of state in the GCC would say such things, which increases the odds that this was a rather ham-fisted hack.

The falcon ransom incident. In December 2015, a 26-member falconer hunting party that included nine members of the Qatari royal family were abducted in Iraq.2 Falconry has become a very expensive sport. The birds themselves can cost upwards of $100k each. The preferred prey, the houbara bustard, has been extensively hunted to near extinction on the Arabian Peninsula. Thus, hunters are forced to seek this prey in more dangerous places, e.g., Iraq, Afghanistan and Pakistan. According to reports, the hunting party had made arrangements with the Iraqi interior ministry. Unfortunately, the interior ministry is said to be deeply infiltrated with Iranian sympathizers.

When the hunting party was in Iraq, its local guards melted away and helicopters commanded by Shiite militias landed and took the party away. It is unclear where they were held; it is believed they were in the “green zone” in Baghdad at least part of the time, although there are reports that suggest some of the party may have also been held in Iran. Over the next 15 months, the al Thani family negotiated with various parties to secure the release of the members. It is estimated that the total ransom was $1.0 bn.3 Of that amount, $700 mm was paid to Iranian operatives and regional Shia groups. The remainder was paid to various Islamist groups in Syria, some of which may have links al Qaeda.

The ransom irritated the GCC nations for numerous reasons. First, nearly $40 mm per person seems like a lot of money. Second, paying Sunni jihadist groups in Syria isn’t unusual (other GCC nations support Syrian rebel groups as well) but ones with clear al Qaeda links are questionable. Third, the fact that the party was so negligent as to trust Iraqi interior ministry officials looks either naïve or reckless. But, the biggest reason for the anger is that it is highly probable that Iranians or Iranian-backed Shiite groups benefited from the kidnapping. The other GCC nations expect Iran to be unfriendly and behave accordingly. It’s possible that the Qataris’ relations with Iran led them to underestimate the threat. It has been said that this incident was the one that “broke the camel’s back,” and led to the decision to force Qatar to adhere to the rest of the GCC’s goals.

The Trump visit. In late May, President Trump paid a visit to Saudi Arabia. By all accounts, he was well received. Relations between the U.S. and Saudi Arabia had deteriorated during the Obama administration. The previous administration had supported the Arab Spring, which the Saudis viewed with suspicion. Obama also supported the ouster of Hosni Mubarak and the election of the Muslim Brotherhood in Egypt, two moves the Saudis strongly opposed. The Obama government suggested that it wanted Bashar Assad out of Syria, a move the Saudis supported, but when the Syrian leader used chemical weapons on his citizens, a previously established “red line” for U.S. action, President Obama demurred and did not bomb Syria for its transgressions. This decision deeply concerned the Saudis as it raised questions about America’s military commitment to the region. But, the most egregious action by the previous administration was the nuclear deal with Iran. The nuclear deal likely removed the threat that America would bomb Iran’s nuclear sites. If successful, the deal would delay Iran’s progress toward a nuclear weapon, but the Saudis likely harbor fears that the deal won’t be successful.

Thus, the Saudi Royal Family was glad to see Obama go and wanted to make a good impression on the new president, which appears to have occurred. President Trump’s speech in Saudi Arabia stressed the need to contain terrorism and a case could be made that the Saudis viewed Qatar’s foreign policy as fostering terrorist groups. The Saudis likely concluded they had U.S. support for bringing Qatar to heel. Tweets from President Trump after the blockade was implemented generally support that idea.