Today's stunning expulsion of Qatar from the Saudi "circle of friends" prompted some analysts to ask if in Qatar's immediate futures is a departure from OPEC. In a note by Mitsubishi UFJ, the bank notes that “a full-fledged confrontation will, without any doubt, put pressure on the current compliance rate of OPEC members to the adherence of the 9-month agreement to cut production" and adds that "whilst Qatar’s pledge was only to cut 30,000 barrels to 628,000 barrels (as part of the OPEC agreement), there are potential risks of Qatar leaving OPEC which could significantly impact oil prices."
That said, the political fallout for Qatar, and its remaining allies, could have broader implications than merely the collapse of the already dying oil cartel; as MUFJ notes “a rapprochement between Iran and Qatar would be a vast security risk to the U.S. military" while closure of land/sea/air contacts could have adverse "implications for the airlines, shipping and road freight industries."
According to analysts and pundits cited by the BBC, the biggest threats facing the tiny but rich nation, with a population of 2.7 million, include food, flights, construction, people, trade and... football.
As reported overnight, Abu Dhabi's Etihad Airways and Dubai's Emirates are suspending all flights to and from Doha, starting from Tuesday morning. Both carriers operate four daily return flights to Doha. Budget carriers FlyDubai and Air Arabia are also cancelling routes to Doha, with other airlines, including Bahrain's Gulf Air and Egyptair expected to follow suit. It comes after Saudi Arabia, the UAE, Bahrain and Egypt all said they would stop flights in and out of Qatar, and close their airspace to the country's airline, Qatar Airways.
And it is Qatar's flag carrier that risks being the biggest loser. Its flights to places like Dubai, Abu Dhabi, Riyadh and Cairo will stop. That is dozens of flights a day.
Qatar Airways has already said it is cancelling its services to Saudi. It said: "All customers booked on affected flights to and from the Kingdom of Saudi Arabia will be provided with alternative options, including the option of a full refund on any unused tickets and free rebooking to the nearest alternative Qatar Airways network destination."
But a bigger, if not existential threat, to Qatar Airways is being banned from large chunks of airspace: according to a report by CAPA — Center for Aviation, "losing Saudi, Bahrain and UAE airspace would effectively ground Qatar Airways," CAPA. That's because Qatar actually has very little airspace relative to the size of the country.
"It is largely surrounded by Bahrain airspace (the Bahrain FIR), a slither on the south is managed by Saudi Arabia while the UAE is on the eastern border," CAPA stated. While losing access to Saudi airspace will force Qatar Airways into the costly maneuver of rerouting its Africa-bound flights, losing access to Bahrainian airspace could be catastrophic because it almost completely encircles Qatar.
That said, while the various gulf nations are free to refuse landing rights, it remains unclear if Bahrain and the UAE can legally ban Qatar Airways from their airspace. As signatories to the International Air Services Transit Agreement, Bahrain the UAE can't legally shut off its airspace to fellow signatory Qatar. Saudi Arabia, however, is not an IASTA member country and can legally shut Qatar Airways out.
On Monday, Flightradar24 reported that neighboring Bahrain notified pilots that it will limit flights to and from Qatar by Qatari aircraft through its airspace to a single air route. This means, even if Qatar Airways isn't grounded, it will be subject to heavy air traffic congestion.
Qatar Airways' growth has come through positioning itself as a hub airline, connecting Asia and Europe via Doha. "If a journey to Europe that used to take six hours now takes eight or nine because it has had to change routes, then that makes it far less appealing and passengers might look elsewhere," says Ghanem Nuseibeh, director at advisory firm Cornerstone Global.
While desert states in general struggle to grow food, food security is a particular issue for Qatar given the only way into the country is a single border with Saudi Arabia. Every day hundreds of trucks cross the border, and food is one of the main supplies. About 40% of Qatar's food is believed to come via this route. That may no longer be an option after Saudi Arabia said it will close that border and when the trucks shipments end, Qatar will become reliant on air and sea freight.
"It will immediately cause inflation and that will directly affect normal Qatari people," says Nuseibeh. "If things start costing significantly more, then you're going to see the Qatari people putting increasing political pressure on the ruling family for either a change of leadership or a change of direction." The Cornerstone analyst also pointed out that many poorer Qataris make daily or weekly trips to Saudi to do their grocery shopping as it is cheaper. Clearly a closed border means this will no longer be possible.
The prospect of Qatar hosting the 2022 World Cup has plunged into the most serious doubt after the diplomatic scandal. According to the Guardian, the multibillion-dollar preparations to host the 2022 tournament, which involve building nine stadiums and huge infrastructure, is put into perspective by local reports that Qataris are so worried about the blockade that they are stocking up on food. The border with Saudi Arabia is the only road route into the country; Qatar relies on sea ports for its materials and the blockade of airspace is a huge logistical handicap to the country and its flagship airline, Qatar Airways.
The “supreme committee” responsible for building the 2022 World Cup facilities did not issue a public statement but a source acknowledged that the seriousness of the crisis is greater than any of the formidable challenges Qatar has faced since winning the vote in 2010 from Fifa’s now discredited executive committee. The tournament has been switched to the winter to avoid searing summer temperatures, a series of investigations has been held into strongly denied corruption allegations and there has been worldwide criticism of the country’s treatment of its migrant construction workers.
The English Football Association did not comment on the crisisbut the German FA (DFB) president, Reinhard Grindel, said he would discuss it with the German government and Uefa. Grindel promised to look for a “political solution” but said: “The football community worldwide should agree that … major tournaments should not be played in countries that actively support terror.”
A new port, a medical zone, a metro project and eight stadiums for the 2022 World Cup are just some of the major construction projects going on in Qatar right now. Key materials, including concrete and steel come in by ship but also by land from neighbouring Saudi. The closure of that border could, as with food - push up prices and lead to delays.
A materials shortage is already a threat that looms over Qatar's construction industry. This risks making things worse. A lengthy closure of the airspace and land borders would "wreak havoc on the timeline and delivery" of the World Cup, says Kristian Ulrichsen, a Gulf expert at the US-based Baker Institute.
The move to end ties bans citizens from Saudi, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen from travelling to Qatar, living there or passing through it, according to the Saudi government. People affected have 14 days to leave. Meanwhile Qataris will have the same amount of time to get out of Saudi Arabia, the UAE and Bahrain.
More significant though would be if Egypt issued a similar ban. According to one recent report about 180,000 Egyptians live in Qatar - with many involved in engineering, medicine and law as well as construction. A loss of that workforce would pose a problem for both local and international firms operating in the Gulf state.
Trade and business
Nervousness over the unprecedented situation left Qatar's main share index more than 7% lower on Monday - its biggest drop in nearly a decade - amid worries about the investment climate. Many Gulf firms have a presence in Qatar, including in retail. Those stores are likely to to close, at least temporarily, believes Nuseibeh. Indeed, we're already seeing business deals begin to crumble - major Saudi football team Al-Ahli has cancelled a sponsorship deal with Qatar Airways.