CFA Society Singapore
RIYADH/WASHINGTON (June 5): Saudi Arabia and three other Arab countries cut off most diplomatic and economic ties to Qatar in an unprecedented move designed to punish one of the region’s financial superpowers for its ties with Iran and Islamist groups in the region.
Oil jumped after Saudi Arabia, Bahrain, the United Arab Emirates and Egypt said in statements they will suspend air and sea travel to and from Qatar. Saudi Arabia will also shut land crossings with its neighbor, potentially depriving the emirate of imports through its only land border.
Qatar is one of the world’s richest countries and of strategic importance, being the biggest producer of liquefied natural gas and home to one of the world’s largest sovereign wealth funds. It also hosts CENTCOM, the US military’s central command in the Middle East.
Emboldened by warmer US ties under President Donald Trump, the Saudi-led alliance is seeking to stamp out any opposition to forming a united front against Shiite-ruled Iran. And while Monday’s escalation is unlikely to hurt energy exports from the Gulf, it threatens to have far-reaching effects on Qatar.
“There are going to be implications for people, for travelers, for business people. More than that, it brings the geopolitical risks into perspective,” Tarek Fadlallah, the CEO of Nomura Asset Management Middle East, said in an interview to Bloomberg Television. “Since this is an unprecedented move, it is very difficult to see how it plays out.”
Brent crude rose as much as 1.6% to US$50.74 ($70.10) a barrel on the London-based ICE Futures Europe exchange, before paring gains to 1.1% by 11:58 a.m. Singapore time. Heightened tensions between Saudi Arabia, the world’s biggest crude exporter, and Iran typically draw market attention to the Strait of Hormuz, through which the US Department of Energy estimates about 30% of seaborne oil trade passes.
US Secretary of State Rex Tillerson said it’s important that the Gulf states remain unified and encouraged the various parties to address their differences. Tillerson, who spoke at a news conference in Sydney, said the crisis won’t undermine the fight on terrorism.
“What we’re seeing is a growing list of some irritants in the region that have been there for some time,” Tillerson said. “Obviously they’ve now bubbled up to a level that countries decided they needed to take action in an effort to have those differences addressed.”
Monday’s action is an escalation of a crisis that started shortly after Trump’s last month trip to Saudi Arabia, where he and King Salman singled out Iran as the world’s main sponsor of terrorism.
Three days after Trump left Riyadh, the state-run Qatar News Agency carried comments by Qatari ruler Sheikh Tamim bin Hamad Al Thani criticizing mounting anti-Iran sentiment. Officials quickly deleted the comments, blamed them on hackers and appealed for calm.
Saudi and UAE media outlets then launched verbal assaults against Qatar, which intensified after Sheikh Tamim’s phone call with Iranian President Hassan Rouhani over the weekend in apparent defiance of Saudi criticism.
“Qatar is right in the middle of the GCC countries and it has tried to pursue an independent foreign policy,” said Peter Sluglett, director of the Middle East Institute of the National University of Singapore. “The idea is to bring Qatar to heel.”
Disagreements among the six member Gulf nations have flared in the past. In 2014, Saudi Arabia, the UAE and Bahrain temporarily withdrew their ambassadors from Qatar. That dispute centered on Egypt, where Qatar had supported a Muslim Brotherhood government while the Saudis and UAE bankrolled the army-led regime that toppled it.
This time, Saudi Arabia cited Qatar’s support of “terrorist groups aiming to destabilize the region,” including the Muslim Brotherhood, Islamic State and al-Qaeda. It accused Qatar of supporting “Iranian-backed terrorist groups” operating in the kingdom’s eastern province as well as Bahrain.
Saudi Arabia, along with Bahrain and the UAE, gave Qatari diplomats 48 hours to leave.
“Qatar is economically and socially most vulnerable from food and other non-energy imports,” said Paul Sullivan, a Middle East expert at Georgetown University. “If there is a true blockade this could be a big problem for them. Rules stopping citizens of the UAE, Saudi Arabia and Bahrain from even transiting via Qatar could cause significant disruptions.”