- Four Arab countries broke relations with Qatar and cut their transport links, over accusations that Qatar denies.
- Qatar is a major exporter of liquefied natural gas and a regional air hub, so energy and transport are the first areas of concern.
- Anyone with business or suppliers in the Gulf should review their exposure, logistics routes and contracts.
On 5 June 2017 Saudi Arabia, the United Arab Emirates, Bahrain and Egypt announced the severing of diplomatic relations with Qatar and the suspension of their air, sea and land links with that country. They accused it of supporting terrorism and of maintaining too close a relationship with Iran. The Qatari government rejected the accusations as baseless. Other countries and governments joined the break in the following hours.
It is one of the most serious crises among the Gulf states in years. Qatar is a small country with considerable economic weight: it is one of the world’s largest exporters of liquefied natural gas, has a sovereign wealth fund with investments in many countries and is home to one of the region’s leading airlines. That is why the news had an immediate echo in markets and among companies with interests in the area.
What has been decided and why it matters
The measures include closing airspace and ports to Qatari ships and aircraft and suspending flights to and from Doha. Qatar has a single land border, with Saudi Arabia, through which a large part of its food supply passes, so its closure directly affects supply logistics. The countries that broke relations also asked their citizens to leave the country.
The crisis is political, but its effects are economic. When air and sea routes are interrupted in a region with so much traffic, transport costs and lead times rise, and contracts may be affected by force majeure or sanctions. Markets also react to uncertainty more than to facts, with movements that can be abrupt and quickly reversed.
Energy, transport and business
Qatar’s liquefied natural gas supplies many countries, including some in the European Union, and Spain imports gas from several suppliers, Qatar among them. The break did not in itself imply an immediate cut in supply, because exports go by sea from its own ports, but it introduced a factor of uncertainty in energy markets, which depend on the stability of the major producers.
For Spanish companies with contracts or subsidiaries in the Gulf, especially in construction, transport, engineering or services, the crisis raises doubts about payments, deadlines and staff mobility. Usual air routes may lengthen and visas or entry permits may change. The situation may evolve quickly, and the prudent course is to follow official sources and stay in touch with local partners.
What to review
Companies with business in the region can start by reviewing their contracts: force majeure clauses, sanctions, changes of law, governing law and arbitration. Also their insurance, especially export credit and transport cover, and alternative logistics routes. It is wise to talk to the foreign trade adviser and keep seconded teams informed.
For investors, it is a good reminder that concentration in one region or sector increases risk, and that decisions should be taken with their adviser in light of their objectives. This note is general information and not investment advice. When a political crisis is recent, prudence means watching calmly and avoiding hasty decisions.
In a fresh political crisis, the sensible course is to review one’s own exposure and avoid hasty decisions.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
