Surrender to Riyadh will raise domestic risks for Doha

Significance The crisis between Doha and its rivals in the Arab world, led by Riyadh and Abu Dhabi, has escalated further after yesterday's intervention by US President Donald Trump, who took credit for the move against Qatar's alleged terrorist financing. Six countries in the region have cut diplomatic and economic ties with Qatar. Impacts Whatever the resolution, the damage to the Gulf Cooperation Council (GCC) and the idea of Gulf unity will be profound. There will be a knock-on impact on other regional conflicts in which Qatar is involved, such as Syria, Libya and Yemen. A sustained crisis would create upward pressure on oil prices, as traders worry about unpredictable developments. Qatar's gas exports through the Dolphin pipeline and liquefied natural gas (LNG) trains are unlikely to be disrupted.

Significance Since the sudden end of the three-and-a-half-year ‘Quartet’ boycott in January, Doha has stepped up efforts to normalise relations with formerly hostile Arab countries. It is also pushing ahead with plans for a massive liquefied natural gas (LNG) expansion. Impacts The loss of solidarity in opposing Qatar could expose other regional rifts, notably between Riyadh and Abu Dhabi. The end of Qatar-Quartet competition should lower tensions in a host of regional conflicts, from Somalia to Libya. Turkey and other recent trade partners could see economic losses as Qatar partially reverts to pre-blockade sourcing.


Subject Solar power in the Gulf. Significance Favourable natural conditions and growing gas shortages make the Gulf Cooperation Council bloc one of the most attractive and lowest-cost solar markets in the world. Impacts Lower oil prices will reduce funding and incentives for solar projects, but recent reductions in costs make solar power economically viable. To win future bids, solar firms will require a combination of local knowledge and global best practice. The UAE and Saudi Arabia have strong prospects of evolving into a regional hub for solar business and installations. Due to low capacity and a small starting base solar power may displace only 1-3% of the power sector's fuel consumption by the early 2020s. Another barrier to growth will be the lack of coherent government policy frameworks, and ongoing electricity subsidies.


Significance Low global oil prices are weighing heavily on the profitability of the Gulf Cooperation Council (GCC) banking sector. Moody's Investors Service in March downgraded 26 GCC banks. This raises questions about the future of retail banking in the region. Impacts GCC governments' commitment to developing financial hubs will support retail banking. However, lack of economic integration in the region will prevent regional Gulf banks from benefitting from economies of scale. Fragmentation in the retail market means that each country will be dominated increasingly by their largest banks.


Subject Prospects for the Gulf states in 2016 Significance Oil prices are biting into government revenues and increasing pressure for economic reform. However, Gulf Cooperation Council (GCC) governments are prioritising regional policy following the international nuclear deal with Iran.


Significance The operation, authorised by US President Donald Trump, killed Qassem Soleimani, longstanding chief of the Quds Force -- the external action wing of the Islamic Revolution Guard Corps (IRGC). Others also died, notably Abu Mahdi al-Muhandis, the leader of Iran-backed Iraqi militia Kata’ib Hezbollah, which had been targeted in earlier US strikes. Impacts Baghdad’s parliament will consider a bill to evict the US military presence. The confrontation with Iran will undermine efforts to combat the residual Islamic State presence. As the responses play out, oil prices are likely to rise further. The 2015 Iran nuclear deal could at last collapse. Damascus may increase its dependence on Moscow in the absence of Soleimani’s personal networks.


Significance The document marks a sharpening in the EU’s position towards China. In the paper, the EU puts forward ten points designed to balance EU-China relations, including greater protection of European industries from Chinese investment. Southern European countries will treat the paper with caution as they look to preserve strong economic ties with China. Impacts The EU and United States will find more common ground on their policies towards China once President Donald Trump has left office. European governments will become more interventionist on international mergers of ‘national champion’ firms. UK crackdown on Chinese technology will inhibit prospects of a future UK-China free trade agreement.


Significance The agreement provides US President Donald Trump a signature foreign policy achievement ahead of US elections in November, while giving Abu Dhabi an opportunity to cement ties with Washington in case of a change of president. It also constitutes a major diplomatic victory for Israeli Prime Minister Binyamin Netanyahu, amid rising domestic woes. Impacts Some other Arab states such as Bahrain or Oman might follow the UAE’s lead. Saudi Arabia is likely to be more cautious, especially as it is preoccupied with internal succession dynamics. European countries will call for the suspension of annexation to be made permanent and Israel to return to talks with the Palestinians.


Significance As the new US administration seeks to re-engage with Iran, both Washington and Ankara have launched negotiations with Tehran's enemy Saudi Arabia. Iran and Turkey have major differences of interest in Syria, Iraq and the Caucasus. However, post-COVID-19 recovery efforts also underline the importance of their economic ties. Impacts Ankara and Tehran may jointly push for increased engagement in regional multilateral initiatives to promote post-pandemic economic recovery. Anti-Turkish sentiment in Iraq would spike if Turkish forces came into direct confrontation with Iraqi militias. Both countries may engage with Abu Dhabi, but neither is likely to view it as a serious geopolitical actor.


Significance The sultan this month paid his first foreign visit to Saudi Arabia, establishing institutions for ongoing cooperation. Under the previous ruler, Muscat was wary of Riyadh’s dominant influence in the Gulf Cooperation Council (GCC). However, both the regional environment and Oman’s economic situation are now in a state of flux. Impacts New Saudi investment in Oman would likely focus on the tourism and industrial sectors. Higher oil prices will provide only a temporary reprieve for Muscat’s structural economic problems. Omani interactions with the United Arab Emirates could become more fraught.


Significance His statement contrasts with broader regional trends. The six states of the Gulf Cooperation Council (GCC) have been overbanked for many years, but buoyant economies provided a rising tide of growth opportunities. However, a prolonged period of low oil prices and weaker government finances is tightening liquidity and increasing bad debts. This is driving a degree of consolidation in the sector. Impacts Consolidation rumours will drive rallies in banking shares. Larger banks will facilitate financing of major infrastructure projects. Governments will boost domestic liquidity by borrowing abroad.


Sign in / Sign up

Export Citation Format

Share Document