Oil, Money Or Arms: What Lies At The Heart Of The Ongoing Conflict Between Qatar And Saudi Arabia

Posted by Sourajit Aiyer
June 9, 2017

They say that money makes the world go round. Nowhere is this more evident than in the battles for oil, power and arms. As the world woke up to the news of Saudi Arabia and its key allies severing ties with Qatar, following the ongoing rift between the Gulf Cooperation Council (GCC) members, three theories seem to emerge regarding the reasons for this.

Are They Jigging It Up?

Regaining control over the output and prices of oil and gas may be a reason to instigate a rift in foreign relations.

Baseless as it may seem, what if it were true? After all, oil and gas is a multi-billion dollar industry globally, and a critical one for the Gulf nations. Following the drop in global oil prices, the members of the Organization of the Petroleum Exporting Countries (OPEC) decided to cut their production output by around 1.8 million barrels per day (bpd) to raise the price. While this revived the price to $50 a barrel, it was not sufficient.

During the same period, USA ramped up its shale oil production, with the average crude oil output expected to reach 10 million bpd in 2018. Even though Libya and Nigeria were not affected by the OPEC cut, they also ramped up their productions. Since the global inventory were still being fed, the uptick in oil prices was not sufficient to compensate the OPEC for the loss in its output.

With an output of around 600,000 bpd, Qatar is one of the smaller producers in the oil industry. However, fears of a possible disruption to its supplies due to a conflict may weaken the deal the OPEC had with Qatar, regarding production cuts. This may eventually result in Qatar chucking the cut-back deal, and instead, ramping up its production. This could help rejig its output and its long-term aims, even if one assumes that the prices will remain stable in the near-term.

In the short run, though, prices are likely to be affected. This is because the fear (of an armed conflict) is enough to influence the market, even though there may not be a conflict, at all. After a 4% beating last week, oil prices were up by 1% in Monday’s morning trade itself, to pare down losses and stabilise. But this needs to be watched.

There may be a focus on natural gas too. Qatar is the largest gas exporter. Iran, which has a central role in the Saudi Arabia-Qatar spat, has 18.2% of global gas reserves. Russia, which provides 24% of Europe’s demand for gas, is also fast exploring the East. The recent Rosneft-Aramco meet suggests a possible Saudi-Russian deal in the sectors of oil and natural gas.

With the blockade on Qatar expected to overburden its sea freight (due to the closure of its land border), any disruption in gas supplies may spike up prices. While fears of conflicts have not impacted oil policies in the past, it may have a short-term ripple. Once up north, the prices may even remain sticky. This theory may not seem tenable – but it will be interesting to note the prices and fiscal revenues of the countries dealing with oil this year, especially the Gulf states.

Challenging The Boss?

For many decades, Saudi Arabia had been the undisputed leader in the Gulf region. The world’s largest oil exporter, the House of Saud enjoyed US patronage since the early 20th century. This was the time when the seeds of Aramco (the Arab-American Oil Company) were sown. Larger neighbours like Turkey and Egypt aligned with this camp, given their close ties with the US and NATO.

But times have changed. Qatar’s real GDP grew at a compound annual growth rate (CAGR) of nearly 6% between 2010 and 2016, the highest growth rate among the GCC nations. During this time, Saudi Arabia and the United Arabia Emirates (UAE) had growth rates of 4.6% and 4.4%, respectively.

Furthermore, the estimated real GDP CAGR from 2016 to 2020 is 2.5% for Qatar, second only to UAE’s 3.4%. Saudi and UAE may be the larger-sized economies, but Qatar has one of the smallest populations. Hence, not only is the pressure of ‘Qatarisation’ lower than that of ‘Emiratisation’ or ‘Saudization’, its average citizen is also far richer. Qatar’s per capita nominal GDP in 2016 was $64,447, compared to UAE’s $40,162 and Saudi Arabia’s $21,848. The 2020 estimates for the same are $85,365 (for Qatar),  $45,988 (for UAE) and $23,421 (for Saudi Arabia).

Today, Qatar is the world’s largest natural gas exporter. In 2013, global index compiler MSCI granted the Emerging Market (EM) status to Qatar and the UAE. In a region where western liberals often question the freedom of the media, Qatar has already established an English-news network that is attracting media professionals from the US and Europe. Qatar has high ambitions indeed!

Its growing clout gives it the confidence to challenge Saudi Arabia as the leader of the Gulf. Egypt and Turkey are facing their own problems, thereby leaving the field open for Qatar. However, after this connectivity blockade, the economic challenges that Qatar may face include a spike in food inflation, an inflation in prices of construction materials, delayed shipments, lesser transit travellers, exodus of critical expats and a general hit to the region’s prosperity. Then the estimated real GDP growth may indeed seem to be far off. The current crisis may help slow down the challenger, after all!

Possible Military Channel?

The Sunni-Shia conflict has already been raging between Saudi Arabia (with its Sunni allies) and Iran (with its Shia allies). This rift even extended to Qatar, when its Emir allegedly questioned Saudi Arabia’s ‘anti-Iran’ rhetoric (though this was later denied by Qatar saying that their news agency was hacked).

Saudi Arabia ranks amongst the top five spenders in the global military market. In 2014, it spent 10.4% of its GDP, while in 2015, it spent a sheer $87.2 billion on defence. In comparision, Iran reportedly spent anywhere between $15 billion to $30 billion on military expenses.

Qatar possesses the money, but lacks the military might to stand up to Saudi Arabia. Conversely, Iran has the weapons but needs money for building its military prowess. Is this the underlying link in the current Qatar-Iran bonhomie, which has resulted in extending the Shia-Sunni rift?

Qatar’s interactions with Iran, post-elections, and its alleged support to the Muslim Brotherhood did not go down well with Saudi Arabia. In fact, when they formed a Muslim military alliance, allegedly to fight the ISIS and Al-Qaeda, many people thought that the real motive may be to intimidate Iran. This opinion seemed to be validated by the 10-year $350 billion arms deal struck between the US and Saudi Arabia. In fact during Trump’s visit to the region, the risks posed by Iran were also discussed.

Meanwhile, the Shia-Sunni divide has been burning since the Arab Spring of 2011. Qatar’s royal family hails from the Najd region in modern-day Saudi Arabia, the home of Wahhabism, which has led to friction between the two in the past.  Consequently, has this forced Qatar to move closer towards Iran, thereby, coinciding with the Shia-Sunni rift? Or is Iran playing its card to obtain military funds from Qatar?

Terming this crisis as a possible ‘conspiracy’ for money may sound far-fetched. After all, it may just be a regular diplomatic spat. However, it does seem as though Qatar has bitten off more than it can chew, and the implications of the blockade can be profound. By standing up to the incumbent leader, Qatar has proven its point. Now, both the parties would do well to temper down!

This post was first published here. It has been republished on Youth Ki Awaaz with the author’s permission.


Image Source: Photo by Mark Wilson/Getty Images