Turkey, Iran help wealthy Qatar thrive, 1 year into blockade

It's been a year since three of Qatar's neighbors plus Egypt severed ties with the Gulf state, cut off exports, expelled their citizens and banned Qatari flights from using their airports and airspace.

The tiny country has weathered the storm by drawing from its substantial cash reserves, deepening alliances with Turkey and Iran, and using its strategic location in the Persian Gulf as the world's largest producer of liquefied natural gas to continue shipments to major world powers.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt launched the blockade on June 5 last year to pressure Qatar to change its policies. The group, angered by Doha's support for opposition Islamist groups and its ties with Iran, accused the Gulf state of working to destabilize the region and of harboring and supporting terrorists. They made sweeping demands that Qatar change course, shutter its flagship Al Jazeera Arabic news channel and kick out Turkish troops from a base there.

Qatar has rejected the accusations and the demands, calling the blockade a politically motivated attempt to undermine its sovereignty.

When the diplomatic standoff erupted, worried residents rushed to grocery stores in the capital, Doha, emptying out shelves of milk and other food items that had come from Saudi Arabia and the UAE. At the onset of the diplomatic rift, about one-sixth of Qatar's imports were produced in countries that imposed the trade sanctions, according to the International Monetary Fund.

Saudi Arabia sealed shut Qatar's only land border and the UAE blocked shipments from its ports to Qatar, but the government in Doha quickly moved to reroute supplies through ports in Oman and India. Rather than rely on imports from its Arab neighbors, Qatar looked to Iran and Turkey to plug the gaps. Qatari flights were rerouted over Iranian airspace. Turkey boosted its military presence in Qatar.

Within a day, shelves were restocked. Qatar also air-lifted thousands of cows into the country to ramp up local production of milk and dairy.

The government's quick response was hailed by citizens and some of the country's nearly 2 million foreign residents.

"There's really no shortage in daily life at all," said Gerd Nonneman, a resident of Qatar and professor of International Relations and Gulf Studies at the Qatar branch of Georgetown University.

He's felt an impact, though, professionally. For one, institutions in the blockading countries can no longer engage with those based in Qatar. Also, Nonneman said many of his old friends and colleagues in those countries no longer speak with him due to the political pressures.

"The main effect seems to be that colleagues and friends in these countries seem to feel it's not right, or not safe — not advisable, let's put it that way — to engage with us," he said.

Otherwise, daily life in Qatar continues mostly uninterrupted.

Construction supplies were also rerouted, allowing Qatar to continue pace with building new roads, hotels and mega-stadiums as it prepares to host the World Cup in 2022.

Still, lower oil prices and the diplomatic rift weighed on the economy. By the end of last year, real estate prices had fallen by about 11 percent. Resident private sector deposits and foreign financing, like nonresident deposits, dropped by $40 billion.

Qatar's non-oil economic growth slowed down from 5.6 percent in 2016 to about 4 percent in 2017.

The country, however, comfortably adjusted by drawing from its ample reserves and assets to pump money into the economy and local banks.

Qatar's Central Bank reserves took a hit, declining from $31 billion in 2016 to $15 billion last year. Reserves climbed up to $18 billion by the end of January.

Even so, only a fraction of Qatar's wealth is parked in its central bank. The country's sovereign wealth fund, the Qatar Investment Authority, which sold off some of its overseas stakes last year, has assets of around $318 billion, according to the IMF. That gives Qatar considerable wealth to maneuver.

With a tiny population of just over 300,000 citizens, and ownership in the world's largest gas field off its Persian Gulf coast, Qatar boasts the highest per capita income of any country in the world.

"They were always well-placed in terms of their external vulnerabilities," said Yasemin Engin, an economist at Capital Economics. "Overall, their banks are well-positioned to deal with any shocks."

The Gulf state's national oil and gas company, Qatar Petroleum, is the world's largest producer of liquefied natural gas. That makes Qatar extremely important to countries like China, Japan, India and Britain, which rely on its gas to fuel their economies.

Even the UAE's electrical grid is fueled by Qatari gas. Despite ties being severed, Qatar still sends about 2 billion cubic feet (56 million cubic meters) of natural gas a day into the UAE, supplying it with about a third of its daily need. About 200 million cubic feet (5.66 million cubic meters) of that goes on to Oman.

The blockade might be most felt by Qatar's national airline, which used to fly to 18 cities in the blockading nations, and whose CEO says the company expects large financial losses as a result.

Tourism rates have also fallen. Prior to the blockade, tourists from neighboring Gulf Arab countries made up just over half of all tourist arrivals into Qatar. They now make up around 10 percent, according to Capital Economics. Tourist arrivals from other countries fell by 8.6 percent compared to the previous year.

With little signs the standoff will end anytime soon, Qatar is trying to lure investors with legislation that will allow 100 percent foreign ownership of local businesses. The UAE is considering a similar law.

It appears that with time too, President Donald Trump's administration has shifted its position on the Qatar crisis and is now less supportive of Saudi and Emirati concerns, according to Ayham Kamel of Eurasia Group.

Qatar is home to the forward headquarters of the U.S. military's Central Command and hosts around 10,000 American soldiers.

In a recent analysis, Kamel said a partial resolution to the crisis is now an increasingly realistic scenario, but it would only involve symbolic measures like possibly easing restrictions on the travel of Qatari nationals across the region to demonstrate goodwill without actually easing economic pressures on Doha.

Mixed-nationality families in the Gulf were affected by the measures, and Qatari students in the Gulf countries were pulled out of final exams. The crisis also strained traditional kinships in the region.

"Growing up, we were always told about the importance of Gulf unity and always raised being taught by our parents and grandparents that we are one community, we are linked with shared ethnic roots and shared cultural and religious values," said Haya Alwaleed Al-Thani, a college senior who is also related to the large ruling Al-Thani family.

The blockade by three members of the six-nation Gulf Cooperation Council left Qataris feeling "deceived and betrayed", she said.

The reaction among Qataris has been an upswell of nationalism and support for Qatar's young ruler, Sheikh Tamim bin Hamad Al Thani.

"I think our leadership's ability to react quickly and ensure the same high quality of life is maintained regardless of the political circumstances has made me feel very proud," she said. "As a Qatari citizen, I've never felt so proud."


Follow Aya Batrawy on Twitter at https://twitter.com/ayaelb