By Sarah Townsend
Commercial costs are rising and banks are pulling money out of the peninsula state as the row with Gulf neighbours continues.
Companies operating in the Gulf face rising costs and operational uncertainty as they seek to mitigate the impact of the worst crisis in the region in decades.
As Arabian Business went to press, a coalition including Saudi Arabia, the UAE, Bahrain and Egypt, was holding ground in the dispute with Qatar after cutting diplomatic ties on June 5 and banning access to airspace, ports and land crossings.
Saudi foreign minister Adel Al Jubeir insisted on June 13 that the measures did not amount to a “blockade”. Qatar’s ports and airspace remained open and unhindered, he said. It was the sovereign right of the opposing countries to ban Qatari-registered planes, vehicles and ships, and expel its citizens.
Officials have warned the restrictions will continue - and potentially worsen - until Qatar agrees to curtail support for extremist groups in the region and distance itself from Iran.
The unprecedented action by the Saudi-led bloc has impacted commercial operations across the Gulf, with trade flows interrupted, currency shortages at exchange houses and business travellers forced to pay higher fares for awkward, indirect flights.
Shortages of US dollars have hit money exchange houses in Qatar and elsewhere as foreign banks scale back business with Doha — making it harder for foreign expats to send money home and more expensive for exchange houses to source currencies.
The CEO of one Gulf exchange house says he anticipates a 2-3 percent rise in operational costs if the dispute is not resolved, as the UAE has traditionally been Qatar’s main source of dollars and the company is having to source currency from elsewhere.
“The dollar is definitely scarce in Qatar and it was already in short supply,” the CEO told Arabian Business, asking to remain anonymous due to the sensitivity of the matter. “Exchange houses and foreign workers are anxious about currency flows as shipments from the UAE are blocked.”
He said there was a noticeable spike in foreign remittances from Qatar in the days immediately after ties were cut, but this is now “back to normal” in line with typically higher levels during Ramadan and the summer holidays.
A spokesperson from Dubai’s UAE Exchange said in a statement: “We are carefully reviewing the situation and keeping in touch with regulators and partners to better understand the matter.”
Gulf airlines such as Emirates, Etihad, Air Arabia, Gulf Air and Saudi Arabian Airlines indefinitely suspended flights to and from Qatar on June 6.
The UAE’s General Civil Aviation Authority has since permitted non-Qatari private and chartered flights to fly to Qatar using UAE airspace provided they submit official requests 24 hours in advance, listing full details of crew and passengers. Following the announcement, India’s Jet Airways said it had resumed using UAE airspace to operate its daily flights to Doha.
Gulf airlines have declined to comment on the impact on passenger numbers, but it is predicted their business could take a hit from the row. They could, however, see an uptick in demand for long-haul flights as Qatar Airways is no longer an option for many Gulf travellers.
Murtaza Khan, Dubai-based partner at immigration services firm Fragomen, notes: “There are a significant number of business travellers who fly daily between Qatar and other GCC states.
“Many have been affected not only by the suspension in flights but the ban on visa-on-arrival for Qataris and other GCC nationals residing in Qatar. This lengthens the visa application process for travellers and increases costs for companies.”
Murtazan says Fragomen is helping multinationals identify Qatar-based employees and take action to support them in the event that the situation escalates further.
At the time of writing, trade flows between Qatar and the coalition remained blocked and few allied ports operators would comment on the matter. Dubai’s DP World said in a statement on June 6: “DP World confirms that vessels with the flag of Qatar or vessels destined to or arriving from Qatar are not allowed to call at any DP World terminals in the UAE until further notice. There is expected to be no material financial impact on the group.”
The UAE’s Abu Dhabi Petroleum Ports Authority said it had expanded its ban to include “all vessels arriving from, or destined to Qatar, regardless of its flag”. Egypt has also banned Qatari ships from its ports but they can still access the Suez Canal.
On the banking side, some Western banks operating in Qatar are continuing business as normal, particularly if they are involved in financing World Cup 2022 construction projects. Others have halted new Qatar business and cut exposure by withdrawing deposits from Qatari banks, Bloomberg reported.
Meanwhile, the Saudi Arabian Monetary Agency (SAMA) has told banks in the kingdom not to process any payments denominated in Qatari riyals, while the UAE Central Bank has ordered fresh due diligence on all Qatar bank accounts. However, rating agency Standard & Poor’s (S&P) said Qatari banks were strong enough to withstand the impact.
There are other business sectors affected by the feud, including media — Qatar-based broadcaster Al Jazeera, the state news agency, other Qatari websites and satellite television network beIn Sports have been blocked in the UAE and Saudi Arabia for weeks — as well as healthcare and construction, which are suffering blockades of materials and supplies.
Prasanth Manghat, CEO of UAE-based NMC Healthcare, told Arabian Business the company was pressing ahead with plans to open a fertility clinic in Qatar by the end of this year, but may avoid further expansion in Qatar should the row continue.
Qatar is said to be spending $500m a week on World Cup 2022 projects and although FIFA president Gianni Infantino has said he remains “confident the region will return to a normal situation”, construction firms stand to take a hit while the dispute is ongoing.
Construction and engineering firms approached by Arabian Business, including CH2M, Buro Happold and Hill International, all declined to comment.
Jonathan Macpherson, deputy chairman and COO of Dubai’s British Business Group, says: “Most businesses are viewing it as early days still and are finding solutions for working around the issue rather than making major changes. For example, corporate travellers are taking indirect flights to their destinations.
“But the matter is of concern because clearly the measures are very restrictive.”
Companies may rethink their GCC business activity more deeply if the matter remains unresolved. Sources say two foreign embassies in the UAE and Saudi Arabia are advising companies on an informal basis to “prepare for the worst”, claiming they could be asked by allied governments to minimise business activity in Qatar.
One source says: “It seems this Qatar story will not come into an end anytime soon. According to some senior people in Riyadh, it seems [the Saudi government] will make it tighter for businesses that operate in Qatar and the kingdom — they will be given the choice of remaining in Saudi or moving to Doha. The UAE and Bahrain might follow suit.”
Another source said the US Embassy in Abu Dhabi has warned American multinationals operating in the UAE and Qatar that they may be asked to “pick a side” — even if temporarily.
A spokesperson for the Saudi Ministry of Culture and Information said they had “no information on this”.
A spokesperson from the US Embassy in Abu Dhabi says: “The US Embassy did not make the statement attributed to it. The US continues to call for calm and thoughtful dialogue and ask that there be no further escalation by the parties in the region.
“We call on all parties to engage in constructive dialogue to find a resolution that addresses local concerns and preserves GCC unity.”
For some companies, the crisis has brought about new business activity. Oman Air, one of the only GCC airlines operating flights to Doha, said it is benefiting from passengers forced to take indirect routes. A spokesperson for said on June 14 the airline had upgraded its flights to Doha to bigger aircraft, with more capacity on flights between June 8-14.
“Additionally, Oman Air has dedicated three charter flights to Qatar Airways to operate the Muscat-Jeddah-Muscat [route] from June 6. The situation is monitored and updates will be provided as necessary,” the spokesperson said. Kuwait Air, which is also operating as normal, did not respond to requests for comment.
Oman’s Sohar Port is understood to have handled a sharp increase in container volumes, with one source saying: “[Last] Saturday alone they had four container ships in a single day, which is unprecedented for the port.”
Sohar Port and Freezone CEO Mark Geilenkirchen says: “Any changes in routes, or custom procedures, or border blockages, for whatever reason, can lead to unforeseen changes in transportation patterns.
“For some ports and countries, these changes may turn out to be beneficial, while for others they won’t. Sohar Port is ideal for every kind of trade, as it is optimally located outside the congested Strait of Hormuz but still close to all the important markets in the region.”
The row shows no sign of letting up and its impact is extending across the globe. The UAE’s ambassador to Washington urged Qatar in the Wall Street Journal on June 12 to “take decisive action to deal once and for all with its extremist problem”, and the US ambassador to Qatar, Dana Shell Smith, announced on June 13 she was leaving her post. She gave no reasons for standing down.
The Qatar Stock Exchange remains volatile and S&P has downgraded Qatar’s rating to AA- from AA, and put it on negative credit watch.
Qatar’s leadership, meanwhile, is still digging in its heels. The country’s foreign minister Mohammed Al Thani said Qatar was waiting for specific demands from the coalition and therefore sees no basis yet for a diplomatic solution.
The likely impact is that Qatar and its neighbours could lose billions of dollars in business if they are not reconciled soon.