The Blockade of Qatar and the Implications for Multinationals

The Blockade of Qatar and the Implications for Multinationals

The Gulf Cooperation Council’s (GCC) travel and trade boycott against Qatar for its alleged support of terrorism is the latest “family feud” to hit the trouble-prone region. Terrorism isn’t the only issue of concern for Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt, the architects of the blockade. When they announced their intention to cut off Qatar, Saudi Arabia and its fellow Arab nations created a list of 13 demands for the Qatari government, including severing diplomatic relations with Iran, cutting ties with the Muslim Brotherhood, and shuttering Al Jazeera, the state-funded news agency based in Doha, Qatar.[1] Ironically, by blocking trade routes, Saudi Arabia and its allies paved the way for Qatar to expand its trade relationships with Iran.[2]

What are the implications of the rift for multinationals with a presence in Qatar? Does the dispute make traveling to the region a greater security risk, and if so, how can companies mitigate the risk?

Longer, More Expensive Flights

By closing their airspace to Qatar, the blockading countries have forced its airline to fly longer routes, which burns more fuel and lengthens transit time. Not surprisingly, the airline canceled 18 routes indefinitely due to its inability to operate them profitably. While traveling on Qatar Airways may cost more and take longer, the airline offers nonstop flights from major cities such as New York, London and Paris, helping business executives based in those cities avoid a time-consuming stopover.

Nonetheless, instead of flying Qatar Airways, business travelers might opt for another carrier. Since Qatar Airways is state owned and experiencing the financial effects triggered by the closure of direct air corridors, this decision may not sit well with any Qatari officials your company relies on for support.

To entice travelers to endure more time in the air and higher fares, Qatar removed the requirement for many travelers to obtain a visa prior to arrival. Today, visitors from more than 80 countries, including the United States, can acquire a visa upon arrival.[3]

The Push to Strengthen Qatar’s Economic Standing

To lessen the effects of the embargo, the Qatari government is enticing foreign direct investment by touting the positives of investing in the country, which include a 10% corporate tax rate and the ability to establish businesses in the country without requiring joint ventures with local companies.[4]

The Qatari government is also looking beyond its immediate neighbors and exploring economic partnerships with nearby countries, including Turkey, Oman, and Kuwait, and those on the other side of the world, such as Argentina.[5],[6] By creating new partnerships to replace those severed by the members of the GCC, the government sees the potential for companies to expand their presence in the Middle East, South East Asia, and potentially, the Far East by using Qatar as their base of operations.

Qatar’s Deep Pockets

Notwithstanding the intervention of Kuwait and the United States, one year hence, Qatar continues to wrestle with the implications of their Arab neighbors’ policy toward the country. Given the onerous nature of the demands, most experts do not foresee a resolution to the dispute until either Saudi Arabia or its allies soften their stance. And while Qatar Airways announced an annual loss of $69 million for the fiscal year ending in March 2018, the International Monetary Fund predicts a 2.6% growth in gross domestic product in 2018.[7],[8]

Given the Qatari government’s vast wealth, the move to establish economic pacts with other countries, and the push for foreign direct investment, the financial pressure to resume normal diplomatic and trade relations becomes less acute. Therefore, the current state of affairs could last for months, possibly years.

Determining the Best Course of Action

With Qatar’s role in the Middle East in a state of flux, companies with existing operations in the country may choose to withdraw from the market until the members of the GCC resolve their differences. On the other hand, engaging a local partner to assume control of the company’s business may present a better option.

Notwithstanding the current diplomatic tensions, for companies that support customers in Qatar as well as those trying to determine when to invest in the country, now might be the best time to create a base of operations within the nation and take advantage of the government’s efforts to lure foreign investment.

While investing in Qatar is a compelling business proposition for certain multinationals, operating in the Middle East requires careful planning and preparation even in the best of times – especially when it comes to ensuring the safety and security of company assets and personnel.

Whether your company already operates in Qatar or plans to do so, a security partner with local knowledge can help identify inherent weaknesses in your company’s security program and recommend cost-effective ways to remediate its shortcomings. This support includes the ability to implement changes to the security program as the threat landscape evolves. For example, while the American government appears uninvolved in the dispute with Qatar, if the President decides to intervene in the conflict or pursue sanctions against one or more Arab nations, your company’s security program must evolve to mitigate the inevitable public backlash.