The Qatar crisis entered its third year this month, and there is no indication that it will be resolved anytime soon.
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Since over 60 percent of Qatar’s trade was transited through the UAE ports and Saudi border crossing, the blockading countries expected the isolation to cause a painful disruption to the Qatari economy.
Much to Saudi Arabia and the UAE’s surprise, neither of these predictions materialized. As soon as the blockade was announced, Iran and Turkey rushed to Qatar’s assistance by offering to establish new trade links and delivering a variety of consumer goods by ships and planes. Iran opened its airspace to commercial planes for flights to Qatar that were no longer allowed to enter the airspaces of UAE, Saudi Arabia, Bahrain, and Egypt.
In his first reaction, President Trump expressed support for the blockade in a tweet. Soon after, however, it became clear that the U.S. official reaction, as delivered by the state department, was neutral.
Secretary of State Rex Tillerson tried to resolve the issue through intermediation without supporting the Saudi position. As a result, Qatar remained defiant, and it was further emboldened by Turkish military support. Before the blockade, Turkey maintained a small number of troops in Qatar as a symbolic gesture of military cooperation. At Qatar’s request, Turkey raised its number of troops to 3,000 soon after the blockade.
In addition to these external factors, the small national population of Qatar and its large sovereign wealth also contributed to the country’s ability to remain defiant and resist the blockade.
The Qatari government used its massive financial reserves to pay for the higher transport costs of imports and to support the domestic industries that suffered huge losses as a result of the blockade.
In response to the blockade, Qatar’s government intensified its efforts to attract foreign investment and prevent the businesses already in Qatar from leaving. The government prioritized financing for the massive construction projects that were underway in preparation for the 2022 World Cup, and many international firms that were managing their Qatar businesses from their regional offices in Dubai bypassed the blockade by establishing direct branches in Qatar.
Qatar’s economic statistics for 2017 and 2018 indicate that the negative impact of the blockade on investment and economic activity was moderate.
The annual economic growth rate remained positive but declined from 2.1 percent in 2016 to 1.58 percent in 2017 and recovered to an estimated 2.2 percent in 2018. Interestingly, Saudi Arabia and the UAE experienced -0.7 percent and 0.7 percent annual economic growth rates in 2017.
Furthermore, despite causing temporary shortages of many goods, the blockade did not lead to a significant price increase. The annual inflation rate in 2017 was below 1 percent.
At the same time, the Qatar blockade crisis has had important regional consequences. It has practically paralyzed the six-member Gulf Cooperation Council (GCC), which was already suffering from factionalism and internal divisions. Established in 1981 in response to the regional threats from Iran and Iraq, GCC countries took several steps towards security and economic cooperation. It was also successful as a regional block in several rounds of investment and trade negotiations with Europe, China, and India between 2000 and 2010.
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