How will Qatar-Gulf crisis shape the region’s economy?

 

In a now widely discredited 1990s-era theory of international relations, New York Times columnist Thomas Friedman advanced the argument that no two countries with a McDonald’s would go to war with one another.

The logic behind the so-called “Golden Arches Theory” suggested that states with economies that were strong and stable enough to support investment by multinational corporations like McDonald’s would be constrained from launching destructive conflicts against one another. The theory was roundly criticised and disproved with numerous examples, including wars between India and Pakistan, Israel and Lebanon, and Russia’s military interventions in neighbouring countries.

The ongoing crisis between Gulf Cooperation Council (GCC) states has seemingly posed a new version of the same question: whether wealthy states with major economic disincentives could nevertheless engage in a debilitating conflict with each other. In looking at the Saudi-led group’s isolation of Qatar, a reinvigorated Friedman may even suggest that no two countries with a Four Seasons have ever gone to war.

But what such “end-of-history” style arguments have frequently missed is that the triumph of neoliberal economic expansion has not resulted in the capitalist peace that was promised. Rather, as has become apparent from the recent adventurism by Saudi Arabia and the UAE, states that enjoy considerable wealth can afford to endure untold economic losses in the pursuit of their ideological or political goals.

For all of the discussions about Qatar “punching above its weight” by leveraging a small country’s strong economic position to influence regional politics, so too have its Gulf neighbours relied on vast oil revenues to impose a regional order at great cost to their economies.

After sponsoring the 2013 military coup that toppled the presidency of the Muslim Brotherhood’s Mohamed Morsi in Egypt, the Saudi, Emirati and Kuwaiti governments offered a staggering $23bn to keep the regime of General Abdel Fattah el-Sisi afloat during its turbulent first 18 months. The $1.7bn in aid that the United States provides Egypt each year, which is so often invoked as a lever of influence on Egypt’s rulers, pales in comparison to the unprecedented level of assistance provided by Sisi’s Gulf sponsors. Predictably, Egypt was the first non-GCC country to join the boycott of Qatar.

Similarly, the first year of the disastrous war in Yemen cost $5.3bn, contributing to Saudi Arabia’s first budget deficit in decades in 2015 – not to mention the unspeakable devastation it wrought on the citizens of one of the most impoverished countries in the world.

Saudi and Emirati leaders have also devoted billions of dollars towards influencing the outcome of Tunisia’s political transition and backing local forces in the destructive civil conflicts in Libya and Syria.

When they withdrew their ambassadors and cut economic ties with Qatar last month in an attempt to rein in their neighbour’s foreign policy, Saudi Arabia, the UAE and Bahrainwere not expected to allow the crisis to drag on. After all, Qatar conducts $9.5bn in trade annually with the three countries and provides the UAE with a third of its natural gas.

But this is not the first time that these governments have placed their political agenda above their economic interests. In responding to the global collapse in the price of oil in 2014, Saudi Arabia made the calculated decision not to cut its production levels, though that would mean diminished revenues.

Although the policy emerged largely out of an attempt to challenge the growing American shale oil sector, it also consciously targeted Iran, Saudi Arabia’s rival for regional supremacy. Maintaining production levels despite falling prices was sure to harm Saudi state income in a country with a growing poverty rate, but because it also undercut Iran’s oil revenues, it was deemed necessary.

Estimates have put the collective losses in oil revenue by Gulf states at $890bn since 2015, leading Saudi Arabia and other countries to cut subsidies, introduce taxes and seek international loans for the first time in their recent history. Meanwhile, defence spending has risen sharply in recent years, even before accounting for the mammoth $110bn deal that US President Donald Trump coaxed from the Saudi regime during his May visit to Riyadh.

Perhaps these regimes simply look upon these policies as sunk costs in a battle to impose a singular vision for the future of the Arab region. Or maybe they are part of a long-term investment strategy expected to reap future rewards when neighbouring states come into the fold of Saudi hegemony. In either case, the longer that this crisis drags on, the less likely it is that the economic arrangements that have long defined relations within the GCC can be restored.

For its part, Qatar has already reoriented its trade towards Turkey and Iran, from whom it has begun to import goods that once came through Saudi Arabia.

Following US Secretary of State Rex Tillerson’s failed attempt at shuttle diplomacy, the blockade of Qatar is expected to continue indefinitely, resulting in something like a regional cold war. Having already deployed most of the economic weapons at its disposal, the Saudi/Emirati group has little else to do beyond the self-defeating act of expelling Qatar from the GCC, an organisation that was founded largely to consolidate an anti-Iranian regional alliance under Saudi leadership.

Since the mid-1990s, Qatar has proven itself to be the dissenting member of this council, as it promoted anti-establishment voices across the region and pursued a less hawkish stance towards Iran, with whom it shares one of the world’s largest natural gas fields. Qatar resumed development of the gas field last April after a 12-year freeze, a move that was undoubtedly viewed with some degree of suspicion on the part of neighbouring oil producers.

The gradual shift in global energy demand from oil to natural gas and the diverging foreign policies were bound to create a state of rivalry between Qatar and the rest of the GCC states. But the actions of Saudi Arabia and its allies have transformed that rift into a chasm and have done so in spectacularly short order.

The only possible upside to the rapid pace at which Qatar’s isolation has occurred is that the blockading states did not cultivate the atmosphere of hostility that normally precedes such escalation. While the requisite propaganda campaign has since commenced in earnest, the regimes have yet to convince their citizens about Qatar’s newfound status as primary enemy or the timing of their alarming escalation.

Judging by the harsh punitive measures awaiting Saudi, Emirati and Bahraini citizens for public displays of sympathy with Qatar – or even expressions of doubt as to the efficacy of the blockade – it would appear that these governments believe that large swaths of their populations do not support their actions.

That is likely because the maximalist demands that these states have put forward as a precondition to ending the stalemate, from suppressing opposition groups to shutting down media organisations, aim to cement the repressive political conditions that have long defined their rule. The high cost of the recent escalations has shown that they are willing to mortgage the future of their citizens to do so.