North of Qatar’s capital, the new city of Lusail is a maze of empty streets and semi-completed towers. Dozens of cranes loom over construction sites. Signs indicate directions to the sole government building operating in the area, the economy ministry.
The occasional glimpse of washing drying on a balcony is the only evidence of daily life in this waterfront city near Doha, which is planned to accommodate 200,000 people. Yet come 2022, Lusail’s 80,000-seater stadium, designed by Foster + Partners and under construction, will host the final of the football World Cup.
The city’s rapid progress from dusty desert to global centrepiece comes as the rest of Qatar faces the most serious external threat in its four-decade history, the trade and travel embargo imposed last June by four Arab states — Saudi Arabia, the United Arab Emirates, Bahrain and Egypt — over the peninsula’s alleged support for terrorism.
The schism has turned strong US allies on each other, undermining Washington’s attempts to build a united front against Islamist terror and Iran. The US, which has its regional military headquarters in Qatar, is increasingly active in pursuit of a compromise deal, but few believe a breakthrough is imminent, with Riyadh and Abu Dhabi content with Doha’s isolation.
Qatar, the richest country in the world on a per capita basis, is offsetting the economic impact of the embargo by ploughing ahead with its $200bn infrastructure development programme, building roads and railways. The government also redirected $50bn from the country’s sovereign wealth fund and reserves to protect the banking sector and exchange rate.
“Qatar has been able to adjust, with a number of measures taken to compensate for the threat [to] trade and finance,” says Jihad Azour, regional director for the IMF. “But this is not an optimal situation. Any trade difference between neighbour countries affects investment sentiment.”
The boycott, imposed last June, cut Qatar’s main supply lines — the land border with Saudi Arabia and shipping routes into the re-export hub at Dubai’s Jebel Ali port — and took out routes accounting for a fifth of seats sold by Qatar Airways, which has threatened to sue for damages. All Qataris were kicked out of the quartet of states separating families bound together by generations of intermarriage.
It is calculated to have cost the economy in lower growth and higher import costs and forced the government to repatriate billions from its $340bn overseas portfolio to shore up a financial system that local businessmen say remains prone to shortages of hard currency. Its sovereign wealth fund has reduced some of its overseas stakes, such as in the jeweller Tiffany & Co and Credit Suisse, to divert cash to emergency domestic measures. Last month it successfully issued a $12bn bond .
The crisis was triggered when Riyadh and Abu Dhabi, self-appointed guardians of regional stability, were maddened by tiny Qatar’s support for popular Islamist movements that grew out of the tumult of the Arab spring, plus more established organisations such as the Muslim Brotherhood, which briefly governed Egypt, and the Palestinian group Hamas . They feared these groups could upend the Gulf’s conservative monarchies. Qatar-owned al Jazeera’s rolling TV coverage of the status quo under threat deepened that anger.
The quartet’s initial demands, such as closing al Jazeera and a Turkish military base in the country, were reduced to six, including combating extremism and non-interference in neighbouring states. Qatar denies the claims, saying it will not accept any limits on its sovereignty.
The Trump administration’s decision last week to withdraw from the Iran nuclear deal was enthusiastically backed by Doha’s rivals in Riyadh and Abu Dhabi. And it could deepen Qatar’s malaise, given its growing dependence on shipping routes to Iran and its neutral Gulf Cooperation Council neighbours Oman and Kuwait, both of which are seeking closer trading ties with the Islamic republic.
Qatari officials say the level of trade with Iran is minimal when compared with Iran’s larger trading volumes with Dubai, its traditional partner and a member of the blockade against Qatar.
“The UAE dominates 90 per cent of trade between GCC [states] and Iran, even after the blockade with Qatar,” says Lulwa al-Khater, Qatar’s foreign ministry spokeswoman. Official statistics show that Qatari imports from Iran have risen since the embargo, but remain less than imports from the UAE.
Having survived the initial onslaught Doha is now turning its mind to fostering enough growth to fill the malls and residential towers rising across the urban sprawl of the capital. Last year’s fiscal deficit of 1.6 per cent of gross domestic product is forecast to swing to a surplus of 2.8 per cent in 2018 as crude prices hover around $80 a barrel , according to research from MUFG
Non-oil related growth rates of about 4 per cent this year are better than those enjoyed by its neighbours, but Qatar’s domestic economy is a shadow of its former self, given average growth of more than 12 per cent between 2000 and 2014, a period when its population shot up from under 600,000 to 2.5m people.
Although offset by the government’s infrastructure spending, momentum was already slowing before the embargo, filtering through to the services, retail and hospitality sectors. “Only 15 per cent of this economic hit is because of the blockade,” says one western consultant. “The rest is a correction that was always coming.”
The consultancy DTZ says official statistics show visitor arrivals into Qatar fell 23 per cent in 2017 to 2.3m, squeezing hotel occupancy and room rates amid plans for a 75 per cent increase in capacity ahead of the World Cup. The tiny peninsula has 21 shopping malls, with four more scheduled to open this year, delivering a glut of retail space just as consumer confidence dips.
Lower spending, more supply and the blockade have also put downward pressure on rents. Residential estate prices have fallen almost 20 per cent from their 2016 peak, according to central bank statistics. Many government departments and private sector conglomerates are cutting budgets and reducing staff costs. “There is real oversupply, in malls, buildings, hotels,” says one Qatari banker. “But at least the government is investing.”
The world’s largest exporter of liquefied natural gas is expanding its contracts, with new long-term supply deals to Bangladesh and Vietnam, and launching partnerships with the private sector for logistics zones and other infrastructure projects. Regulatory reform is also on the agenda: Qatar is easing restrictions on foreign investment and hoping to lure more tourists by relaxing visa regulations.
Ali Shareef al-Emadi, the finance minister, says changing the law to allow foreigners to buy real estate anywhere in Qatar, and proposing that they be allowed to own businesses without a local partner, will help the country achieve its vision of becoming an investment destination.
Failing to acknowledge any irony in isolated Qatar seeking to become a business hub, Mr Emadi says the country’s airline and its new port will fuel growth. Officials talk about rebranding as “Global Qatar”, and extending its reach beyond traditional trading partners.
“We are going to be one of the most competitive countries in the region in direct foreign investments,” says Mr Emadi. Qatar attracted $774m of direct investment in 2016, the latest available UN figures, down on the $1bn in the previous year, and well below the $3.6bn pre-crisis average of 2005 to 2007.
Domestically, the nation appears to have united in response to the embargo by wholeheartedly backing the emir, Sheikh Tamim bin Hamad al-Thani.
Stencilled images of the ruler adorn almost every building. To Qataris, the 37-year-old leader has become a folk hero. Many expatriates in the country also display his picture, encouraging Qatar to “beat the blockade”, even if one veteran expat winced at the “Orwellian” nature of national discourse.
“The blockade unified the whole country: citizens, residents, students,” says Haya Alwaleed al-Thani, a student at Georgetown University’s campus in Doha. “Even if this is solved, we won’t be visiting these states for years, as we don’t trust them. How can we go back?”
Qatar has been here before. In 2014 Saudi Arabia, the UAE and Bahrain withdrew their ambassadors in a rift over the same claims of support for Islamism. Despite a compromise agreement that year, Qatari officials built strategic food stocks in expectation of a day when their neighbours would use sanctions to turn the peninsula into an island. When the embargo was launched, panic buying emptied supermarket shelves. But within hours the stores were resupplied.
Via Hamad Port, in full operation since December 2016, Qatar has been reshaping supply lines, forging 10 direct routes to countries ranging from Oman and Turkey to India and China.
Merchants in Doha’s old market say they could source some goods from these new routes, but many are still relying on transhipping goods from Dubai via neutral Oman, which has triggered price rises. At a national level, food and transportation inflation spiked in the wake of the embargo, though new supply chains mean it is now easing.
The Qatari focus on “economic security” has revived the unfashionable concept of “import substitution”, replacing imports with domestically-produced goods. Grocery stores, once stocked with Saudi vegetables and dairy produce, are now filled with milk and yoghurt from local cows, as well as fruit from Iran and vegetables from Bangladesh. Qataris are rearing livestock and growing their own vegetables for sale in farmers’ markets in the city.
In a modern twist on self-sufficiency, one local financial institution is preparing the first private equity fund for Qatar, staking local ventures such as basic pharmaceuticals production.
“We can tough out this threat,” says Sheikh Mohamed al-Thani, a former trade and economy minister. “We know we are winning and they are losing.”
Saudi and Emirati officials, however, believe they can easily sustain the boycott. “The consequences of a long-term estrangement are asymmetric: the quartet is not suffering nearly as much as Qatar is,” says Mohammed Alyahya, a non-resident fellow at the Atlantic Council think-tank.
Pressure for compromise will mount, especially as Qatar 2022 approaches. But for now fighting talk in Doha reflects dim prospects for a resolution to the crisis. Saudi Arabia’s crown prince, Mohammed bin Salman, in March dismissed the dispute as “trivial”. Abu Dhabi, Doha’s most strident opponent, has expressed satisfaction with the boycott, arguing it has forced Qatar to focus on its economy and stop interfering in conflict zones from Libya to Syria.
US president Donald Trump, once hawkish on Qatar, has been persuaded to push for a resolution, say officials. His newly-appointed secretary of state, Mike Pompeo, visited Riyadh in April to push, in vain, for a compromise deal.
“We are willing to address concerns, but we also require our neighbours to consider our concerns,” says Ms Khater. “The fact that they overnight can blockade us, expel citizens . . . They need to respect Qatar’s sovereignty.”
Qataris insist their new partnerships are here to stay, and they have no desire to go back to their former reliance on their Gulf partners. “We will keep doing what is right for our economy,” says Mr Emadi. “We always said we are part of GCC and want dialogue, but also our economy and our people come as a priority. That will continue.”
Terror: both sides play blame game in anti- Islamist fight
The former emir, Sheikh Hamad bin Khalifa al-Thani, used Qatar’s new-found gas wealth to extend global influence. Buying up a host of British assets, Doha became an aggressive deal-hunter. But it was Qatar’s independent foreign policy, amplified through its Al Jazeera news network, that irritated its Gulf neighbours.
Sheikh Hamad took a decisive role in the Arab spring. Saudi Arabia was shocked by the power of popular protest that tumbled allies in Tunisia, Egypt and Yemen. But rather than joining Riyadh and Abu Dhabi in opposition to the pan-Arab Muslim Brotherhood, Qatar, long a base for Islamists in exile, sought to tie itself to this growing force. Doha’s backing for extremist rebels in Libya and Syria, where Saudi Arabia also intervened, compounded the suspicion that Qatar supports dissident Gulf groups.
Reports last April that Doha had paid a ransom of up to $1bn to Islamist extremists, Shia militias and Iranian security officials for the release of Qatari royals kidnapped in Iraq further fuelled Gulf anger.
Qatar rejects claims it backs extremists. Doha is a leading member of the anti-Isis coalition, hosting the US’s regional military base, officials point out. And western officials agree it has tightened regulations to stop terrorist financing.
Qataris argue that it is the boycotting states that are destabilising the region, through the Yemen conflict, bellicose rhetoric against Iran and interference in Lebanese politics. “I’m not sure how regional conflicts are de-escalating, in fact we see the opposite,” says Lulwa al- Khater, Qatar’s foreign ministry spokeswoman.