While Qatar has managed to avoid a major economic hit from a Saudi Arabia-led blockade, the imposition of US sanctions has hurt growth in Iran, said the ‘Aon Risk Map 2020 – Crisis Management’ report which is a guide to political risk, terrorism and political violence worldwide.
A three-year trade blockade has not dented Qatar’s GDP, but the reimposition of US sanctions on Iran has caused the Iranian economy to plunge. The blockade on Qatar also did not cause a spike in inflation, whereas US sanctions have helped reignite inflation in Iran, the report stated.
Explaining the mixed impact of sanctions between the two countries, the report said, “Sanctions that encompass large groups of nations (by agreement or pressure) are more effective than embargoes or blockades that involve only a handful of countries. Sanctions are also more effective if a global superpower leads the effort (eg, the US), rather than a regional player (eg, Saudi Arabia).
“The outcome of the US presidential election in November 2020 will undoubtedly influence the focus of sanctions globally. The result will have more of an impact on Iran than other countries that currently face broad US sanctions.”
Qatar
Saudi Arabia led a multi-country blockade on Qatar in June 2017, when diplomatic and economic ties were cut. A key concern had been Qatar’s alleged support for terrorism and fears that it had violated a 2014 agreement with GCC members. The boldness of the blockade also came in the context of support from within the US administration, which did not materialise into action. Historians also point to a double decade desire on the part of Qatar to distance itself from Saudi influence over the direction of foreign policy, which made a clash inevitable at some stage.
In Qatar’s case, Saudi Arabia directed the blockade, with additional participation from the UAE, Bahrain and Egypt. In practical terms, Qatar businesses could no longer export or import to and from these countries, while the impact on Saudi and UAE companies was mitigated by the modest size of exports to Qatar relative to their GDP. This then prompted a sell-off in the Qatar equity market and initial uncertainty about debt servicing.
However, Turkey, Iran and other countries were willing to pick up the slack in trade, services and transport links as a means to exert greater regional influence. This meant that the blockage on trade, services and transport links merely prompted a reorientation. Qatar has also benefitted from the switch in energy demand from oil/coal to gas, as Qatar’s major export is natural gas.
In essence, Qatar only faced embargoes from a small group of countries. This prompted a rebound in foreign deposits and foreign bank loans to the Qatar financial system in 2018, after the net outflows were seen in 2017 in the immediate aftermath of the blockade (the Qatari central bank’s foreign currency reserve rundown had offset the outflows). Net foreign investment and portfolio flow had been less impacted in 2017.
The partial blockade on Qatar is unlikely to change in the coming years as Qatar has been able to redirect trade and travel links and wants to showcase the economy during the 2022 World Cup. At the same time, Saudi Arabia does not want to lose face and will be reluctant to change course.
Iran
The US reimposed sanctions on Iran in November 2018 in a bid to limit its support for militant groups in the region and its development of ballistic missiles. The move has hurt Iran, despite the EU giving clearance for EU companies to still work with Iran following the US decision to pull out of the Iran nuclear deal in May that year.
The EU put a payment mechanism (Instrument in Support of Trade Exchanges) in place to allow EU companies to exchange goods with Iranian companies without requiring direct transfers of money between the EU and Iran. This was designed to act as an economic shield against US sanctions on Iran. However, the potential loss of access to the lucrative US economy was more threatening for EU companies, which curtailed exports and imports with Iran. Meanwhile, financial sanctions threatened EU companies’ access to USD-centric global financial markets. This also impeded EU companies’ investment in Iran. The EU’s clearance for EU companies amounted to nothing more than a political gesture. M