AlUla agreement: What does resetting ties with Qatar mean for the GCC region?

For the Gulf region, the year 2021 started on a positive note.

On January 5, during the 41st GCC Summit held at Saudi Arabia’s ancient city of AlUla, the kingdom – along with the UAE, Bahrain and Egypt – signed an agreement to restore ties with Qatar, ending the dispute within the region.

The four countries had sealed all land, sea and air borders with Qatar in June 2017, accusing Doha of supporting terrorism. Qatar denied the allegations.

The signing of the AlUla Declaration to restore relations “will be a strong and important foundation to the future of the region and its stability” Saudi Arabia’s Foreign Minister Prince Faisal bin Farhan told reporters at the time. The move was hailed as a significant step for the region. The restoration of ties between Qatar and the four Arab countries will “improve political and economic cooperation” within the GCC region, S&P Global Ratings said in a note. “We expect that the resolution of the boycott will support improvement in the region’s broader business and investment environment,” it said.

During the embargo against Qatar, businesses operating throughout the Gulf faced disruptions to supply routes, transportation, recruitment, and scheduling obligations, law firm Wasel and Wasel’s Susan Bastress and Mahmoud Abuwasel said in a note. “Parties have sought to accommodate the impacts of these disruptions through contractual provisions aimed at providing relief to harmed parties. These “workaround” provisions have resulted in increased costs to business operations, development projects, and ultimately the public at large, throughout the Gulf,” they wrote.

With the agreement now in place, businesses should consider reviewing current contract obligations and how they would be affected by the elimination of embargo related disruptions. Companies that deferred bidding on projects in a particular GCC country due to political concerns can also revisit tender opportunities in these countries.

“Businesses may also seek to re-establish relations with business partners in those countries where operations have been suspended,” the report added.

Nazar Musa, chief commercial officer of Pro Partner Group – which assists in company formation, agrees that regionally-based businesses can now realistically consider opening operations in Qatar.

“The opportunity also lies for Qatar-based organisations who wish to expand into other GCC jurisdictions. The movement of trade and services between Qatar and its regional neighbours has been significantly curtailed in the past few years and the opening builds overall confidence and creates opportunities across the board,” he says.

Looking at trade, the embargo negatively affected imports into Qatar from countries previously supplying goods and services, including Saudi Arabia, Germany, China and the United States. These disruptions to normal trade routes resulted in part from the closure of the border between Saudi Arabia and Qatar, the Wasel and Wasel report explained.

“For global exporters who utilise the Jebel Ali port as a single point-of-entry to the GCC market, the normalisation of GCC relations could result in reinstating efficient access to all markets within the GCC, as the Saudi-Qatar border reopens for sea-land transport. In addition, the ability to freely access all GCC ports would eliminate current port restrictions limiting imports from foreign markets such as India and China,” it added.

Another major impact will be on the travel industry, with GCC nationals and residents now able to move between the countries with ease. “Over the past few years, even reaching Doha from the GCC involved hours of travel across multiple borders. At present there are still restrictions on arriving in Qatar since quarantine is required [due to Covid19]. So although the opportunities are great, they will certainly be delayed until meaningful business travel can be undertaken without quarantine,” says Musa.

“Clearly aviation and travel will benefit greatly as airlines restart operations into and out of Doha. This will in turn allow GCC-based hotels and attractions [outside Qatar] to benefit from high spending Qatari travellers again and Qatari hotels restarting both business and leisure travel from the other GCC states.”

He adds: “Looking ahead, regional events coming up including the Expo in the UAE this year and the 2022 FIFA World Cup in Qatar should allow regional and international trade to develop further and there’s every indication that by the time these events happen, vaccines will be distributed, and a level of normality achieved.”

While S&P also stressed that Qatar’s intraregional travel, tourism, and real estate sectors will benefit most, it anticipates the impact on bilateral trade to be marginal.

“Trade between member states is relatively limited given the almost uniform concentration of GCC member states’ exports on hydrocarbons and the lack of strong agriculture or manufacturing sectors in the region,” it said.

Another major beneficiary from the agreement is poised to be Qatar’s banking sector. In a note, Fitch Ratings said the blockade led to the withdrawal of about $30bn of non-resident deposits from Qatari banks in June-October 2017, predominantly by Saudi Arabian depositors but also by some from the UAE, causing tightening of foreign-currency liquidity.

“We expect Saudi clients, who withdrew deposits from Qatari banks due to the blockade, to start shifting some of their funds back. This will provide Qatari banks with an additional pool of liquidity, which will diversify their funding base, reduce their reliance on price-sensitive government-related entity and corporate deposits, and cut their funding costs,” it stated.

“The end of the blockade should encourage GCC tourists back to Qatar when the pandemic eventually eases. This should help reduce the pressure on the country’s distressed real estate and hospitality sectors, which are the largest sources of asset-quality problems for banks,” it added. Overall, the agreement will project a stronger and more united GCC front, helping the regional economy as a whole.

As the UAE’s Ex-Minister of State for Foreign Affairs Anwar Gargash tweeted immediately after the signing of the agreement: “From the hall of mirrors in AlUla, a bright new page begins.”