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Defiant Qatar Restores Diplomatic Relations With Iran

Doha

Qatar has remained defiant throughout its unprecedented summer diplomatic crisis with Saudi Arabia and other Gulf Cooperation Council (GCC) states which have brought immense pressure to bear on the tiny gas and oil rich monarchy through a complete economic and diplomatic blockade imposed by its neighbors. However, on Thursday it unveiled a stunning geopolitical realignment when it announced the restoration of diplomatic relations with Iran in a move that is arguably its greatest act of defiance yet.

The Qatari foreign ministry announced early Thursday that "the state of Qatar expressed its aspiration to strengthen bilateral relations with the Islamic Republic of Iran in all fields" and reportedly informed Iran by phone of plans to return the Qatari ambassador to Tehran for the first time since it broke relations in 2016.

The move is significant because the chief accusation leveled against Qatar by its former GCC allies, especially Saudi Arabia, is of growing too close to Iran while sponsoring and funding terrorism. For the Sunni gulf states "funding terrorism" is more often a euphemism meaning links to Iran and Shia movements in the Gulf. Ironically, there is ample evidence demonstrating that both sides of the current Gulf schism have in truth funded terror groups like al-Qaeda and ISIS, especially in Syria. But Qatar's announcement sends an audacious and daring message essentially signaling that the country remains unbowed by Saudi pressure, and that the severe economic sanctions designed to bring Qatar to its knees may result in a geopolitical backfiring and new regional order with Iran standing to benefit.

On June 5 Saudi Arabia, UAE, Bahrain, and Egypt cut ties with Qatar in a dramatic move that resulted in a near total blockade of the small country which encompassed air, land, and sea. Even commercial airline flight paths were diverted mid-air at the time, causing multiple major regional carriers to cancel future flights to Doha's Hamad International Airport. Aggressive economic sanctions followed, including food blockages - most of which had previously been supplied by land via Saudi Arabia.

While energy-rich Qatar has the highest per capita income in the world, its residents have faced a summer of empty supermarkets and long lines to get basic staples. Reports of extreme and creative ways Qataris have attempted to get around the blockade include an ongoing plan to fly thousands of dairy cows on Qatar Airways jets into the country.

Qatari companies were expelled from Saudi Arabia, as well as individuals from diplomats (who were given 48 hours to leave) and farmers. While stock prices immediately slumped and imports plunged (by 37.9 percent in June compared with May), the government's plan to make up the difference in rising costs through subsidies has made life bearable - and Qatar actually appears to be weathering the storm.

The nation's oil and gas sector, which accounts for more than half of the country's GDP, is what is carrying the country through. Analysts have consistently characterized Qatar's oil and gas as vulnerable yet largely "unaffected" throughout the crisis - this partly because exports to Japan, China, India, and South Korea account for nearly three quarters of its total exports and have remained untouched by the boycott. The UAE, though, firmly on the Saudi side of the spat, relies on sourcing 30% of its energy needs from Qatar to keep the lights on, and a major gas pipeline connecting the two countries has kept pumping all summer. Related: Kurdish Independence Could Deal A Major Blow To Oil Markets

Fresh financial data out today confirms that Qatar is set to persist through the crisis while avoiding collapse, with some sectors remaining surprisingly strong. No doubt its leaders are keenly aware of this and emboldened in their shots fired across the Saudi bow as they restore diplomatic relations with Iran. Qatar's former adversary across the Persian Gulf has throughout the summer shipped food supplies into the blockaded country, as well as allowed Qatari flights increased use of Iranian airspace in largely symbolic acts aimed at poking the Saudis. But it's Qatar's shared massive natural gas field with Iran - with the South Pars Field owned by Tehran and the North Field owned by Doha - that has been the biggest stabilizing lifeline of the crisis. Though Thursday's figures show that:

Qatar is still far from restoring its imports to normal. Imports recovered by only 6.3 percent month-on-month to 6.24 billion riyals ($1.71 billion) in July; they were 35.0 percent below their level in July 2016.

Much of the disruption appears to be to big-ticket items. Imports of aircraft parts were down 40.5 percent from a year ago at 292 million riyals in July. The diplomatic crisis has deprived Qatar Airways of two of its biggest markets, Saudi Arabia and the UAE.

But as analysts have consistently predicted:

Thursday's trade figures suggested the sanctions are not affecting Qatar's natural gas exports - July exports of petroleum gases and other gaseous hydrocarbons rose 7.8 percent from a year ago - and are no longer slowing other exports much.

As a result, Qatar's trade surplus expanded 78.1 percent from a year earlier to 11.91 billion riyals in July, although it edged down 4.8 percent from the previous month.

And though prices on basic staples continue to rise (for example food and drink prices rose 4.2 percent in July from June), even this may stabilize.

Analysts think the sanctions damage should ease in coming months as new shipping routes are developed. Qatar Navigation launched a direct Qatar-Turkey service this week after starting a container service to Kuwait last week. Additionally, construction of a food processing and storage facility at Qatar's Hamad Port received $440 million of bank financing.

The so-called "13 demands" presented by the quartet of Arab countries sanctioning Qatar on June 23 have unsurprisingly remained unfulfilled while today's announcement further signals Qatar's willingness to forge alternate permanent ties away from the GCC alliance which has defined much of short history as a young nation-state. The announced willingness to form fresh ties with Iran comes just days after Saudi Arabia began somewhat bizarrely and aggressively promoting an exiled Qatari royal family member and prominent businessman, Sheikh Abdullah Bin Ali Al-Thani, whose family was forced out in 1972. The Saudis would like nothing more than be in a position to hand pick their choice for the Qatari throne and reduce Qatar to a vassal state.

From the Saudi and GCC perspective, the list of pre-conditions for lifting the embargo remain in effect, and include (according to India's English news site The Wire):

o Close down Al Jazeera television network and all its affiliates, plus other Qatar-funded news outlets
o Close a military base operated by Turkey
o Expel all citizens of Saudi Arabia, Egypt, UAE and Bahrain currently in Qatar
o Hand over all individuals wanted by those four countries for terrorism
o Stop funding any extremist entities that are designated as terrorist groups by the US
o Provide detailed information about opposition figures Qatar has funded
o Shut down diplomatic posts in Iran
o Expel members of Iran’s elite Revolutionary Guard
o Conduct trade and commerce with Iran only in conformity with US sanctions Related: When Can We Expect An Oil Price Breakout?

And yet surprisingly it appears Qatar is increasingly in the geopolitical driver's seat, having called the bluff of the more powerful GCC states led by Saudi Arabia and backed by Saudi allies like the U.S. and even Israel. For now, it appears tiny Qatar is defying the odds, and its potential to successfully navigate the current economic and diplomatic full-frontal assault has huge repercussions for the entire region. As accurately predicted by a comprehensive report by Middle East scholar Mouin Rabbani produced earlier this summer:

The big winners so far are Iran, Syria, and their Lebanese ally Hizballah, who cannot but be delighted by the audible cracks in the alliance ranged against Damascus and Tehran and that may well spell the end of the GCC. Iran and Hizballah will additionally hope that Hamas has finally learned the lesson that no ally of the United States can be a true friend of the Palestinians.

Turkey has also, yet again, demonstrated that in today’s Middle East, it has a role to play in every crisis and that others ignore Ankara’s interests– whether in the Gulf, Syria, or Iraq–at their peril. On the flip side, there are growing noises within Riyadh and Abu Dhabi that the campaign should expand to include Turkey–which has recently been claiming that the UAE is implicated in the 2016 coup attempt against Erdogan.

Will we all look back on this moment when future historians trace the end of the GCC? Did the Saudis finally overreach in their anti-Iran fanaticism to become the authors of their own demise? The surprising emergent Iran-Qatar alliance is sure to at least be the start of a new regional order where the Saudis can no longer dictate terms no matter how many Western powers stand at their side.

By Zerohedge.com

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