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End of diplomatic dispute with Saudi-led bloc constitutes notable achievement for Qatar, likely to boost regional cooperation, economic ties – Qatar Analysis

Executive Summary

  • On January 5, Qatar and a Saudi-led bloc of states signed the “al-Ula Declaration” and restored diplomatic ties following a three-year rift. This constitutes a major achievement for the former, which has been able to circumvent the challenges of exclusion by the latter by relying on its resources and strategic alliances with the US, as well as Turkey and Iran.
  • Qatar and the Saudi-led bloc will likely seek to foster economic cooperation and mutual investments to generate revenue. Qatar’s economy will thus likely benefit from the renewed bilateral trade and tourism inflow that the agreement between the parties will facilitate.
  • However, despite this detente, ideological differences will persist between Qatar and the Saudi-led bloc given that Doha will likely continue to pursue an independent foreign policy to bolster its regional influence. Tensions will particularly pertain to Qatar’s relations with Iran and Turkey, which have deepened during the blockade.
  • Travel to Qatar may continue as normal while adhering to cultural norms and avoiding making any statements critical of the Qatari Emir and government officials. Remain cognizant of the continued potential for tensions between Qatar and the Saudi-led bloc.

Current situation

The al-Ula Declaration

  • On January 5, Saudi Arabia, Bahrain, the UAE, and Egypt agreed to restore ties with Qatar during the 41st summit of the Gulf Cooperation Council (GCC) in Saudi Arabia’s al-Ula. The parties signed the “al-Ula Declaration”, according to which, the Saudi-led bloc agreed to lift the official air, sea, and land blockade against Qatar.
  • The Saudi Crown Prince Mohammed bin Salman (MbS) reportedly stated on January 5 that the “al-Ula Declaration strengthens the bonds of friendship and brotherhood among our countries”.
  • MbS also emphasized the “need to unite our efforts to…confront the challenges that surround us, particularly the threats posed by Iran’s nuclear program, its ballistic missile program as well as the terrorist and sectarian activities adopted by Iran”.
  • On January 7, Qatar’s Foreign Minister reportedly stated that the end of the dispute “has no effect on our relationship with any country”.

Implications

  • On January 8-9, Saudi Arabia and the UAE reopened their air, land, and sea borders with Qatar.
  • Bahrain and Egypt reopened their airspace to Qatari flights on January 11 and 13, respectively.
  • According to a January 20 report citing Egyptian intelligence sources, a Qatari foreign ministry official pledged at a meeting that Qatar would not interfere in Egypt’s internal affairs and would change its state-funded media outlet’s orientation towards Egypt. A Qatari official denied the meeting had taken place.
  • Although the terms and conditions for the restoration of relations have not been disclosed, reports indicate that Qatar will withdraw all its lawsuits at the World Trade Organization (WTO) and the International Court of Justice (ICJ) against its three Gulf neighbors and that all parties committed to stopping their “media campaigns” against each other.

Background

On June 5, 2017, Saudi Arabia, Bahrain, the UAE, and Egypt announced the imposition of a land, sea, and air blockade against Qatar, and the severing of all trade and diplomatic ties with the latter. The four blockading countries also referred to as the Saudi-led or Saudi-aligned bloc, initiated the dispute based on accusations that Qatar was providing support to “extremist” elements in the Middle East, interfering in their internal affairs, and maintaining close ties with Iran. Qatar’s Foreign Minister issued a statement on the same day to denounce “unjustified” measures that are “based on baseless unfounded allegations”. On June 23, 2017, the Saudi-led bloc issued a list of 13 demands that Qatar had to fulfill within ten days to lift the blockade. The demands included Doha’s curbing of its ties with Iran, the removal of the Turkish presence from its territory, the shutting down of a prominent Qatar government-owned news outlet, and the payment of reparations for “loss and life and other financial losses caused by Qatar’s policies in recent years”. The Qatari government rejected all the demands, which it perceived as “limiting Qatar’s sovereignty, and outsourcing its foreign policy.”

Assessments & Forecasts

The ability to circumvent the blockade has placed Qatar in the position of strength

  1. Overall, Qatar has been largely successful in overcoming the economic and political challenges induced by the official blockade and diplomatic isolation by the Saudi-led bloc since 2017. According to the International Monetary Fund (IMF), Qatar is one of the world’s most affluent countries, with a GDP of 184.5 billion USD in 2019. Its wealth mainly stems from its natural gas reserves, which has made the country the world’s largest exporter of Liquefied Natural Gas (LNG). Qatar has, for instance, signed various deals during the blockade, making it a major supplier of LNG to some Asian countries’ growing markets, such as Vietnam, Bangladesh, and, more recently, Singapore, with whom Qatar signed an agreement in November 2020 to supply up to 1.8 million tonnes of LNG per year from 2023. The revenue generated by the gas exports has enabled the Qatari government to cushion the adverse effect of the blockade. Qatar has also diversified its trading partners outside the Gulf region by opening several new shipping routes to compensate for the revenue losses as well as to ensure the supply of essential commodities. Thus, overall, Qatar’s strategy of leveraging its wealth to build new economic partnerships has enabled it to reduce the blockade’s financial impact and project power to the international audience.
  2. The rift with the Saudi-led countries allowed countries like Turkey and Iran to step in by providing material support, which has led to the strengthening of ties between Qatar and these countries. During the early weeks of the diplomatic dispute, Iran sent a significant amount of essential goods to alleviate the risk of food shortages and opened its airspace for Qatari flights that were no longer allowed to fly over Saudi Arabia, Bahrain, and the UAE. Turkey created an air bridge for needed supplies and enhanced its strategic and military ties by deploying Turkish troops and holding military exercises in Qatar.
  3. However, Qatar’s deepened relations with Turkey and Iran did not signal a shift away from its long-standing close partnership with the US, particularly in the defense and security spheres. Qatar is, for instance, home to the largest US military installation in the Middle East region. The signing of a Memorandum of Understanding (MOU) on combating militant financing in July 2017, and the establishment of a “Strategic Dialogue” in January 2018 are illustrative of the continuity of the relations between Doha and Washington during the dispute. Qatar was therefore able to mitigate its regional isolation by deepening its relations with regional and international actors, which provided Doha both with the material and political support needed to confront the Saudi-led pressure.

Restoration of ties constitutes diplomatic achievement for Qatar, liable to boost the economy

  1. Qatar’s demonstrated resilience to circumvent the blockade has therefore placed Doha in a position of strength vis-a-vis the Saudi-led bloc. This is further bolstered by the lack of stipulations to the “al-Ula Declaration”, which implies that the Saudi-aligned states did not gain major concessions from Qatar, especially pertaining to the 13 demands put forth by Riyadh and its allies. Moreover, the deepening of ties with Turkey and Iran during the last few years, which were factors for the Saudi-led bloc to initiate the dispute, highlights Qatar’s resolve to resist pressure from external actors to alter its foreign policy. Against this backdrop, the Saudi-led bloc’s decision to restore ties with Qatar without extracting compromises from the latter constitutes a notable diplomatic achievement for Doha.
  2. FORECAST: The end of the dispute will pave the way for renewed cooperation between Qatar and the Saudi-led bloc over the coming weeks and months, particularly on the economic front. This will include public sector collaboration and extend to increased opportunities for cooperation between private entities based in these countries. The lifting of the blockade will thus likely have a positive impact on Qatar’s economy as it will reestablish bilateral and regional trade, which was high prior to the blockade. This is illustrated by the fact that approximately 60 percent of Qatar’s imports, especially food supplies, reportedly emanated from the boycotting states. Qatar will thus likely seek to reach new economic and trade agreements to stimulate the flow of goods and investments with its Saudi and Emirati neighbors. Qatar and the Saudi-led bloc will particularly seek to boost mutual investments, especially amid a decrease in their government revenues due to the fall in global oil prices and COVID-19-induced restrictions on business and travel restrictions.
  3. In this context, increased cooperation between Qatari and the Emirati companies in the construction sector may be witnessed to assist Doha’s infrastructure projects ahead of the FIFA World Cup 2022. With regards to Egypt, Qatari companies will likely continue their investment ventures in the real estate and tourism sectors, as evidenced by the opening on January 8 of a luxury hotel in Cairo owned by a Qatari real estate investment firm. With respect to Saudi Arabia, given that Riyadh was reportedly its main supplier of food commodities prior to the dispute, Doha will likely seek to boost its trade exchanges in the agro-food sectors with Saudi Arabia. Meanwhile, the reopening of borders, albeit depending on the containment of the COVID-19 pandemic, will boost tourism, which Qatar has sought to develop as part of its economic diversification efforts to reduce its dependence on gas revenues.
  4. Furthermore, the easing of tensions and logistical difficulties in traveling between Qatar and the aforementioned countries will likely serve to boost investor confidence. During the blockade, the Qatari authorities took several measures aimed at attracting foreign investment, such as easing visa requirements and allowing full foreign ownership of companies across all sectors. FORECAST: Therefore, Qatari authorities will likely continue their efforts to make the Qatari market more lucrative to foreign investors. This is particularly in the light of the upcoming FIFA World Cup 2022, which Doha seeks to utilize as a platform to bolster its international outreach and standing. To this effect, the authorities will continue to appeal to international investors in the sectors related to various services, infrastructure, and real estate, to support their long-term efforts to diversify its largely gas-dependent economy. Overall, the lifting of the blockade will likely boost intra-GCC trade and investment, providing a certain impetus to Qatar’s economy over the coming year. However, this will not lead to a shift in Qatar’s long-term strategy to incentivize foreign investors.

Detente with the Saudi-led bloc unlikely to alter Qatar’s foreign policy

  1. During the years of the rift, Qatar has implemented an active and independent foreign policy to bolster its regional influence, which included engagement with a broad range of regional actors and support for Islamist groups. These policies, such as Qatar’s ties with Iran and its support for Islamist groups such as the Muslim Brotherhood, have been antithetical to the interests of its Gulf neighbors. For instance, the UAE is largely hostile to political Islam. This is due to its perception that Islamist groups, particularly those linked to the Muslim Brotherhood, have triggered unrest and revolutions across the region as a launchpad to political power. Additionally, Saudi Arabia and Iran, who are considered leaders of the Sunni and Shiite branches of Islam, respectively, have been engaged in a rivalry for power and influence in the region for decades and the Kingdom is thus suspicious of countries that maintain close ties with Tehran, holding the latter responsible for destabilizing the region’s security. This also manifests in Riyadh’s approach to the Palestinian Islamist group Hamas, which administers the Gaza Strip. Over recent years, Saudi Arabia has conducted arrests of dozens of Palestinians in the Kingdom who have been accused of having links to Hamas.
  2. These examples illustrate the breadth of differences between Qatar and its allies and interests on one side and the Saudi-aligned bloc on the other. FORECAST: However, given that Qatar’s Foreign Minister stated on January 7 that the thaw in relations “has no effect on our relations with any country” and there is no such stipulation in the “al-Ula Declaration” insisting on policy change in exchange for the resumption of ties, it is unlikely that Doha will alter its foreign policy over the coming months. It will thus maintain its own independent and active agenda, despite this overtly clashing with that of the countries it has recently reconciled with.
  3. With regards to Iran, Doha has primarily been driven by pragmatic interests and a desire not to alienate Tehran. One of the major reasons for this is because Qatar’s ties to Iran are critical in protecting its natural resources, as the countries share the largest gas field in the world, which is called the North Dome/South Pars. Therefore, given Qatar’s reliance on natural gas to generate revenue, the shared management of the gas field and the maintenance of cordial relations with Iran are essential to Qatar’s economic interests.
  4. FORECAST: In this context, Qatar is unlikely to downgrade relations with Iran over the coming months as this would jeopardize its economic growth. More so, Qatar’s close ties with the US and positive relations with Iran may enable Doha to act as an intermediary for the incoming US President Joe Biden, who has expressed his willingness to engage in dialogue with Tehran. This is further bolstered by Qatar’s role of maintaining relations with opposing actors, rendering it a facilitator for indirect negotiations and back-channel communications. This is evidenced by Qatar’s coordination with Israel to provide funding for the Gaza-based Hamas, and its reported role in fostering peace talks between the Afghan government and the Taliban.
  5. Additionally, Doha also shares a relatively strong alliance with Turkey. In addition to Ankara’s pivotal material support for Qatar during the blockade, Doha has invested heavily in the Turkish economy, amounting to approximately 22 billion USD in 2019, amid the latter country’s recent economic crisis. The alliance is also rooted in the convergence of the two countries’ geopolitical, military, and ideological interests, as illustrated by their support for the Government of National Accord (GNA) in Libya, and more broadly their long-standing support for Muslim-Brotherhood-linked elements throughout the region, and other Islamist groups, such as Hamas. Moreover, while there is a lack of significant evidence of overt support, both Ankara and Doha are thought to enjoy some level of influence over the Muslim Brotherhood-affiliated al-Islah Party in Yemen, which is deemed to be the primary security destabilizer by UAE-backed groups, such as the Southern Transitional Council (STC). FORECAST: In this context, given the depth of their bilateral relations, coupled with the convergence of their foreign policy goals in the Middle East region, Doha is unlikely to curtail its ties with Ankara over the coming year.

Conflicting interests, ideological differences to perpetuate tensions between Qatar and the Saudi-led bloc

  1. Overall, distrust between Qatar and the Saudi-led bloc is liable to persist, as illustrated by the UAE’s Foreign Minister, who stated on January 7 that although the “al-Ula Declaration” constitutes “a good start”, Abu Dhabi has “issues with rebuilding trust”. Moreover, the lack of reference to the initial factors that led the Saudi-aligned states to cut ties with Qatar in the “al-Ula Declaration”, including the curbing of Doha’s relations with perceived destabilizing actors such as Iran and the Muslim Brotherhood and the shutting down of a prominent Qatar government-owned news outlet, suggests that the root causes of the dispute have likely not been addressed.
  2. The end of the dispute may also be an initiative by the Saudi leadership to project its intention to end intra-GCC divisions and promote regional reconciliation in a bid to gain favor with the new US President Joe Biden-led administration. This may partly be because Biden has vowed to “reassess” the US’s relationship with Riyadh due to the Kingdom’s crackdown on perceived dissidents and involvement in allegedly exacerbating the humanitarian crisis in Yemen.
  3. Moreover, it is also in Saudi Arabia’s interest to strengthen the GCC as a united bloc prior to the potential commencement of US-Iran talks related to the Joint Comprehensive Plan of Action (JCPOA) or a new agreement with Iran over the coming months. This may allow the Kingdom to partly influence Doha’s stance regarding the Iran nuclear deal and US-imposed sanctions on Iran. This may be behind MbS’ statement that “we need to unite our efforts to…confront the challenges that surround us”, pointing primarily to Iran’s nuclear and ballistic missile program and alleged support for “terrorist activities”.
  4. FORECAST: In this context, going forward, one of the main contentious issues will remain Qatar’s ties with Iran as well as Turkey. Given that the Saudi-led bloc views Iran’s and Turkey’s regional influence as a threat, Doha’s pragmatic relations with the two countries will continue to constitute a fault line in the long term. In addition to this, Qatar’s support for Muslim Brotherhood-linked elements will remain a lingering point of contention because the Saudi-led bloc, particularly the UAE, perceive such elements as subversive and as a threat to its national security. More broadly, the pursuit of conflicting interests, such as countering Iranian and Turkish influence, ideological differences, and competitive dynamics across the Middle East region will continue to set Qatar and the Saudi-aligned states apart.

Recommendations

  1. Travel to Qatar may continue as normal while adhering to cultural norms and avoiding making any statements critical of the Qatari Emir and government officials.
  2. Additionally, refrain from photographing or filming working and housing conditions of migrant workers in the country, as such actions may draw confiscation of equipment by security forces or possible detainment.
  3. Remain cognizant of the continued potential for tensions between Qatar and the Saudi-led bloc, which may result in punitive measures or increased scrutiny of individuals expressing support for the other party.

COVID-19-induced impact on oil, tourism sectors to have wide-ranging economic, social ramifications on GCC countries over coming months – GCC Analysis

Executive Summary

The decline in global oil prices and tourism due to ongoing COVID-19-induced travel and business restrictions has led to severe economic challenges for the Gulf Cooperation Council (GCC) states, which heavily depend on these sectors for revenue. This will likely lead to a recession, as per International Monetary Fund (IMF) projections that the GCC economy will contract by 7.1 percent in 2020.

The ongoing repatriation of thousands of expats from the region to their countries of origin as a result of the crisis is likely to have multiple social and economic ramifications, particularly in countries like the UAE and Qatar, where foreign nationals make up almost 90 percent of the total population.

This will lead to labor shortages, increasing the need to expedite the nationalization of the workforce and rapidly train domestic workers, which is unlikely to occur in such a short time span.

Those operating in the GCC states are advised to remain abreast of COVID-19-triggered restrictions and related economic and labor measures that are being undertaken by the respective governments, and to take mitigating actions against potential resultant risks.

Please be advised

In light of the ongoing COVID-19 pandemic, Gulf Cooperation Council (GCC) countries have adopted various measures, the most prominent of which include:

Bahrain

On March 17, the government announced an economic stimulus package worth 11.4 billion USD to support the country’s private sector.

On April 20, Bahrain announced that the budget of ministries and government departments will be reduced by 30 percent, for an unspecified period, in order to mitigate the impact of COVID-19.

According to June 12 reports, the state-owned oil company decided to terminate the contracts of “hundreds of foreign employees”.

On June 15, the government approved a draft law to allocate approximately 470 million USD to the budget of 2020 in order to “deal with emergency expenses required for mitigating COVID-19 impacts and curbing its spread.”

Kuwait

On June 3, Kuwait’s Prime Minister vowed to “resolve the demographic imbalance” by reducing the expat population from 70 to 30 percent.

On June 10, the government announced that expats will no longer be hired in the oil sector.

Oman

On March 17, Oman’s Ministry of Finance announced a five percent reduction in the budget allocated to government agencies.

On April 29, Oman ordered public sector companies to accelerate the process of replacing foreign staff with Omani nationals.

Qatar

According to June 11 reports, Qatar directed ministries and government-funded entities to reduce costs through layoffs or salary cuts of non-Qatari employees.

On July 8, the Qatari cabinet approved a draft law, which stipulates that state-owned private sector companies must strive towards ensuring that their overall workforce is made up of at least 60 percent Qatari nationals.

Saudi Arabia

On April 12, the Organization of Petroleum Exporting Countries (OPEC) Plus, which is de-facto led by Saudi Arabia, agreed to reduce production by 9.7 million barrels per day (mbpd) until July, then by 7.7 mbpd from August-December, and then by 5.5 mbpd until April 2022. The group also called upon “all major producers to contribute to the efforts aimed at stabilizing the market”.

On April 15, the Saudi government allocated 13.3 billion USD to support the private sector.

On May 11, Saudi Arabia announced budgetary cuts totaling eight billion USD to “Vision 2030”-related programs and increased the value-added tax (VAT) on goods and services from five to 15 percent for an unspecified period.

UAE

On July 5, the UAE announced a broad government restructuring for “agile and swift” decision-making amid the pandemic. This includes the merging of energy and infrastructure ministries as well as abolishing several government service centers and converting them to digital platforms within two years.

The UAE has announced a phased stimulus package for businesses, totaling approximately 1.7 billion USD, the most recent part of which was announced on July 11. This has included postponement of rent payments, customs reimbursements, and refunds of 50 percent on municipality fees on sales for hotels and restaurants.

Background

There are several common features that characterize the six GCC economies, namely, Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, and Oman. These include high dependency on hydrocarbon revenue, a young and rapidly growing national labor force, and high reliance on the expat workforce. Together, they account for approximately one-fifth of the world’s crude oil production and possess approximately two trillion USD worth of financial wealth.

However, there is a wide variation in resource endowments across these states, which, in turn, poses unique risks and challenges for these economies. For instance, Kuwait, Qatar, and the UAE have substantial energy reserves, with relatively small populations, as compared to Saudi Arabia, which has the largest reserves of oil but is spread across a much larger territory and population. Bahrain and Oman, with oil and gas reserves that are relatively limited, are more vulnerable to economic deficiencies when compared to the other GCC states. While plans to diversify their energy-based economies have been in place across the Gulf states in varied scale since the 1970s, the drop in oil prices since 2014 has brought forward the urgency of economic diversification in GCC states.

COVID-19-related restrictions on travel and business operations have had an overall adverse impact on the global economy. The economic ramifications of these restrictions have been severely witnessed in GCC states amid a decrease in the global demand for oil, approximated at 18 percent since the start of 2020. This has led to a steep decline of more than 70 percent in the price of oil, the lowest in over 20 years. According to an IMF report on July 13, oil revenues are now projected to decline by more than 270 billion USD in 2020, relative to 2019.

Assessments & Forecast

COVID-19-related restrictions on business, travel pose significant economic challenges to Gulf countries

Challenges posed by steep decline in oil prices

The hydrocarbon sector, namely oil, petroleum, and gas, as well as their derivatives, contribute significantly to the GDP and government revenue of GCC countries. In the case of states such as Kuwait, Qatar, and Saudi Arabia, the GDP derived from the oil and gas sector accounts for almost 50 percent of their total GDP. At the onset of the global spread of the COVID-19 pandemic, an initial catalyst that contributed to the plummeting of oil prices in the February and March was the failure of Saudi Arabia and Russia, two of the world’s largest major oil producers, to reach a consensus to slash oil production, which led to a price war between the two countries. Thereafter, Riyadh propelled its output to an unprecedented 12 million mbpd in early April in a bid to defend its share in a shrinking market. On April 12, the OPEC Plus reached a deal to slash production by 9.7 mbpd until the end of July, which underscores joint efforts to rebalance the demand and supply in the market. Despite this, oil prices have fluctuated over recent months, largely due to oscillations in global uncertainty amid the spread of the pandemic. FORECAST: While it is likely that the expected easing of restrictions on travel and businesses will boost demand for crude oil over the coming months, the ongoing uncertainty surrounding the pandemic, and potential for additional waves of infection, threatens to derail this recovery.

The decline in oil prices of more than 70 percent over recent months has led to increased financial constraints for all GCC states. This has compelled authorities to slash public spending while simultaneously redirecting funds to help citizens and the private sector cope with the significant financial challenges resulting from the virus. This has been particularly evidenced by reductions in the state budget for 2020 in Bahrain and Oman, as well as the allocation of millions of USD by Saudi Arabia and UAE to boost liquidity in the economy.

FORECAST: Overall, given that government spending is a key driver for economic growth, and is mostly derived from the energy sector, the recent cuts in capital and current spending will likely lead to an economic recession in at least some of the GCC states. This is bolstered by the IMF’s prediction, as of July 13, that the GCC economy is expected to shrink by 7.1 percent this year, both in the oil and non-oil sectors. The fact that this is a revision of the 2.7 percent predicted contraction in April, indicates the overall downward economic trend that is likely to be experienced by all six countries over the coming year, albeit in varying degrees. Most notably, the largest GCC economy, Saudi Arabia, is predicted to shrink by 6.8 percent, per June 24 reports quoting the IMF, compared to a 2.3 percent contraction that was predicted in April.

Meanwhile, GCC countries have long sought to diversify their hydrocarbon export-driven economies in order to decrease the vulnerability of their revenues. To this effect, all of the GCC countries have set out ambitious targets and strategic visions that are also designed to appeal to global investors. These include Bahrain’s Vision 2030, Kuwait’s New Vision 2035, Oman’s Vision 2040, Qatar’s National Vision 2030, Saudi’s Vision 2030, and UAE’s Vision 2021. However, given that commitment to these reforms have been inconsistent over the past years, most governments continue to rely on oil revenues. FORECAST: In this context, the slump in oil prices, as well as the overall depreciation of government revenue over the recent months indicates that investments in non-essential projects, such as in the sectors of infrastructure and real estate, will likely be postponed, which will further prolong the countries’ efforts to diversify their sources of income.

Challenges posed by decline in tourism, hospitality industry

Most GCC states have made significant efforts to transform to a hub for tourism and hospitality over recent years, constituting a major economic driver in terms of these countries’ economic diversification strategies. To this effect, GCC states have laid out long-term plans for airport expansions to increase the handling capacity of projected visitor inflow, further supported by the relaxation of visa rules to further boost tourist arrivals. Moreover, the hosting of mega-events, such as the Expo 2020 in Dubai and the FIFA World Cup 2022 in Qatar, were expected to grow the GCC’s leisure and hospitality construction sector expenditure from 467 billion USD in 2019 to 642.3 billion in 2023, implying a five-year compound annual growth of 8.6 percent, compared to the 5.7 percent achieved in 2013-18.

FORECAST: In this context, the effect of COVID-19-induced restrictions on travel between countries will have a significant economic impact on the GCC countries. For example, according to reports, the forecasted revenue loss for the UAE airline industry alone is projected at 5.3 billion USD, due to the drop in approximately 23.8 million passengers. Additionally, the postponement of highly anticipated events will exacerbate these losses. For instance, the Expo 2020 in Dubai, which was originally scheduled to take place in October 2020-April 2021 and was expected to contribute approximately 30 billion USD to the economy, will add to the decline in predicted revenues. Saudi Arabia will likely face similar challenges, given that authorities have banned pilgrims from other countries from traveling for the Hajj pilgrimage, which is slated to begin on July 28. This is particularly given that Hajj, which witnesses the arrival of almost 2.5 million pilgrims every year, generates an annual revenue of approximately 12 billion USD.

Measures adopted to mitigate economic challenges likely to increase socio-economic grievances, labor shortages

The “rentier state” model in the Gulf region has been long associated with the overall lack of taxation due to the abundance of allocated resources, wherein the state offers its citizens goods and services in return for substantial autonomy in decision-making, which is often characterized by a reduction in political engagement. However, economic conditions that have persisted across recent years, particularly in the wake of declining oil prices since 2014 and increased budget deficits in 2015-16, indicate that this pattern of governance is no longer feasible, especially as prolonged low oil prices could worsen the fiscal situation. Along with increased borrowing through the issuing of local and international bonds, in 2016, all GCC states signed an unprecedented framework for the introduction of Value Added Tax (VAT), known as the Common VAT Agreement. While the measure came into effect in the UAE and Saudi Arabia on January 1, 2018, and in Bahrain on January 1, 2019, other countries have stated that they needed more time to implement the reform. In the former states, a five percent levy has been imposed on several designated essential products and services including gasoline and diesel, food, clothes, utility bills, and hotel rooms, with the exception of public transport, medical treatment, and financial services. Similarly, a 50-100 percent “sin tax” has been imposed on certain products, including soft drinks and tobacco, in the UAE, Saudi Arabia, and Oman. In this context, Saudi Arabia’s tripling of VAT from five to 15 percent on May 11 highlights the Kingdom’s efforts to accelerate revenue generation through the collection of taxes.

FORECAST: These measures, combined with the cutting of the cost of living allowance for state workers that has been in place since 2018, will likely increase socio-economic grievances among the local population due to the increase in the cost of living. While Riyadh’s move was expected to cause a ripple effect across the region, the UAE’s Ministry of Finance indicated on May 12 that the country did not have immediate plans to raise taxes. Oman and Kuwait are expected to introduce VAT systems by 2021. However, given the possibility of protracted economic effects of COVID-19, there remains a potential for the introduction of tax reforms and other austerity measures by the remaining GCC states over the coming months.

Furthermore, the COVID-19 pandemic has forced many sectors across the GCC to shore up spending through layoffs and employee salary cuts. In this context, given that a high percentage of the population of most GCC states’ workforce consists of expats, it is this community that is liable to be most impacted by the economic downturn. While several governments have implemented policies that seek to prioritize employment for local citizens at the expense of foreign workers over the recent years, since the outbreak of the health pandemic, an acceleration of these measures has been witnessed in countries such as Oman, Qatar, Bahrain, and Kuwait.

This is evident by Oman’s April 29 decision to replace expats with Omani nationals in its public sector, as well as Qatar’s June 11 directive to all state-owned entities to curb spending through layoffs and salary cuts of expats, rather than Qataris. Meanwhile, Kuwait has explicitly stated its objective to reduce the expat population from the current 70 percent to 30 percent, although no timeframe was attached to this objective. This is part of an effort to address the demographic imbalance in the country, as indicated by the Kuwaiti PM’s statement on June 3. Kuwait has further passed measures such as a ban on the hiring of expats in the country’s oil and municipality sectors. Furthermore, several lawmakers have also tabled a bill in the parliament to introduce a quota system, wherein the percentage of expat population from different countries will be capped at certain ceilings.

To some extent, the sense of urgency in passing such expat-focused legislation has also been triggered by the growing perception that the spread of the virus in some of the GCC countries has been caused by foreigners, particularly by blue-collar workers that make up a high percentage of the countries’ migrant population. This is primarily due to the fact that a majority of such workers live in low-cost, overcrowded labor camps, a number of which had emerged as hotspots for the spread of the virus, as in the case of Doha’s Industrial Area. This may have increased resentment among parts of the local citizenry towards the migrant population, due to the pressure placed on the country’s resources and infrastructure amid the current health crisis.

That said, such policies and sentiments vis-a-vis the expat population do not resonate uniformly across all GCC states. For instance, per June 11 reports, UAE’s Minister for Infrastructure Development stated that the “UAE is a place where expats are well-skilled and we definitely need them. The pandemic is not going to be here for a long time…then we would regret that we got rid of our skilled workforce, whether it is nationals or expats. We would like to keep them”. This indicates the country’s recognition that the expat population, especially skilled migrants that constitute a majority of the middle class in the UAE, are vital for economic growth and development. This is further evidenced by the fact that the UAE and Saudi Arabia have not passed any major legislation over the recent months that seeks to specifically slash the expat population by denying them employment. FORECAST: Regardless of the absence of long-term policies to “address the demographic imbalance”, as in the case of Kuwait, the large departure of the migrant population, some of whom who are being repatriated to their home countries from the Gulf amid the COVID-19 pandemic, is liable to have several far-reaching social consequences. This will be explored in the next section.

Social, economic implications of economic slump, expat-focused measures over coming months

Domestic impact on economy, potential for labor shortage

FORECAST: The sudden exit of the migrant worker population will significantly alter the demographics, especially in countries like the UAE and Qatar, where foreign residents comprise approximately 90 percent of the population. In the UAE alone, more than 350,000 Indian nationals, and over 60,000 Pakistani nationals, have registered to be repatriated, as of the time of writing. Similarly, over 25,000 Indians have reportedly registered for repatriation due to job losses in Saudi, while 10,000 such nationals have already departed from Qatar. Moreover, countries like Kuwait also announced amnesty schemes for the evacuation of workers of all nationalities, which has reportedly benefitted over 45,000 Indians and other nationals. This will therefore have substantial economic and social implications over the coming months and years, which is expected to be larger than those witnessed during the 2008-2009 financial crisis.

FORECAST: The uprooting of middle-class residents and their families is liable to negatively impact the domestic economy, as sectors that relied on these customers such as restaurants, schools, clinics, and the retail sector, will suffer major losses. Without government support, these services will be forced to lay off more people, which may trigger a deflationary impact and likely lead to a secondary wave of migrant exodus. The exit of low-income earners, such as domestic assistance, will also lead to social implications, as this may force a change in the overall lifestyles of locals. In the UAE, it is suggested that 96 percent of Emirati families employ domestic help to raise their children, highlighting the dependence of the local population on expat workers.
FORECAST: The utility of expats as consumers and sources of revenue in the form of taxes and fees, including VAT on goods and services, road tolls, and visa renewal fees will decrease. For example, in 2018, the UAE collected approximately seven billion USD in VAT collection, which accounted for almost 1.7 percent of the country’s nominal GDP that year. Similarly, Saudi Arabia collected almost 9.3 billion USD in the form of VAT in 2018. Saudi was also expected to raise 17.3 billion USD in 2020 in the form of expat visa renewal fees, as well as the charges that are to be paid by companies for every foreign worker they hire. Therefore, this will contribute to a further reduction in government revenue.

FORECAST: A labor shortage will likely be experienced in the market over the coming months due to the departure of expat personnel, both high-earning professionals and low-income workers. This will likely be most acutely felt when the economy and oil prices rebound and stabilize to a relative degree, which will, in turn, facilitate the resumption of several infrastructural and development projects that have been currently postponed. The implementation of these projects will be hindered by the labor shortage. This is given that ambitious development plans adopted by the GCC states have largely led to an extensive, unregulated import of both skilled and unskilled labor. Moreover, the financial ability of these countries to purchase technology and knowledge also meant that professional development has not always been a top priority. This has led to a disconnect between rewards offered to nationals in the form of lucrative jobs in the public sector, unemployment and other benefits, and their level of merit and competency.

FORECAST: Therefore, GCC governments will likely face significant challenges in developing the skill sets of its national workforce to fill the gaps within the labor market over the short term. Authorities will be forced to provide substantial incentives for citizens in order to attract them towards the private sector at a time of diminishing resources, as employment in the public sector for most countries has either been or are approaching saturation. In the absence of such incentives, there also remains a possibility for protests in demand of better employment and economic opportunities. However, in many states, the overall lack of large civil society organizations and protest groups as well as a broader absence of a protest culture will render it difficult for a potential anti-government movement to mobilize.

FORECAST: Overall, COVID-19-triggered restrictions and resulting losses in revenue in both the private and public sectors have, and will likely continue to lead to, job layoffs and salary cuts across the region. For short-term delay, most GCC governments have announced emergency economic stimulus packages. These have included the expansion of government loans provided to businesses, direct cash transfers as partial payment of salaries, as well as deferments on rent and utility payments to help citizens and residents cope with the economic impact of the pandemic. Additionally, governments have been forced to utilize resources on protective measures and health infrastructure to mitigate the spread of the pandemic, bolstered by the free testing and treatment of the virus in several countries, including the UAE and Saudi Arabia. These costs are liable to increase in the event of further waves of infection. However, over the coming years, restrictions will gradually be eased in order to restore economic activity. Given the already diminished government revenue as well as the pressure to curb state expenditure and bolster public finances, states will be compelled to mitigate economic challenges by increasing taxes and training the local workforce. However, as noted, this will have a profound impact on the economic structure, social dynamics, and functionality of these societies.

Recommendations

Travel and operations can continue in GCC states while remaining abreast of COVID-19-related restrictions and procedures, as well as of social and economic developments due to changes to the workforce and reductions in state revenue.

It is therefore advised to take necessary measures to mitigate the potential adverse effect of these developments to ensure business continuity, while allotting for potential disruptions and service failures in these countries.

Furthermore, it is advised to maintain vigilance due to the heightened risk of anti-foreign sentiment in the GCC states on account of the perception among some parts of the local populace that expats are a burden on their resources.

Implications of recent escalation in US-Iran tensions on Iranian domestic, foreign policy – Iran Analysis

Executive Summary

Over the months of April and May, the US took multiple measures as part of its “maximum pressure” campaign vis-a-vis Iran, including the revocation of sanction waivers to importers of Iranian oil and deployment of US military assets to the Middle East.

As a response to the perceived provocations, on May 8, Iran announced its decision to partially halt its commitments to the Joint Comprehensive Plan of Action (JCPOA) and set a 60-day deadline for European states to renegotiate the financial terms of the agreement, marking a highly significant development since the ratification of the nuclear deal in 2015.

The purported involvement of Iran and its affiliates in the recent uptick in attacks against US allies, particularly the May 12 attack against four naval vessels, including two Saudi oil tankers, off the coast of the UAE, has further fueled tensions in the region.

Iran has resisted direct negotiations with the US thus far, which indicates the high level of influence wielded by hardliners on the country’s foreign policy. Tensions are liable to remain high as both Iran and the US are likely to continue their strategic posturing in the region over the short term, in order to eventually coerce each other onto the negotiating table.

Western nationals operating or residing in Iran are advised to regularly review emergency and contingency protocols as a basic security precaution due to the risk of limited hostilities between Iran, the US, and its Gulf allies. Those operating in Lebanon, Iraq, and Syria are advised to maintain a low profile due to threat of attacks by Iranian-linked elements.

Current Situation

On May 8, Iran’s SCNS released a statement announcing Tehran’s decision to partially halt its commitments to the JCPOA and setting a 60-day deadline for European states to take steps to counteract the negative effects of US sanctions.

The US President Donald Trump subsequently issued an executive order to impose sanctions on Iran’s metal industry.

On May 11, the US sent Patriot air defense systems to US CENTCOM based in Qatar’s al-Udeid Air Base.

On May 12, the US Embassy in Baghdad issued a security alert advising “all US citizens of heightened tensions in Iraq” and the “requirement to remain vigilant.”

On May 12, Saudi Arabia’s official news agency stated that two out of the four civilian commercial cargo ships that were subject to a “sabotage attempt” near UAE territorial waters in the Gulf of Oman, off the eastern coast near Fujairah, were Saudi oil tankers.

On May 14, the Yemeni Houthis claimed unmanned aerial vehicle (UAV) attack against an oil pipeline belonging to the official Saudi Arabian Oil Company in Riyadh Province’s towns of al-Duwadimi and Afif.

On May 15, the US ordered the departure of all non-emergency US government employees stationed at the US Embassy in Baghdad and the US Consulate in Erbil from Iraq.

On May 18, the Federal Aviation Authority (FAA) issued an advisory warning of risks to civil aviation over the Persian Gulf and the Gulf of Oman.

On May 19, a rocket landed in the vicinity of Baghdad’s Green Zone, less than two kilometers away from the US Embassy.

On May 20, the Spokesperson of the Atomic Energy Organization of Iran (AEOI), Behrouz Kamalvandi stated that Iran’s 3.67 percent production capacity of enriched uranium had increased by four-fold.

On May 20, two ballistic missiles were reportedly intercepted over Mecca Province’s Taif and Jeddah. Yemeni Houthis denied involvement in the attack.

On May 24, the US announced additional deployment of 1,500 military personnel to the Middle East.

Background

In May 2018, the US President Donald Trump unilaterally withdrew from the JCPOA, also known as the Iran nuclear deal, which was negotiated between Iran and P5 +1 (US, UK, France, Russia, China and Germany) countries in 2015. Subsequently, the US re-imposed sanctions related to Iran’s export of oil in November 2018, but granted sanction waivers to eight countries including India, China, South Korea, Taiwan, Japan, Italy, and Turkey for a period of 180 days. On April 8, 2019, the US designated the Iranian Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organisation (FTO). This was followed by the US’s decision to end sanction waivers to importers of Iranian oil starting on May 2, 2019. Out of the seven sanctions related to Iran’s uranium enrichment and civilian nuclear energy cooperation, the US revoked two sanction waivers related to Iran’s uranium enrichment process under the JCPOA – one that allowed Iran to store excess heavy water produced in the uranium enrichment process in Oman and one that allowed Iran to swap enriched uranium for raw yellowcake with Russia. On May 5, US officials announced their decision to deploy an aircraft carrier and bomber task force to the Middle East citing indications of Iranian threat, but provided no further details. This prompted Tehran’s decision to partially halt its commitments to the JCPOA on May 8, 2019.

Assessments & Forecast

Impact of IRGC’s designation as an FTO:

The designation of the IRGC in its entirety, including its extraterritorial wing, the Quds Force, as a “terrorist entity” marks a highly significant development, as it constitutes the first ever instance wherein the US has labelled a country’s military organization as an FTO. Such a designation comes amid the US’s continued policy to apply “maximum pressure” on the Iranian government to end its alleged role in destabilization activities across the regional as well as the international stage. It forms part of the US’s efforts to depict the Iranian administration as “rogue” or an “outlaw”, and is aimed at further isolating Iran on the international stage.

The move is largely symbolic, given the fact that US sanctions already target the IRGC and its leaders, affiliates, and subsidiaries such the Basij Resistance and the Quds Force and the US had already designated the IRGC as a “Specially Designated Global Terrorist” in 2017. However, the latest step will likely augment the existing pressure on Iran. Any individual or entity knowingly providing material support to the IRGC will now face the possibility of a 20-year US prison sentence. It will also impose immigration restrictions on members of the IRGC who attempt to travel to the US simply by virtue of their membership or affiliation to the organization. FORECAST: Given that the IRGC has significant stake in the Iranian economy, through this measure, the US likely intends to make it further difficult for foreign entities to conduct business with Iran, which, in turn, would have a negative impact upon the Islamic Republic’s economy. However, the fact that a large extent of the IRGC’s business dealings are known to be carried out through illicit channels, such dealings are unlikely to be significantly affected by the recent designation.

FORECAST: Moreover, such a move is also unlikely to alter Iran’s policies on the regional setting, like its involvement in supporting proxies such as the Lebanese Hezbollah, the Yemeni Houthis, and Shiite militias in Iraq such as the Harakat al-Nujaba (HNA). Rather, given the increased restraints faced by the IRGC, the recent move is liable to increase Iran’s motivation to expand its regional footprint through the above-mentioned proxies as well as other sponsored militias. To this effect, the Iranian government will continue to divert large funds, at the expense of its domestic population, in order to sustain its influence in neighboring countries. This, in turn, is likely to inflame already existing local grievances, which may result in further instances of widespread civil unrest in the country. However, on a broad basis, given Iran’s history of strategic culture and great power rhetoric, a majority of the Iranian populace views the US sanctions as the source of their economic hardship, as compared to the Iranian government’s policies. While this is partly aided by the intensive propaganda campaigns in the country, it nevertheless galvanizes unity in the face of a “foreign aggression”. Thus, it is likely that the Iranian administration will attempt to placate the inherent domestic concerns related to the government’s regional activities and support for its proxies amidst an economic crisis, by attempting to project strength vis-a-vis the US. This may take place through the continued portrayal of strength through military exercises, display of new defense equipment, such as the unveiling of the new domestically produced “Khordad 15” air defense system on June 9. Moreover, the Islamic Republic will seek to counteract the US’s measures by maintaining a relatively belligerent posture, given the influence wielded by hardliners on the country’s foreign policy.”

FORECAST: By continuing, or rather increasing support for its proxies, the IRGC may be able to effectively target its adversaries, namely the US, Israel, and Saudi Arabia-aligned countries in the Gulf over the coming months. In this regard, given that much of the recent attacks in the region, such as the May 19 rocket landing in Baghdad’s Green Zone near the US Embassy, the June 1 rocket attack into Israel’s Mount Hermon from Syria, or the spate of attacks against Saudi targets have consistently targeted Iran’s adversaries, it is likely that they were encouraged by Tehran in an effort to destabilize the region. Moreover, the fact that some of the attacks were carried out against energy-related targets, such as the May 12 targeting of Saudi oil tankers off the coast of UAE’s Fujairah in the Gulf of Oman and the May 14 Houthi-claimed UAV attack on the oil pipeline in Riyadh Province, suggests that Iran may be attempting to weaken the economies of Saudi-aligned countries, given their significant dependence on oil revenues. This would align with Tehran’s strategy of preventing its rival, Saudi Arabia, from expanding its influence in the region and subsequently positioning itself as the dominant regional power in the Middle East. This, in turn, would allow Iran to prevent the regional balance of power from significantly shifting away from itself, particularly in light of the reimposition of US sanctions.

Potential Ramifications of the imposition of various sanctions on Iran:

A) Oil-related sanctions:

The US’s refusal to extend the 180-day sanctions exemptions for importers of Iranian oil (China, India, South Korea, Turkey and Japan) from May 2 constitutes a core segment of the US’s “maximum pressure” campaign, as it aims to completely diminish Iran’s oil revenue. Although India and China, the two top importers of Iranian oil, were envisaged to face significant setbacks to its energy security policy due to the US move, it appears that both countries have planned for this eventuality and are effectively looking at alternate sources to fulfill their energy requirements. In this scenario, while neither of the two countries have officially announced their position on the future of Iranian crude imports, it is likely that imports from other key energy players such as Iraq, Saudi Arabia, and the UAE will feature on a higher side, specifically in the case of India. This will put further strain on Iran’s revenues from its oil sector, which, in turn, will have a significant adverse impact upon its national economy.

FORECAST: Given that the move has been anticipated since the reinstatement of US sanctions on Iran in November 2018, early indications suggests that apart from the initial shock, the decision has not drastically impacted the global oil market, despite fears of an oil price surge and supply disruptions. This is primarily due to a boost in Saudi Arabia’s oil production in May to fill the gap of Iranian crude, along with similar boosts in production by Iraq and Libya. However, Iran may resort to illegal trade of its oil in the black market, particularly in countries such as Yemen, where the Houthis have been reportedly deriving a majority of its income by selling Iranian oil. Furthermore, Iran may also attempt to export its oil through the use of “switch-off-the-transponder” tactics, which makes tracking ships increasingly difficult.

B) Uranium enrichment-related sanctions:

The May 8 statement released by the SNSC, which was reiterated by Iranian President Rouhani in a televised address, represents a pronounced effort by the Islamic Republic to project strength in response to perceived US provocations in recent years. The decision to halt its partial commitments under the JCPOA regarding enriched uranium and heavy water reserves follows the US’s May 4 revocation of the two sanction waivers, which practically forces Iran to completely overhaul its production of heavy water and uranium enrichment or continue production and find itself in breach of the JCPOA. Moreover, the five sanction waivers that were extended were also reduced from 180 days to 90 days, in which the remaining adherents of the JCPOA are allowed to cooperate with Iran on the sites of Bushehr, Arak, and Fordow without facing US sanctions.

This was followed by the May 20 announcement from the Spokesperson of the Atomic Energy Organization of Iran (AEOI), Behrouz Kamalvandi according to which, Iran’s 3.67 percent production capacity of uranium had increased by four-fold. However, Iranian officials reportedly stressed that the uranium would be enriched only to the 3.67 percent limit set under the JCPOA. Thus, although Tehran still remains party to the JCPOA, its increased capacity to produce enriched uranium suggests that Iran is likely to soon exceed the 300 kg uranium stockpile limitation set by the accord. FORECAST: However, as indicated in Rouhani’s speech, Tehran will likely retain its enriched uranium (upto 300 kg) and heavy water (upto 130 tons) rather than selling them to other nations while remaining within the limits prescribed in the nuclear deal over the short term, at least until July 8. This would allow Iran to project its adherence to the terms set under the JCPOA.

FORECAST: However, as per the joint statement released by France, Germany, and the UK on May 9, while the European states expressed “regret” over the reinstatement of US sanctions and continued to pledge their willingness to support alternate trade mechanisms such as the Instrument in Support of Trade Exchanges (INSTEX), they also categorically rejected Tehran’s 60-day ultimatum for negotiations. While this highlights their unwillingness to publicly be strong armed onto the negotiation table, it is also indicative of their reluctance to oppose US policies. Furthermore, the reimposition of the US sanctions has increased the risk of conducting business with Tehran for foreign companies, several of whom have already ceased their operations in the Islamic Republic. This is likely to have a significant adverse impact upon Iran’s economy over the coming months.

C) Metal industry-related sanctions:

The US President Donald Trump’s May 8 decision to impose new sanctions on Iran’s metal industry are aimed at undermining Iran’s revenue from the export of industrial metals, the country’s largest non-oil sector, which reportedly accounts for approximately ten percent of its export economy. While Iran’s mining industry was already facing severe setbacks due to shipping and payment restrictions, the recent move is liable to inherently impact employment provided by the metal as well as the automotive industry, which reportedly constitutes almost six percent of Iran’s total labor force. This is liable to significantly exacerbate domestic workers’ grievances, which have manifested in the form of persistent localized demonstrations across Iran over the recent months.

FORECAST: In this context, public protests surrounding employment, pensions, inflation, increase in the prices of basic commodities and other economic-related issues are liable to continue in a significant manner over the coming weeks and months. Such demonstrations will likely take place across Iran, including in major cities such as Tehran, as well as in outlying provinces such as Khuzestan and Kordestan, where the locals comprising of an Arab-majority or Kurdish population perceive themselves as marginalized by the Shiite Iranian government’s policies. This will not only increase the threat of civil unrest in the country as a whole, but also exacerbate sectarian tensions between the countries minority communities and the Shiite-led government.

Lack of direct engagement, continued strategic posturing liable to prolong tensions in the region:

The Iranian administration’s current position to resist direct negotiations with the US, albeit agreeing to mediation talks with Japan, highlights the high degree of influence wielded by hardliners on the country’s foreign policy at this juncture. Such elements continue to criticize the Rouhani administration’s moderate approach towards dealing with the US and aspire to correct the perceived weakness with which the terms of the JCPOA were negotiated in 2015. FORECAST: This, combined with the relative lack of tangible economic benefits from JCPOA, is liable to further embolden segments of hardliners and conservative elements within Iran’s political sphere. This may result in further appointments of such elements in key leadership posts, which is liable to significantly hinder the popularity of more moderate officials, consisting of figures such as President Hassan Rouhani and Foreign Minister Javad Zarif. This is underscored by the appointment of General Hossein Salami, a prominent hardliner within Iran’s military establishment as the IRGC’s Commander-in-Chief on April 21. Such appointments are not only liable to increase the anti-US rhetoric emanating from the Islamic Republic but also significantly hamper the potential for backchannel negotiations with the US, which are generally conducted by more moderate officials.

FORECAST: On a regional level, tensions are liable to remain high due to the strategic posturing of the two countries, in order to eventually coerce each other onto the negotiating table. The deployment of US warships, including an aircraft carrier and a bomber task force on May 5, the sending of Patriot missile systems on May 11, as well as the decision to deploy an additional 1500 US military personnel to the region, is likely to significantly increase tensions in the Persian Gulf waters and the Strait of Hormuz over the coming weeks and months. This is particularly in light of Tehran’s persistent effort to assert its authority as the legitimate custodian of security across its territorial waters. These tensions may manifest in the form of limited confrontation between the naval forces of the two sides, which constitutes a general risk to shipping through the critical energy choke point.

FORECAST: Tensions are also likely to increase between Saudi-aligned countries and Israel on one side and Iran on the other. Iran may encourage its backed elements, particularly the Yemeni Houthis, to increase their attacks against targets in Saudi Arabia and the UAE. This would also align with the Houthis’ aim of weakening the economies of countries that are part of the Saudi-led Coalition in Yemen in order to reduce their ability to engage in the ongoing civil war in the country. Iran may also use its proxies and backed elements in Syria and Lebanon, such as the Lebanese Hezbollah, to put pressure on the US by using them as leverage against Israel, the US’s closest ally in the Middle East. This may manifest in the form of attacks against Israel by Iranian-backed elements in Syria, as witnessed on June 1, when a rocket was launched from Syria towards Israel’s Mount Hermon. However, such attacks are likely to remain limited and constrained to areas within close proximity to the Syria-Israel border. This is because an attack deep inside Israeli territory would trigger a large-scale conflict between Israel on one side and Syria and Lebanon on the other, and Syria is currently not interested in such a scenario given its preoccupation in hostilities with rebel forces.

FORECAST: Overall, as tensions between the US and Iran get prolonged, the risk of a military confrontation between the two countries will increase. Such a military confrontation is likely to be limited at least in the short term, with Iran attempting to use its proxies as a means to put pressure on the US and its Gulf allies and the US retaliating with a further increase in military presence in the Persian Gulf. While Iran is currently not interested in a broad conflict with the US given that its economy is unlikely to be able to sustain such a cost, as previously assessed, the influence of hardliners on the country’s foreign policy reduces the possibility of backchannel negotiations. This combined with the fact that the US is unlikely to agree to any terms that do not significantly diminish Iran’s nuclear and military capabilities, further reduces the possibility of successful negotiations. Therefore, as these tensions persist over a long period of time, the risk of a full scale conflict between the US and Iran cannot be ruled out.

Recommendations

Travelers are advised to regularly review their emergency and contingency procedures as a basic security precaution, as the current tensions between Iran on one side and the US and its Gulf allies on the other may manifest in some form of cold war or even a limited or full military confrontation.

Western nationals operating or residing in Iran are advised to remain cognizant to prevailing negative sentiment toward the United States and other North American and Western European countries.

US citizens and other Western nationals operating or residing in other countries in the Middle East with sizeable Iranian-backed elements are advised to keep a low profile and maintain heightened vigilance, given the potential for attacks by such groups.

Those operating vital infrastructure, particularly in the oil sector, in Saudi Arabia are advised to review security protocols in light of the threat posed by Yemeni Houthi-perpetrated attacks, particularly through the use of UAVs.

Those planning to operate commercial aircraft over the Persian Gulf and the Gulf of Oman are advised to exercise heightened caution and remain apprised of further FAA notices regarding the increased threat to aviation in this region.

Bolstered international support for LNA Field Marshal Haftar amid ongoing hostilities in Tripoli likely to prolong conflict – Libya Analysis

Executive summary

Over the past three years, the Libyan National Army (LNA) Field Marshal Khalifa Haftar has gained increased domestic and international legitimacy amid his forces’ territorial advances in the Oil Crescent, Benghazi, Derna and the Fezzan Region.

On April 4, Haftar announced the launch of Operation “Flood of Dignity” aimed at taking control of Tripoli and its surrounding areas from the UN-backed Government of National Accord (GNA)-linked militias.

Despite this development, recent actions by prominent Western leaders, particularly of the US, the UK, and France, have increased the international legitimacy of the LNA vis-a-vis the UN-backed GNA in Libya.

This increased Western support for Haftar may be interpreted as a “green light” for his regional supporters, namely the UAE, Egypt, and Saudi Arabia, to further extend financial and military assistance to the LNA.

Meanwhile, Turkey and Qatar have, and will continue to bolster their own measures to assist GNA-linked forces in Tripoli in order to further their own interests in the oil-rich country.

Overall, the bolstered international and regional involvement in the Libyan conflict will fuel further hostilities and the prolongation of fighting throughout the country, and specifically around Tripoli, in the coming months.

It is advised to defer all travel to Tripoli and Benghazi at this time due to ongoing violence, threats against foreigners, and the risk of a broad deterioration of security conditions. Contact us at [email protected] or +44 20-3540-0434 for itinerary and contingency support plans.

Focal Points in Libya

Current Situation

On April 4, Haftar announced the launch of Operation “Flood of Dignity” aimed at taking control of Tripoli and its surrounding areas from the UN-backed Government of National Accord (GNA)-linked militias.

On April 10, France blocked an attempt by the European Union (EU) to publish an official statement condemning the LNA offensive on Tripoli.

On April 19, an official statement by the US State Department indicated that on April 15 the US President Donald Trump conversed with LNA Field Marshal Khalifa Haftar, recognizing his “significant role in fighting terrorism and securing Libya’s oil resources”.

On April 23, the UN-backed Government of National Accord’s (GNA) Prime Minister, Fayez al-Serraj, gave interviews for French news agencies, denouncing the French government’s support for Haftar.

On April 25, the LNA arrested two Turkish nationals in Tripoli. Reports quoting the LNA Spokesperson have indicated that they were arrested for alleged involvement in espionage activity. According to reports citing Turkish officials, the two were restaurant workers in Tripoli and were not involved with Turkish security forces.

On April 29, the GNA’s Interior Minister, Fathi Bashagha, visited Turkey to strengthen security and defense cooperation agreements. Bashagha was reportedly accompanied by the Chief of the Western Military Command, Usama al-Juwaili, and another top GNA-linked military official.

On April 29, the Turkish President, Recep Tayyip Erdogan, conversed with the GNA Prime Minister, Fayez al-Serraj, and expressed Turkey’s support for the GNA.

On May 18, the GNA-linked “Volcano of Wrath” Operations Room announced that they had received a ship containing military reinforcements. Picture material and additional reports indicate that the ship arrived from Turkey’s Samsun Port and contained multiple Turkish-made armored vehicles as well as other military hardware.

Background

The LNA’s Supreme Commander, Field Marshal Khalifa Haftar’s local and international legitimacy has significantly increased over the past three years. This can largely be attributed to the fact that since 2016, the LNA has made gradual territorial advances in Libya, which has resulted in an expansion of Haftar’s influence over almost two-thirds of the country. In September 2016, the LNA took control of the Oil Crescent from the former GNA-aligned Petroleum Facilities Guard (PFG). This was followed by the LNA’s announcement of the conclusion of its three-year long Operation “Dignity” on July 5, 2017, which resulted in the eviction of the Revolutionary Shura Council of Benghazi (RSCB) and the Islamic State (IS) from the city. On June 28, 2018, Haftar announced that its forces had taken full control of the eastern city of Derna from the Derna Protection Force (DPF), formerly known as the Mujahideen Shura Council of Derna (MSCD). Finally, the LNA took full control of southern Libya as part of its Operation “Murzuq Basin” in March 2019.

Although, Haftar received initial support from the UAE, Egypt, Saudi Arabia and France, over the years, countries that were initially opposed to the LNA’s Operation “Dignity”, such as the US, the UK, and Italy have shown an increasing interest in negotiating with Haftar. This is underscored by a meeting between the former UK Foreign Minister Boris Johnson and the British Ambassador to Libya, Peter Millett, and Haftar in August 2017. More recently, Italy invited both the UN-backed GNA Prime Minister, Fayez al-Serraj and Haftar to a conference on Libya in Palermo, Italy in November 2018 to discuss a potential date for a nationwide election process in the country.

Assessments & Forecast

Egypt, UAE, Jordan, Saudi Arabia to extend further support to LNA amid ongoing clashes with GNA-linked forces in Tripoli

Initially, a significant support, mainly by Egypt and the UAE, had been extended to Field Marshal Khalifa Haftar and the LNA, in light of the latter’s efforts to dislodge Islamist militants and militias from Benghazi. This most significantly came in the form of military hardware and logistical assistance by the two aforementioned countries, and the UAE’s manning of a al-Khadim airbase in 2016, to support the LNA’s military efforts. This extensive support was based since its initial phase upon Haftar’s self-positioning as the figure with the desire and ability to defeat Libya’s belligerent Islamist factions and Muslim Brotherhood-affiliated groups, which have gained significant foothold in the country amid the civil war. This is due to the fact that both Egypt and the UAE view these groups as a region-wide threat. Thus, the success of Haftar’s Operation “Dignity”, and his more recent success in taking control over the Fezzan Region, while emphasizing his determination to continue fighting such elements, has bolstered his position as a reliable ally for Egypt and the UAE. As for Egypt, another significant interest in strengthening the LNA was its determination to bolster an ally that would be able to secure the vast swaths of the desert-dense border areas between the two countries. These porous border areas serve as a major pipeline for both the smuggling of weapons and the movement of fighters from Libya into Egypt, and subsequently, to militant groups operating inside Egypt.

This emergence of the anti-Muslim Brotherhood alliance, characterizing the LNA’s relations with Egypt and the UAE, was paralelled by the increasing of relations between the Tripoli-based GNA and Turkey and Qatar, who are perceived by the UAE, Egypt, Jordan and Saudi Arabia to be supporting Muslim Brotherhood-affiliated groups across Libya, including in Tripoli. This has reportedly involved Turkish shipments of weapons to such elements in western Libya, as was highlighted by the seizure of a Turkish arms-carrying naval vessel, detained in Libya in December 2018. The increase of relations between Turkey and the GNA was likely further prompted by the current ongoing clashes in the designated capital, and was most significantly highlighted by both the April 29 security-related visit by the GNA Interior Minister to Turkey and the phone conversation between GNA Prime Minister, al-Serraj, and President Erdogan, during which the latter emphasised his support for the former. This, in turn, may have been the preceding arrangement for the May 18 reinforcement shipment, reportedly arriving from Turkey, which contained multiple Turkish-made armored vehicles as well as military hardware.

This more overt Turkish involvement has, in turn, drawn further accusation from the LNA of Turkish sponsorship of Islamist factions in and around the capital. In this framework, the LNA’s April 25 detention of two Turkish nationals on espionage charges indicates a further deterioration of relations between the LNA and Turkey. Regardless of whether or not the arrestees were indeed involved in espionage activities, the event is likely perceived by the LNA as an opportunity to further paint Turkey as intervening in Libya’s internal affairs in support of “extreme elements”. This, in turn, is likely perceived by the LNA as an opportunity to prompt its traditional aforementioned backers to supply it with additional assistance and potentially even draw the attention of other international stakeholders towards Turkey’s policies. Such efforts may have been the reason behind what appears to be greater support for Field Marshal Haftar by Saudi Arabia’s King Mohammed bin Salman (MbS), who has expressed the Kingdom’s support for the former and has also reportedly offered to financially support the LNA’s Tripoli campaign during an official meeting between the two on March 27.

FORECAST: Significant support and material assistance will continue to be extended towards the LNA by the UAE, Egypt, Jordan and Saudi Arabia. This will highly likely manifest in the form of direct aerial support, as well as military and financial aid aimed at bolstering the LNA’s capabilities and enabling it to continue its offensive on the designated capital. In terms of physical military assistance to the LNA, it remains likely that the UAE will assist the LNA with additional employment of attack and reconnaissance unmanned aerial vehicles (UAVs), as it has done in the past, and given that it still possesses an active UAV base in eastern Libya. Such support is likely to be already taking place given multiple reports indicating the discovery of remnants of missiles believed to be a type used by the UAE UAVs, and is in any case not in use by any Libyan faction. However, such assistance is likely to remain relatively limited and covert, as the UAE will likely attempt to refrain from being painted as overtly challenging a UN-backed government.

FORECAST: Given the heightened tensions between the LNA on the one side and Turkey and Qatar on the other side, specifically surrounding the ongoing fighting in Tripoli, we assess that over the coming weeks, Turkish and Qatari nationals or corporations will face a growing threat of being subjected to arbitrary measures in LNA-controlled territories in Libya. This will most likely entail extrajudicial measures, such as arbitrary arrests and military prosecution over alleged charges of espionage and militant activity.

Increased political support for LNA by major Western stakeholders bolster LNA’s legitimacy, incentivise regional backers to extend further support to LNA

Most of the Western governments involved in Libya, such as the UK, Italy, France, and the US, initially primarily backed the UN-led initiative to reinvigorate a viable political process for Libya’s unification under one functioning government. This initiative partially came in the form of the establishment of the GNA in December 2015, which has since been the officially recognized government in Libya by the UN. That being said, the aforementioned ability of Field Marshal Khalifa Haftar to take control of the Oil Crescent has consolidated his international standing among these countries. This was most significantly highlighted by the actions of Italy, a prominent supporter of the GNA, which has, after Haftar’s aforementioned successes, dedicated significant effort to convince him to participate in the political effort to unite the country under the Italian-initiated Palermo Conference in November 2018. Despite Italy’s backing of the GNA, Italian symbolic acceptance of Field Marshal Haftar was more recently highlighted even amid the ongoing offensive on the capital, when Italian Prime Minister Giuseppe Conte announced on May 7 that he is seeking to meet Field Marshal Haftar in the near future. In a similar vein, a process of gradual political acceptance towards the Field Marshal was also recorded in the UK. This mainly materialized after Haftar’s territorial gains in the Oil Crescent and Benghazi, resulting in a more accepting discourse by the UK Foreign Minister, Boris Johnson, in an official meeting between the two in August 2017.

France, contrary to the aforementioned European powers, extended its support in terms of military advisory assistance to Field Marshal Haftar during his initial Operation “Dignity”, aimed at dislodging Islamist militants from Benghazi. A more robust support by France followed Haftar’s takeover of the Oil Crescent, when President Emmanuel Macron invited the Field Marshal to the Paris Conference in 2017. That being said, despite having given such support to the Field Marshal, the French government has never explicitly acted in defense of the LNA and against the UN-backed international effort to establish unified political establishments in the country. Thus, the April 10 measure by the French government, namely the blocking of an official EU condemnation, is highly notable as it constitutes France’s first overt political support for the LNA at the expense of the UN and EU efforts to condemn and exert political pressure upon Field Marshal Haftar. This, in turn, has prompted significant protests in GNA-controlled territories, such as the April 19 “yellow vests” demonstrations in Tripoli and Misrata, with protesters dispensing anti-Macron discourse to denounce the French government’s backing of Haftar. In addition, the development has prompted GNA Prime Minister, al-Serraj, to give interviews to two primary French news agencies, where he publicly denounced the French government’s support for the “Dictator” Hafter. Lastly, this has also prompted political action by the GNA, with most significantly the Interior Ministry’s decision on April 18 to suspend bilateral cooperation with France, and the GNA Ministry of Economy and Industry’s decision to suspend operation licences of 40 companies, including a major French oil and gas company, on May 8.

The April 19 incident involving the US President highlights another culmination of international support by Western leaders for Field Marshal Khalifa Haftar and the LNA, despite the official UN support for the Tripoli-based GNA. Furthermore, on April 4, a press statement by US Secretary of State, Mike Pompeo, expressed the US’ opposition to Haftar’s move towards Tripoli, urging a cessation of the offensive. The aforementioned phone call, however, took place approximately two weeks after the LNA has commenced its offensive, which could be interpreted as a shift in the US administration’s approach to Libya and its greater acceptance of Haftar, at least by the president himself. This apparent change in the US president’s approach and the robust support extended to the Field Marshal by France, could be interpreted as predicated upon a few factors.

First, the extensive territorial gains made by Haftar in the Fezzan Region have highly likely bolstered his standing vis-a-vis the GNA, regardless of whether or not the current assault on Tripoli will succeed. The Fezzan Region has been regarded as one of the major regional focal points for contraband, illegal immigration, and militancy-related activities for international stakeholders, such as the EU, and some of Libya’s neighboring Arab countries, primarily Egypt. This is due to the fact that since Muammar Ghaddhafi’s fall in 2011, the Fezzan Region has hosted the major transit routes through which immigrants from West Africa have been travelling, via Libya’s border-crossings with Niger and Chad, towards Europe. This, in turn, has also attracted criminal, militia, and militant networks wishing to capitalize upon the ungoverned territories of the Fezzan to further strengthen their operations, while local authorities were either absent or incapacitated to act upon these threats. For this reason, the LNA has dedicated extensive discursive and physical effort towards emphasizing its determination to mitigate threats emanating from the country’s border areas. Through this, Haftar is able to capitalize upon European interests related to counter-militancy and counter-immigration efforts to gain the aforementioned political support, primarily from France.

In addition, the Fezzan campaign has resulted in Haftar’s possession of the al-Feel and Sharara oil fields, which account for approximately a quarter of the country’s oil production potential. As was recorded after his takeover of the Oil Crescent, this development increased Haftar’s international standing as an arbiter in the competition between foreign companies over stakes in Libya’s oil industry. Such competition has reportedly taken place between major Italian and French companies seeking opportunities in the country’s oil market and wishing to see the stabilization of the region. Furthermore, Haftar’s control over the majority of Libya’s oil fields, with Libya potentially being one of the top world producers of oil, stations Haftar as a potential influencer in global oil prices. This, in turn, can make Haftar a lucrative partner for major international powers seeking to influence trends in global oil prices for their interests. In the case of the US, the stabilization of Libya’s oil industry in the hands of a potential ally could serve important American national security interests that are currently being pursued, such as stabilizing a low oil price amid the ongoing sanctions against Iran.

FORECAST: Given the aforementioned developments involving the US and France, it is likely that despite the overall condemnation of the LNA by major international institutions such as the UN, these countries will continue to extend their support to the LNA. Though such support is overall likely to remain symbolic, it may be interpreted by the actors more vigorously and physically supporting the LNA, such as the UAE and Egypt, as a “green light” to employ greater measures to facilitate the LNA’s takeover of the designated capital. Meanwhile, given the heightened tensions between the GNA and the French government, and given the increased anti-French sentiment expressed in Libya’s GNA-strongholds, such as Tripoli and Misrata, over the coming months French nationals and corporations will face a growing threat from local citizens and potentially armed militias which operate in western Libya and are opposing current French policies towards Libya.

Recommendations

It is advised to defer all travel to Tripoli and Benghazi at this time due to ongoing violence, threats against foreigners, and the risk of a broad deterioration of security conditions. We advise at this time that those remaining in Tripoli and Benghazi should initiate contingency and emergency evacuation plans due to deterioration in the security situation. Contact us at [email protected] or +44 20-3540-0434 for itinerary and contingency support plans.

Travel to Misrata and Tobruk should be for essential purposes only, while adhering to all security precautions regarding civil unrest and militancy. We advise against all travel to outlying areas of the country, due to the threat of militancy, kidnapping, and general lawlessness in such areas.

French nationals operating or residing in Libya are advised to keep a low profile and to overall refrain from externalizing their nationality in western Libya’s major GNA strongholds, such as Tripoli and Misrata, due to increased public expression of anti-French sentiment in these locales.

Turkish and Qatari nationals operating or residing in Libya are advised to keep a low profile and to overall refrain from externalizing their nationality in LNA-controlled territories. This is due to a growing risk of arbitrary measures and detentions by the LNA, following the aforementioned countries’ support for GNA-linked forces.

Avoid entering Libyan territorial waters in the area between Benghazi and al-Tamimi without prior authorization, as a no-sail zone is currently in effect in this area and several naval vessels had been intercepted or attacked due to not following proper procedures.

In addition, avoid entering Libyan territorial waters off the coast of Tripoli due to the heavy deployment of LNA naval vessels in the area. If travel is unavoidable, seek prior permission from the relevant authorities in order to mitigate the risk of interception on account of misidentification.

Those planning to conduct air travel to, from and inside Libya should avoid entering the area between Marsa al-Brega, Sirte and Sebha, as it was declared a no-fly zone by the Libyan National Army (LNA).

Those planning to conduct air travel to and from Tripoli’s Mitiga International Airport are advised to follow all relevant security protocols due to the increased threat to aviation in the capital as a result of the ongoing hostilities.

We further advise against all travel to Libya’s border areas at this time due to persistent violence and lawlessness in these regions.

For those operating in or conducting business with oil facilities, it is advised to consult with us for itinerary-based travel recommendations and ground support options.

Risk of increased political, security instability as tensions escalate between Mogadishu, UAE over Somaliland port deal – Somalia Analysis

Executive Summary

A Dubai-based company’s sale of a stake in the Port of Berbera in Somaliland to Ethiopia in March triggered a political standoff between Somalia and the UAE that led to the two countries cutting military ties.

The severing of funding for the Somali National Army (SNA) and withdrawal of UAE trainers and equipment will have a serious impact on the SNA’s capacity to fight al-Shabaab and delay the withdrawal of the African Union Mission in Somalia (AMISOM) peacekeepers.

Puntland and other regional states have continued to engage with the UAE separately as they receive funding and other benefits from the Gulf country, illustrating the weakness of Somali federalism as Mogadishu holds little leverage to force its constituent states to adhere to a unified policy.

Turkey and Qatar are likely to increase their presence in Somalia following these events, though Mogadishu will likely attempt to restore ties with the UAE. Given Somalia’s dependence on the Gulf countries for support, Mogadishu will attempt to maintain its official neutrality toward the Gulf rivals even as its states pursue their own policies.

We continue to advise against all travel to Somalia at this time with the exception of the Puntland and Somaliland regions. Travel within these regions should be restricted to cities and be for essential purposes only, while avoiding travel to outlying areas.

Current Situation

On March 1, a Dubai-based company announced that it sold a 19 percent stake in the Port of Berbera in Somaliland, of which it is a majority owner, to Ethiopia. In response, on March 12, the Somali Parliament in Mogadishu declared the deal to be “null and void” as the federal government was not consulted prior to signing.

Following weeks of turmoil and several military confrontations at the federal parliament, on April 8, Mogadishu airport authorities seized a private UAE aircraft and confiscated 9.6 million USD that was suspected to be directed toward several politicians involved.

The Ministry of Defense announced on April 11 that it would cut all military ties with the UAE, with the Somali government to take over the duties of training, funding, and redistributing the forces that were under the UAE’s payroll. This prompted the UAE to withdraw its military trainers and equipment from Mogadishu on April 16, with some reports that their forces withdrew from Bosaso, Puntland as well.

On April 21, Puntland President Abdiweli Mohamed Ali “Gaas” traveled to the UAE for talks with the government to secure continued support for Puntland’s maritime police forces. Likewise, on May 7, Jubaland President Ahmed Madobe visited Abu Dhabi, where he criticized Mogadishu’s actions regarding the UAE.

Somali President Mohamed Abdullahi “Farmajo” traveled to Doha, Qatar on May 13 where he met with the Qatari emir and foreign minister to hold discussions regarding “joint cooperation” between the two countries.

Assessments & Forecast

Security Consequences

Over recent months, Somalia and the UAE have been engaged in a political standoff following the March 1 Somaliland port deal. Mogadishu does not regard Somaliland as an independent state while Hargeisa does not recognize Somalia’s authority, though a number of countries and companies have pursued separate tracks of political negotiations and commercial deals with Mogadishu and Hargeisa. In this context, the UAE has acknowledged Somaliland as a de facto country as it sought to develop political and economic interests across the region. Mogadishu’s decision to cut military ties with the UAE as a retaliatory measure after the port deal and related political turmoil is particularly notable given the UAE’s entrenched involvement. This includes UAE-based companies controlling, developing, and operating strategically-situated ports and infrastructure, while the government also funds humanitarian and development projects as well as individual Somali political figures, all in efforts to advance the Gulf country’s interests.

Risk of increased political, security instability as tensions escalate between Mogadishu, UAE over Somaliland port deal - Somalia Analysis | MAX Security

Click here to see Map Legend

One of the most significant developments was the UAE’s withdrawal of support to the Somali National Army (SNA). It is possible that Mogadishu did not fully consider the ramifications of severing its military ties but it came immediately, as the UAE withdrew its military trainers and halted financial support to 2,400 Somali soldiers, thought to constitute between a quarter to a fifth of the entire SNA.

FORECAST: Somalia has recurrent difficulties raising enough revenue to pay its security forces and it is likely that they will be unable to cover those soldiers’ salaries after the UAE’s withdrawal, which could result in violent protests or incidents by unpaid soldiers. This potential was demonstrated in Mogadishu on April 23 when former UAE-backed soldiers looted their former base, clashing with other SNA troops, and went on to sell hundreds of stolen firearms on the black market. This illustrates not only the fragmented nature of Somalia’s security forces, often trained by different foreign powers and answering to different clan or regional interests, but the impact of these divisions and ill-discipline on maintaining security in the country. UAE-supported soldiers were thought to be among the best-trained and equipped forces in the capital, and these changes will only make it harder for security forces to manage the threat posed by al-Shabaab and other armed groups.

FORECAST: This is also expected to impact the African Union Mission in Somalia’s (AMISOM) plans for withdrawal from the country. Peacekeepers have already begun to draw down, with plans to fully exit by 2020, though their departure is contingent on conditions that include improvements in Somalia’s security situation and political development, as well as the SNA’s ability to replace AMISOM. This further highlights the UAE’s multifaceted role in Somalia, as it contributes to building the SNA’s capacity, which has an effect on the broad security of the country and the army’s ability to step in for the peacekeepers, as well as their interference in Somali politics and institution-building. Given this role, should the standoff between Somalia and the UAE continue, this will complicate AMISOM’s plans. While this is positive in the short-term given AMISOM’s capabilities in comparison to the SNA, international donors have already grown impatient with continually funding the peacekeeping operation and this may force the end of the mission before Somalia is prepared to take over.

Internal Political Implications

In addition to Mogadishu and Somaliland, the UAE is also heavily involved in the semi-autonomous region of Puntland. There they signed a deal in April 2017 to develop and run the Port of Bosaso, alongside an agreement to create, fund, and train Puntland’s Maritime Police Force (PMPF). These financial and military benefits prompted Puntland’s president to publicly deviate from Mogadishu’s position and travel to Abu Dhabi in efforts to secure their continued support. His willingness to directly engage with a foreign government in defiance of the constitution that imbues only Mogadishu with the power to conduct foreign policy is another reflection of the limitations of Somali federalism and unification.

FORECAST: Moreover, Mogadishu has little leverage over Puntland and would likely not be able to persuade the region to bend to their position. As a result, Puntland is likely to continue pursue its independent policies while Mogadishu softens its rhetoric in order to reduce the internal rifts.

That the UAE would negotiate individually with Mogadishu, Puntland, and Somaliland is consistent with the longstanding conceptualization of Somalia into the three regions. However, regional states in Somalia are likewise divided, and Jubaland, Galmudug, Hirshabelle, and Southwest states have all formed their own positions regarding the Gulf crisis and to which side they believe Somalia must be aligned. Much of this is derived from the funding Somali politicians receive from Saudi Arabia, the UAE, Qatar, and Turkey. While this has largely remained in the political sphere, one example of this manifesting in violence was the confrontation at the Somali parliament in April. This was, in part, driven by the parliament speaker’s opposition to the president and prime minister’s response to the Somaliland port deal, which he claimed was a result of their allegiances to Qatar.

FORECAST: Given that both sides of the Gulf crisis continue to fund Somali political figures and commercial interests, this is expected to remain a source of tension for the foreseeable future. While this may result in further violence between security forces backed by different factions, its effects will largely be political. However, this effect could seriously hinder the development of Somalia’s permanent constitution, the advancement of negotiations between the federal states and the central government, and the political progress necessary to make Somalia a viable state.


Risk of increased political, security instability as tensions escalate between Mogadishu, UAE over Somaliland port deal - Somalia Analysis | MAX Security

Effects on Foreign Policy

Given the impact on security and Somalia’s internal regional dynamics, it is likely that Mogadishu will pursue negotiations with the UAE to resolve their differences and restore relations. However, Qatar and Turkey likely view this as an opportunity to increase their involvement in the Horn of Africa and undermine their rivals. Qatar and Turkey have likewise sought to gain a foothold in the country in the past several years, with Turkey being one of the country’s largest donors and investors and Qatar securing its influence by funding Somali politicians, including President Farmajo. This underlines the position that Somalia is in due to its weak governance and reliance on foreign aid, vulnerable to the aims and goals of the international community, whether that is Western development and military intervention or competition between the Gulf rivals over their expanding influence in the region.

With the UAE remaining interested in Somalia despite recent events and Turkey and Qatar expected to increase their presence, it will be difficult for Mogadishu to maintain its officially neutral stance on the Gulf crisis.

FORECAST: Given Somalia’s dependence on these countries to fund and operate not only military training but critical infrastructure and services, including airports, seaports, and hospitals, they will likely continue to maintain this balancing act. However, the federal government will likely face growing diplomatic and economic pressure to choose a side, though it will also have to contend with internal pressure by its constituent states who will disagree. In this regard, even if Mogadishu continues to lean toward Qatar, the nature of Somalia’s weak federalism will mean that different regions and states will continue to maintain their own foreign policies and relations with either side of the Gulf rivalry.

 


Risk of increased political, security instability as tensions escalate between Mogadishu, UAE over Somaliland port deal - Somalia Analysis | MAX Security

Recommendations

We continue to advise against all travel to Somalia at this time with the exception of the Puntland and Somaliland regions. Travel within these regions should be restricted to cities and be for essential purposes only, while avoiding travel to outlying areas.

If travel to southern Somalia is unavoidable, we advise remaining in the confines of Mogadishu’s Aden Adde International Airport complex.

How countries such as Saudi Arabia, Bahrain, UAE, Egypt cutting ties with Qatar is likely to influence the region – Middle East & N. Africa Analysis

Current Situation

During the morning hours of June 5, Saudi Arabia, Bahrain, Egypt, and the UAE announced the cutting of all diplomatic ties with Qatar.  The Hadi-led government in Yemen, as well as Libya’s anti-Islamist House of Representatives (HoR) similarly announced the severing of diplomatic ties with Qatar on the same day. The first four countries issued a 48-hour ultimatum to Qatari diplomats to evacuate their respective nations, while similarly issuing an ultimatum to all other Qatari citizens to leave within two weeks. Additionally, Saudi Arabia, Bahrain, Egypt, and the UAE announced that they had closed their airspace for Qatari aircrafts, and that all flights by airliners from these countries to Qatar were suspended. Qatari naval vessels will also not be allowed to use the countries’ seaports to anchor, while land travel between Qatar and Saudi Arabia will be limited to non-Qatari nationals only.

Additional measures implemented against Qatar include the expelling of the country from the Saudi-led coalition in Yemen and its anti-Islamic State (IS) coalition in Syria. These measures were implemented based on accusations that Qatar is “supporting and financing extremist groups” across the region, as well as encouraging sectarianism and subversive elements operating in the abovementioned countries. Meanwhile, Qatar’s Ministry of Foreign Affairs issued a statement that the accusations are “absolute fabrications” and “proves that there are premeditated intentions to cause damage to Qatar”.

How countries such as Saudi Arabia, Bahrain, UAE, Egypt cutting ties with Qatar is likely to influence the region - Middle East & N. Africa Analysis | MAX Security
Map of countries affected by travel restrictions on Qataris

Assessments & Forecast

Severing ties may hurt Qatar economically, push its policy towards more pro-Iranian approach; limited impact on regional conflicts

While the new development is unlikely to have any effect on Qatar’s and any of the other impacted countries’ security conditions in the short term, we assess that this measure may lead to multiple local and regional ramifications over the coming months. For instance, approximately 90 percent of Qatar’s imports of food products are transferred through land from Saudi Arabia. Thus, in light of the border closure between the two countries, Doha will likely be forced to divert a large amount of resources in developing its maritime trade, including in the form of improving its seaport infrastructure, as now its imports via sea are liable to be enhanced significantly. Moreover, given the high-profile nature of the event, there remains a possibility that the turn of events will impact global markets, and particularly the oil sector, as it may be perceived as a source of instability across this oil-rich region.

These new developments may also impact expatriates, including Westerners operating in Qatar and the GCC, particularly given the suspension of flights between the GCC countries and Qatar and the closure of the land border with Saudi Arabia. In light of the likely increase in logistical difficulties in traveling between Qatar and the above-mentioned countries, exacted upon expatriates by the measures, it is likely to damage Qatar’s national economy. Though the impact on GCC residents seeking to enter Qatar is yet to be determined, it cannot be ruled out that Qatar will implement punitive measures and ban GCC citizens and residents from entering the country.

The partial isolation of Qatar may affect several conflicts and political rivalries across the region. With regards to Iran, Doha is liable to improve its bilateral relations and economic ties with Tehran, as now Qatar would be compelled to compensate for its political and economic setback. Moreover, in Yemen, in the short-term, Qatar’s absence from the Saudi-led coalition may slightly reduce the latter’s on-the-ground capabilities in fighting against the Iranian-backed Shiite Houthis. However, given Qatar’s already limited role in the coalition, as well as the aforementioned arms deal with the US, in the medium to long-term the Saudi-led coalitions is unlikely to be significantly impacted by Qatar’s absence from the coalition.

In Syria, in light of the already heightened internal divisions between rebel factions, it remains possible that this new development will further exacerbate tensions between rebel groups supported by Qatar on one side, and factions backed by Saudi Arabia and the UAE on the other. Should the event indeed lead to an economic recession in Qatar, their supported factions on-the ground would suffer from a shortage of resources, thus forcing them to disband or merge into other factions. With this in mind, should scenarios eventually materialize, it would potentially tip the scale towards the pro-government forces in the Syrian conflict.

In Libya, the development may constitute a boost to the HoR and its allied Libyan National Army (LNA), given their conflict with the pro-Islamist General National Congress (GNC) and its affiliated militias, which are partially supported by Qatar. That said, Qatar’s direct involvement in this conflict has significantly waned in recent years, particularly since the March 2016 arrival of the UN-backed Government of National Accord (GNA) to the designated capital of Tripoli, and therefore any implications on the conflict will remain limited.

Cutting ties with Qatar likely linked to global, regional developments involving Iran, new US administration

Today’s development comes amidst years of tensions between Saudi Arabia, Bahrain, UAE, and Egypt on one side, and Qatar on the other, surrounding multiple issues, chiefly the latter’s alleged direct involvement in the internal affairs of countries throughout the region. This is particularly relevant to Qatar’s long-standing support for Muslim Brotherhood-linked political elements across the Middle East and North Africa, as the countries in this Saudi-led alliance view the Islamist organization is a subversive element and a threat to their respective governments. Additional contentious issue include Qatar’s overall positive relations with Iran, as opposed to that of the other Gulf Cooperation Countries (GCC), with the exception of Oman, which remain strong adversaries of Tehran. This is highlighted by numerous past economic agreements between Tehran and Doha in recent years, such as the agreement from February 2014 to create a joint free trade and economic zones between the two countries. A further issue that contributed to the strained relations with Qatar throughout the years is the cooperation of the Qatari-based news outlet al-Jazeera, which had been accused by the aforementioned countries of attempting to undermine their, as well as their regional allies’, governments.

That said, despite these strained relations, Qatar and the other GCC countries’ relations can be characterized over the past several years by intermittent escalation and rapprochement between the sides. For instance, on December 9, 2014, Qatar agreed as part of a GCC summit, to establish a regional police force in order to improve coordination regarding drug trafficking, money laundering, and cybercrime, as well as announced its “full support to al-Sisi-led government in Egypt”. This followed Saudi officials’ March 9, 2014 threats to impose sanctions against Qatar, including in the form of sea blockade, in light of Doha’s persistent support for Muslim Brotherhood-linked elements across the region. However, the complete cutting of diplomatic relations between the aforementioned Saudi-aligned countries is highly notable given its wide scale and scope, as it includes significant restrictions on Qatar and its citizens.

We assess that this escalation is linked to global and regional geo-political developments, largely with regards to Iran and the new Donald Trump administration in the US. With this in mind, in recent years, under the Obama administration, relations between Saudi Arabia and its allies on one side, and Washington on the other, were oftentimes strained due to the US’ perceived efforts to approach Tehran, which was likely viewed by Riyadh as coming at its expense. In light of the aforementioned normal relations between Qatar and Iran, Saudi Arabia and the other GCC countries were likely felt compelled to prevent Qatar from approaching the Islamic Republic too much, as this would have significantly undermined their sense of security and regional interest.

Since President Trump’s inauguration, Washington increased its anti-Iranian rhetoric, while at the same time strengthened its ties with Saudi Arabia. This is highlighted by the May 15 UAE-US defense agreement, as well as the 350 Billion USD agreement between Riyadh and Washington involving an arms deal, and Saudi investments in the US. Thus, there remains a potential that the recent visit of President Trump to Saudi Arabia in late May, as well as the US’ growing support for Saudi Arabia and its allies, motivated the Kingdom to implement these measures, as part of the shared interest with the US in tackling Iran and its allies’ influence throughout the region. With this in mind, given Saudi Arabia’s decreasing need for Qatar’s cooperation on security and political support amidst the ongoing rivalry with Shiite Iran, it is likely that Saudi Arabia assessed that it is no longer obligated to maintain positive bilateral relations with Qatar, prompting this development.

The development comes amidst a diminishing political influence of the Islamist Muslim Brotherhood organization across the Middle East and North Africa over the past two years. In this context, it remains possible that Saudi Arabia no longer felt compelled to maintain good relations with Qatar, following the reduction of the threat stemming from the Muslim Brotherhood, as opposed to previous Saudi attempts to pressure Qatar to abandon their support for the Islamist organization in return for the improvement of relations with the other GCC countries.

Recommendations

Travel to Qatar may continue as normal while adhering to cultural norms and avoiding making any statements critical of the Qatari Emir and government officials, despite the aforementioned new restrictions. That being said, those operating in Qatar over the coming days and weeks are advised to stock up on food and basic products, due to the possibility that these will be in shortage due to the declared measures. Those operating throughout the Middle East and North Africa, and particularly in Saudi Arabia, Bahrain, UAE, and Qatar are advised to remain cognizant of developments and potential effects on travel and business continuity given the current lack of full information regarding the various restrictions that will be in effect. This is particularly relevant for the possibility of unexpected border closures between the relevant countries over the coming days and weeks.

 

This report was written by:
Asaf Day – MAX Security’s Senior Intelligence Manager, Middle East & North Africa

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Executive Summary

A Dubai-based company’s sale of a stake in the Port of Berbera in Somaliland to Ethiopia in March triggered a political standoff between Somalia and the UAE that led to the two countries cutting military ties.

The severing of funding for the Somali National Army (SNA) and withdrawal of UAE trainers and equipment will have a serious impact on the SNA’s capacity to fight al-Shabaab and delay the withdrawal of the African Union Mission in Somalia (AMISOM) peacekeepers.

Puntland and other regional states have continued to engage with the UAE separately as they receive funding and other benefits from the Gulf country, illustrating the weakness of Somali federalism as Mogadishu holds little leverage to force its constituent states to adhere to a unified policy.

Turkey and Qatar are likely to increase their presence in Somalia following these events, though Mogadishu will likely attempt to restore ties with the UAE. Given Somalia’s dependence on the Gulf countries for support, Mogadishu will attempt to maintain its official neutrality toward the Gulf rivals even as its states pursue their own policies.

We continue to advise against all travel to Somalia at this time with the exception of the Puntland and Somaliland regions. Travel within these regions should be restricted to cities and be for essential purposes only, while avoiding travel to outlying areas.

Current Situation

On March 1, a Dubai-based company announced that it sold a 19 percent stake in the Port of Berbera in Somaliland, of which it is a majority owner, to Ethiopia. In response, on March 12, the Somali Parliament in Mogadishu declared the deal to be “null and void” as the federal government was not consulted prior to signing.

Following weeks of turmoil and several military confrontations at the federal parliament, on April 8, Mogadishu airport authorities seized a private UAE aircraft and confiscated 9.6 million USD that was suspected to be directed toward several politicians involved.

The Ministry of Defense announced on April 11 that it would cut all military ties with the UAE, with the Somali government to take over the duties of training, funding, and redistributing the forces that were under the UAE’s payroll. This prompted the UAE to withdraw its military trainers and equipment from Mogadishu on April 16, with some reports that their forces withdrew from Bosaso, Puntland as well.

On April 21, Puntland President Abdiweli Mohamed Ali “Gaas” traveled to the UAE for talks with the government to secure continued support for Puntland’s maritime police forces. Likewise, on May 7, Jubaland President Ahmed Madobe visited Abu Dhabi, where he criticized Mogadishu’s actions regarding the UAE.

Somali President Mohamed Abdullahi “Farmajo” traveled to Doha, Qatar on May 13 where he met with the Qatari emir and foreign minister to hold discussions regarding “joint cooperation” between the two countries.

Assessments & Forecast

Security Consequences

Over recent months, Somalia and the UAE have been engaged in a political standoff following the March 1 Somaliland port deal. Mogadishu does not regard Somaliland as an independent state while Hargeisa does not recognize Somalia’s authority, though a number of countries and companies have pursued separate tracks of political negotiations and commercial deals with Mogadishu and Hargeisa. In this context, the UAE has acknowledged Somaliland as a de facto country as it sought to develop political and economic interests across the region. Mogadishu’s decision to cut military ties with the UAE as a retaliatory measure after the port deal and related political turmoil is particularly notable given the UAE’s entrenched involvement. This includes UAE-based companies controlling, developing, and operating strategically-situated ports and infrastructure, while the government also funds humanitarian and development projects as well as individual Somali political figures, all in efforts to advance the Gulf country’s interests.

Click here to see Map Legend

One of the most significant developments was the UAE’s withdrawal of support to the Somali National Army (SNA). It is possible that Mogadishu did not fully consider the ramifications of severing its military ties but it came immediately, as the UAE withdrew its military trainers and halted financial support to 2,400 Somali soldiers, thought to constitute between a quarter to a fifth of the entire SNA.

FORECAST: Somalia has recurrent difficulties raising enough revenue to pay its security forces and it is likely that they will be unable to cover those soldiers’ salaries after the UAE’s withdrawal, which could result in violent protests or incidents by unpaid soldiers. This potential was demonstrated in Mogadishu on April 23 when former UAE-backed soldiers looted their former base, clashing with other SNA troops, and went on to sell hundreds of stolen firearms on the black market. This illustrates not only the fragmented nature of Somalia’s security forces, often trained by different foreign powers and answering to different clan or regional interests, but the impact of these divisions and ill-discipline on maintaining security in the country. UAE-supported soldiers were thought to be among the best-trained and equipped forces in the capital, and these changes will only make it harder for security forces to manage the threat posed by al-Shabaab and other armed groups.

FORECAST: This is also expected to impact the African Union Mission in Somalia’s (AMISOM) plans for withdrawal from the country. Peacekeepers have already begun to draw down, with plans to fully exit by 2020, though their departure is contingent on conditions that include improvements in Somalia’s security situation and political development, as well as the SNA’s ability to replace AMISOM. This further highlights the UAE’s multifaceted role in Somalia, as it contributes to building the SNA’s capacity, which has an effect on the broad security of the country and the army’s ability to step in for the peacekeepers, as well as their interference in Somali politics and institution-building. Given this role, should the standoff between Somalia and the UAE continue, this will complicate AMISOM’s plans. While this is positive in the short-term given AMISOM’s capabilities in comparison to the SNA, international donors have already grown impatient with continually funding the peacekeeping operation and this may force the end of the mission before Somalia is prepared to take over.

Internal Political Implications

In addition to Mogadishu and Somaliland, the UAE is also heavily involved in the semi-autonomous region of Puntland. There they signed a deal in April 2017 to develop and run the Port of Bosaso, alongside an agreement to create, fund, and train Puntland’s Maritime Police Force (PMPF). These financial and military benefits prompted Puntland’s president to publicly deviate from Mogadishu’s position and travel to Abu Dhabi in efforts to secure their continued support. His willingness to directly engage with a foreign government in defiance of the constitution that imbues only Mogadishu with the power to conduct foreign policy is another reflection of the limitations of Somali federalism and unification.

FORECAST: Moreover, Mogadishu has little leverage over Puntland and would likely not be able to persuade the region to bend to their position. As a result, Puntland is likely to continue pursue its independent policies while Mogadishu softens its rhetoric in order to reduce the internal rifts.

That the UAE would negotiate individually with Mogadishu, Puntland, and Somaliland is consistent with the longstanding conceptualization of Somalia into the three regions. However, regional states in Somalia are likewise divided, and Jubaland, Galmudug, Hirshabelle, and Southwest states have all formed their own positions regarding the Gulf crisis and to which side they believe Somalia must be aligned. Much of this is derived from the funding Somali politicians receive from Saudi Arabia, the UAE, Qatar, and Turkey. While this has largely remained in the political sphere, one example of this manifesting in violence was the confrontation at the Somali parliament in April. This was, in part, driven by the parliament speaker’s opposition to the president and prime minister’s response to the Somaliland port deal, which he claimed was a result of their allegiances to Qatar.

FORECAST: Given that both sides of the Gulf crisis continue to fund Somali political figures and commercial interests, this is expected to remain a source of tension for the foreseeable future. While this may result in further violence between security forces backed by different factions, its effects will largely be political. However, this effect could seriously hinder the development of Somalia’s permanent constitution, the advancement of negotiations between the federal states and the central government, and the political progress necessary to make Somalia a viable state.


Effects on Foreign Policy

Given the impact on security and Somalia’s internal regional dynamics, it is likely that Mogadishu will pursue negotiations with the UAE to resolve their differences and restore relations. However, Qatar and Turkey likely view this as an opportunity to increase their involvement in the Horn of Africa and undermine their rivals. Qatar and Turkey have likewise sought to gain a foothold in the country in the past several years, with Turkey being one of the country’s largest donors and investors and Qatar securing its influence by funding Somali politicians, including President Farmajo. This underlines the position that Somalia is in due to its weak governance and reliance on foreign aid, vulnerable to the aims and goals of the international community, whether that is Western development and military intervention or competition between the Gulf rivals over their expanding influence in the region.

With the UAE remaining interested in Somalia despite recent events and Turkey and Qatar expected to increase their presence, it will be difficult for Mogadishu to maintain its officially neutral stance on the Gulf crisis.

FORECAST: Given Somalia’s dependence on these countries to fund and operate not only military training but critical infrastructure and services, including airports, seaports, and hospitals, they will likely continue to maintain this balancing act. However, the federal government will likely face growing diplomatic and economic pressure to choose a side, though it will also have to contend with internal pressure by its constituent states who will disagree. In this regard, even if Mogadishu continues to lean toward Qatar, the nature of Somalia’s weak federalism will mean that different regions and states will continue to maintain their own foreign policies and relations with either side of the Gulf rivalry.

 


Recommendations

We continue to advise against all travel to Somalia at this time with the exception of the Puntland and Somaliland regions. Travel within these regions should be restricted to cities and be for essential purposes only, while avoiding travel to outlying areas.

If travel to southern Somalia is unavoidable, we advise remaining in the confines of Mogadishu’s Aden Adde International Airport complex.