Why did Qatar pass up the chance to invest in Saudi Aramco? It’s the question on nobody’s lips, at least publicly, at the Doha Forum, the emirate’s annual bash for international politicians and investors taking place in its capital this weekend. That’s a pity. Unpacking why Doha didn’t buy into the Saudi kingdom’s stock offering of its $1.7 trillion oil giant helps show why an ongoing spat between two Gulf petroleum-states still has a bit further to run.
In fairness to Doha Forum attendees, there are far more pressing questions to obsess about. While Abu Dhabi’s Aramco investment was always on the cards given Saudi’s status as a close ally, and Kuwait’s was mildly surprising given its neutral position on regional beefs, a contribution from the Qatar Investment Authority would have had jaws dropping.
Relations between Doha and Riyadh have been icy ever since June 2017, when Saudi and allies including the UAE and Egypt blockaded routes representing 90% of domestic trade and stopped Qataris from visiting or even using their airspace. Yet Saudi officials still approached Qatar about investing, Bloomberg reported on Dec. 11.
It’s easy to see why Riyadh would ask the question, given the lamentably low level of foreign investment into Aramco – only 15% of a pared-back 1.5% stake sale. It’s also understandable why Qatar would demur: 13 conditions laid down by Saudi for lifting the blockade remain in place, including a requirement for the emirate to cease covert financing of Islamic terrorism. With Qatar continuing to deny such charges, any thawing of relations hasn’t looked imminent.
But what was true a few months back is less so now. Forum attendees cite plenty of reasons why Saudi now wants the blockade over. September’s missile attack, reported by Reuters to have been planned by Iran, knocked out half of the kingdom’s domestic oil output and pushed Qatar down the worry list. The failure of the United States to retaliate in defence of its long-term Saudi ally has unsettled Riyadh. Washington, which has an air base in Qatar, is keen on ending what it euphemistically calls “the rift.”
An investment of, say, $1 billion in Aramco by the QIA could, therefore, have been the icing on a cake that has already been rising in the oven. When Saudi King Salman invited Qatar’s Sheikh Tamim bin Hamad al-Thani to the Gulf Cooperation Council meeting in Riyadh on Dec. 10, there was more than a whiff of compromise in the air. A soccer match between Qatar and Saudi in the semi-finals of the Arabian Gulf Cup on Dec. 5 passed without a hitch in Doha.
In the end, the Qatari emir didn’t go to Riyadh, and the QIA didn’t support Aramco. It’s probably not because Saudi beat Qatar 1-0, although Qataris at their annual shindig were keen to point out that the Arabian Gulf Cup was not nearly as important as an Asian Cup clash earlier this year, when their team prevailed 2-0. But it probably is because Qatar has little reason to give in to overtures of peace without driving a hard bargain.
As Qatari Commerce Minister Ali bin Ahmed Al Kuwari told Breakingviews on the sidelines of the Doha Forum, the economic effects of the blockade have now receded. After a rapid self-sufficiency drive, the country, for example, now exports dairy products, compared to importing over 90% before. Forum attendances from the United States, like Treasury Secretary Steven Mnuchin, Senator Lindsey Graham and first-daughter Ivanka Trump underline that Washington has Qatar’s back. With the emirate’s prominence set to soar from hosting the 2022 World Cup, it has a strong hand.
Lacking the obligation of its neighbours to keep Riyadh sweet, Qatar could address Aramco’s valuation, which rose to nearly $2 trillion following its recent IPO, on its merits. As western investors showed, these don’t amount to much. While Qatar’s wealth means it could cover 12 years of non-oil primary deficits from its foreign assets, Fitch reckons, and it has one of the highest GDPs per capita in the world, government-related-entity debt at the end of 2018 constituted 67% of GDP – against Saudi’s 24%. Qatar doesn’t have unlimited headroom. Doha may like spending on glitzy London real estate, but that may simply be because it holds its value better and is less correlated to energy prices.
Qatar does want the blockade to end – it continues to carry a heavy human cost. But the circumstances of its dissolution are important. A neutral setting is needed – perhaps Kuwait, but conceivably the United States – where both sides can make necessary concessions. Such an outcome is possible but probably a year or so away, according to one Forum-goer. For Doha, joining the group of neighbourly investors obliged to sign on for the Aramco deal would have fallen considerably short of meeting Riyadh half way.