Qatar Crisis Spells Big Trouble for Asia

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Qatar Crisis Spells Big Trouble for Asia

Asian countries depend on Qatar as a resource supplier and labor destination.

Qatar Crisis Spells Big Trouble for Asia

A view of the construction work at Al Bayt Stadium in Doha, Qatar (June 20, 2017).

Credit: REUTERS/Naseem Zeitoon

A crisis over the fate of the government of Qatar and the West Asian peninsula it rules is already having an impact across Asia. The crisis has had a big impact on Asian companies who are invested in Qatar, as results on regional stock markets suggest.

However, the crisis will have far-ranging impacts that are only now beginning to be understood. The repercussions will not only impact natural gas importers, but also impact a host of other markets ranging from helium to guest worker programs.

Nine countries in Africa and Asia joined together in early June to sever all diplomatic ties with Qatar. Djibouti and Jordan also downgraded their ties. The bloc also implemented an embargo on trade with Qatar.

The showdown was meant to force Qatar to end support for Hamas and other Islamist groups. Doha has long supported the Muslim Brotherhood and given shelter and citizenship to Yusuf al-Qaradawi, a controversial scholar who has argued in defense of suicide bombing.

Qatar admits it has ties with a number of unsavory groups. The Qatari government, however, suggests that these relationships are part of its mediation efforts in regional conflicts. Qatar has not backed down during the crisis; Qatar’s ruling emir hosted a Ramadan dinner attended by al-Qaradawi in June.

The only Asian country to join the Qatar embargo so far is the Maldives, whose elite are increasingly under the influence of Saudi Arabia and the United Arab Emirates.

The Maldives government is also worried about the radicalization of young Maldivian Muslims. The country has sent more terrorist to fight for Islamic State in Syria and Iraq than any other country in per capita terms.

“Yusuf al-Qaradawi has followers in Maldives and so does the Muslim Brotherhood in the Maldives,” explained Animesh Roul, executive director of the Delhi-based Society for the Study of Peace and Conflict. “In particular, the opposition Adhaalath Party has been influenced by the Muslim Brotherhood. That might change, but the rise of other extremist groups… has eroded the influence of the Muslim Brotherhood’s ideology to some extent.”

However, natural gas — not terrorism — is the primary concern for most Asian countries when it comes to Qatar. Qatar is the world’s largest exporter of liquefied natural gas (LNG), and roughly two-thirds of the nation’s exports are sent to Japan, South Korea, India, Taiwan, China, and Thailand. India alone imports 65 percent of its natural gas from Qatar.

Such contracts are awarded on a long-term basis, and the market is highly regional. The highest prices for such long-term contracts in recent years have originated in East Asia. One-third of LNG traded internationally originates in Qatar. As a result, unlike with oil, it will be difficult for Asian industrial consumers to find a replacement.

Qatar’s ability to meet these contracts are likely to continue short of full-scale war. Iran controls the Straits of Hormuz, and Qatari-Iranian relations have strengthened as a result of the crisis.

When Qatar’s long-term LNG contracts come up for negotiations, though, buyers may seek greater supplier diversity. The short-term market will also be impacted. As a result, some of the long-term beneficiaries of such a switch could include Indonesia and Australia, which are both LNG exporters.

“The Qatar crisis may well lead Asian LNG importers to consider supplier diversification for gas and will give importers leverage in future negotiations,” said Richard Rossow, a senior adviser and U.S.-India expert at the Center for Strategic and International Studies in Washington, DC.

There is no denying Qatar’s role in the natural gas trade as the world’s largest exporter of LNG. Qatar holds an equally dominate, if not a more critical position, in the global helium market. Qatar is the world’s second largest producer of helium behind the United States. While Qatar’s massive LNG tankers continue to ply, Qatar’s exports of helium have stopped completely.

Qatar moved to cut off helium exports to Saudi Arabia in response to the blockade, a decision that upped the stakes of the crisis. Previously all of Qatar’s helium exports were trucked through Saudi Arabia on their way to other ports. Helium is used in everything from the balloons at a child’s birthday party to defense applications. The market for the world’s lightest inflammable gas is a heavy matter for industrial companies.

For Asian industries, helium is vital to the production of electronics, semiconductors, fiber optics, and a host of other industrial applications.

On its website, Qatar’s Rasgas company succinctly explains the importance of Qatari helium to Asia: “Since 2000, world demand for helium has increased by approximately 20 percent. Future growth in helium consumption is expected to be driven by demand from electronics manufacturers in Japan, China, Republic of Korea, and Taiwan.”

Qatar’s move to end helium exports will have ripple effects across the economies of East Asia. South Korea alone gets a third of its helium from Qatar. Iwatani, a Japanese firm involved in the helium trade, told Reuters that it has only a month of helium stockpiles to meet demand. Iwatani is considering new ways to import from Qatar, but logistical considerations will take some time to develop. Experts say helium consumers will start feeling the shortage in July.

Indeed before Qatar’s move to shut down helium supplies, global demand for the gas was growing at 2 percent a year. Even after new supply routes are found the impact will remain.

In the long term it could well mean Asian countries will seek helium elsewhere. The quest for alternative helium suppliers could benefit the United States, which is the world’s largest producer and maintains a national helium reserve in Amarillo, Texas. The U.S Bureau of Land Management accounts for a fifth of the global helium supply and has increased helium production in response to the Qatari move.

For other Asian states, the Qatar crisis presents a separate quandary as Qatar has been an important destination for labor exports for decades. Both Qatar and the surrounding Arab states are a major destination for South Asian expatriate labor. Indeed South Asian nationals constitute the largest expatriate group in the Gulf countries.

The crisis is already having an impact on the labor market. The Philippines temporarily stopped Filipino workers from traveling to Doha; Vietnam has also reportedly suspended workers from traveling to the emirate. Qatar is seeking to prevent some guest workers in vital industries from leaving during the embargo as well.

An extended blockade will mean a slowdown in the Qatari construction market due to the embargo. That will harm Qatar’s ability to finish the infrastructure needed to host the FIFA 2022 World Cup.

“The tournament organizers will have allowed for some delays when devising the original schedule,” said Matt Ross, the editor of the trade publication Stadia magazine, “but a serious crisis could jeopardize even those contingencies.”

So far it seems unlikely that the Qatari crisis will lead to open conflict. There is some precedent for the situation as Bahrain, UAE, and Saudi Arabia withdrew their ambassadors for eight months in 2014. The Saudi-UAE led coalition believes given the embargo and increased diplomatic pressure that Qatar will eventually cave to international pressure. In order to end the crisis, Qatar agreed to deport several Muslim Brotherhood leaders.

The countries unveiled a list of 13 demands in late June, ranging from severing ties to the Muslim Brotherhood to closing Al Jazeera, Qatar’s state-funded internationals media company. Agreeing to the list, which also includes an audit of Qatari finances, is inconceivable for Qatar, but it does suggest a basis for negotiations to end the deadlock.

Joseph Hammond is a fellow with the American Media Institute and former Cairo Correspondent for Radio Free Europe. He has been contributing as a freelancer to The Diplomat since 2010.