Since a Saudi-led alliance sought to ostracize Qatar earlier this month, we’ve been keen to note that the geopolitical and economic implications are probably far more serious than most market watchers realize or care to think about.
The concerted effort to isolate Qatar is a perfect example of a geopolitical event that has the potential to create all manner of adverse market outcomes by further destabilizing an already unstable region at just the wrong time.
The spat between Qatar and the Saudi alliance pushes Doha further into the arms of Tehran (an awkward alliance from a sectarian point of view, but one that may make sense for strategic and economic reasons) and that of course could have ramifications for Syria (where Iran’s proxies are literally at war with Qatar’s proxies) and perhaps for the delicate OPEC deal, but what those ramifications are is completely unknowable.
Oh, and don’t forget Turkey is involved, which always introduces an extra element of batshit craziness thanks to an increasingly unhinged Erdogan.
Meanwhile, the financial fallout for Qatar has been readily apparent, although Doha has of course tried to pretend as though it’s business as usual despite dollar shortages and stock market mini-crashes.
And on, and fucking on.
On Saturday, Doha called a list of demands it received from Saudi Arabia, the U.A.E, Egypt and Bahrain unrealistic, which means the diplomatic (for now) row isn’t likely to be resolved any time soon.
“This list of demands confirms what Qatar has said from the beginning—the illegal blockade has nothing to do with combating terrorism,” Sheikh Saif Al-Thani, the director of Qatar’s government communications body said, adding that “it is about limiting Qatar’s sovereignty, and outsourcing our foreign policy.”
So, with that dispute at a stalemate, here’s a list of other (related) shit that could potentially go wrong in the Mideast courtesy of Citi…
Mercury rising in the Middle East
We believe that the Qatari embargo is indication that there is currently underway a realignment of US foreign policy with that of the Saudi-led anti-Iranian alliance, with both sides having found common ground in their hardening opposition to Iran. The result is a ramp-up in tensions between the US and the Saudi-led alliance on the one hand, and Iran and its regional proxies on the other.
We think there are number of potential flashpoints on the horizon beyond the Qatari crisis that investors should be aware of, given their potential impact well beyond the geographical bounds of the Middle East.
- Risks to Iran nuclear deal – increased pressure by the United States, and in particular the rising threat of additional sanctions, is viewed in Tehran as a failure by the United States to meet its obligations under the Joint Comprehensive Plan of Action (JCPOA) and, ultimately, threaten Iranian adherence to the agreement. If Iran were to pull out, this would result in an immediate ‘snapback’ of sanctions, with implications for global oil markets. It could also lead to military strikes and heightened regional instability.
- Escalation of Syrian and other regional conflicts – The downing of a Syrian fighter jet on June 18th and a drone two days later reinforces an escalation in US military involvement in that country. Whether or not the US seeks a confrontation with Assad and his allies, Russia and Iran, the risk is that it may arise as its military takes a more aggressive stance on confronting perceived threats from the Assad regime and Iran.
- Iranian retaliation – A June 18th missile attack on Syria acts as a reminder that Tehran is willing and capable to retaliate against perceived rising external threats. Iran may also retaliate via proxies in the region, including Hezbollah, raising the spectre of another Israeli-Lebanese war.
- Post-ISIS Iraq – We have long argued that the defeat of ISIS in Iraq could in fact increase instability in the medium term, an argument underlined by the June 7th announcement of a Kurdish independence referendum.