Previous Quarterly Editions
Expropriation Risk: 40 40 40 39 ▼Political Violence Risk:35 35 35 35 ►Terrorism Risk:5 5 5 5 ►Exchange Transfer and Trade Sanction Risk: 35 45 35 35 ►Sovereign Default Risk:15 15 15 15 ►
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Qatar is firmly aligned with the West. The gas-rich nation is one of just two Gulf states, Kuwait being the other, to openly criticise Russia’s action in Ukraine from February 2022, calling it a violation of the UN charter and of another country’s sovereignty. Qatar’s Al Udeid air base hosts the forward headquarters of U.S. Central Command, with an area of responsibility stretching from Egypt to Afghanistan. The base is home to 11,000 U.S. service members, underscoring the United States’ role as Qatar’s ultimate security guarantor.
Following the 2017-21 Saudi-led blockade against Qatar, which came with a credible threat of an invasion, Doha launched a military modernisation programme that saw its defence spending grow considerably. Qatar turned to its Western partners – mainly Washington, Paris, and Berlin – to rebuild its air force and navy. The country signed multi-billion-dollar deals to buy 24 Eurofighter Typhoon fighter jets, 24 Rafales from France, and 26 F-15s from the U.S.. The scale of arms purchases is such that it raises questions about Qatar’s ability to train enough pilots.
Recognising its limits as a small power, Qatar has long sought to gain outsized clout in global geopolitical dispute resolution. Thus, in the wake of the U.S.’ chaotic withdrawal from Afghanistan in August 2021, Qatar’s role in evacuating U.S. and European aid workers and journalists from Kabul won it plaudits and political capital in Western nations from Washington to Berlin. Qatar’s emir remains the only Gulf leader to have been received by U.S. President Joe Biden in the White House. During that meeting, Biden announced he would designate Qatar a major non-NATO ally, giving Qatar privileged access to sensitive U.S. military technology.
Similarly, Qatar’s position as a natural gas powerhouse – second only to the U.S. in terms of liquefied natural gas (LNG) export volumes – has gained added geopolitical importance amid Europe’s gas supply crunch. With Russia weaponising energy in its proxy confrontation with the West, Biden has turned to Qatar, among a coalition of other energy-exporting allies, to shore up European energy security. In tandem, Qatar has signed up Western energy majors as equity partners in a historic LNG expansion, the largest in the industry to date. The potential for Qatari LNG to replace Russian pipeline gas to Europe will more closely link Qatar with the future of European energy security, further bolstering its ties with the West.
Despite deepening energy ties with Europe, Asian countries continue to dominate Qatar’s LNG export profile. China alone accounts for 16% of the country’s total exports, mainly LNG. Given Qatar’s demand security concerns, the size of its LNG expansion – a 64% increase on its current output – requires the Gulf state to nurture ever stronger ties with China. However, this will not come at the expense of its relations with the U.S. and Europe. Indeed, Europe’s search for a depoliticised source of gas makes Qatar a highly desirable partner. As Qatar looks to market huge new volumes of gas (equivalent to what the stalled Nord Stream 2 pipeline would have carried to Europe), it will look to Europe to consolidate its share of the global LNG market.
TREND ▼
Given the bedrock hydrocarbon industry’s prevailing model of joint ventures with oil majors, expropriation risks are minimal. Qatar is also touting its new industrial free zones, co-located with its new sea and airports, as destinations for foreign investment.
The country has increased the number of areas where foreigners can own property. The 2019 foreign investment law should widen the range of sectors in which full ownership is permitted, although details are pending. Additionally, a proposed amendment of that law, if approved, will allow 100% ownership of the capital of Qatari shareholding companies listed on the Qatar Stock Exchange, a move that could spur inflows into listed companies.
Qatar’s leader Emir Tamim bin Hamad Al Thani used the Qatar boycott by other Gulf states to promote nationalist sentiment, with popular support coalescing around his rule. He has also increased senior royals’ visibility in key government briefs, including the foreign ministry. These moves have helped to consolidate the emir’s domestic power base.
In October 2021, Qatar held long-promised elections for the legislature. With power almost entirely centralised, the Advisory Council is effectively a rubber-stamping body; regardless of the elections, the Council will remain loyal. Given neighbouring Kuwait’s persistent policy deadlocks due to its powerful parliament, the appetite for greater political openness in Qatar is weak.
Qatar’s large expatriate population means its security sector has traditionally focused on internal security, but the sharp downturn in relations with its large and well-armed neighbours, though improving now, has forced the country to re-evaluate its military. As noted, Qatar’s armed forces are growing exponentially.
With the 2022 FIFA World Cup set to kick off in Qatar in November, there is increasing concern the country’s security services are unprepared to deal with travelling fans who choose to use the global showcase as an opportunity to protest Qatar’s human rights record. Qatar has long been dogged with allegations about migrant workers’ rights and criticised by LGBTQ groups for its criminalisation of homosexuality. The use of heavy-handed tactics against fans staging protests will cause a severe backlash for Qatar. Qatar has sought to mitigate those risks by inviting qualified nations to send police officers to the tournament. The authorities have also announced minor offences such as public drunkenness will be met with leniency.
Qatar has no terrorism and negligible organised crime. Well-paid security personnel and stringent border controls make successful terrorist attacks unlikely. Qatar has expanded its counterterrorism cooperation with the U.S. in recent years. The country has also made terrorist financing an increased focus of its domestic counterterrorism activities, in response to criticism over gaps in Qatar’s financial system. In 2019, Qatar ratified new anti-money laundering and counterterrorism financing legislation.
Aside from formal central bank foreign reserves, which stood at around USD42 billion in July 2022 and is sufficient for well over three months of import cover, Qatar has other liquidity and nearly USD500 billion in foreign assets held by the Qatar Investment Authority.
The country also has the capacity to raise foreign exchange through borrowing. As such, Qatar is very likely to remain both committed to and capable of maintaining its currency peg to the U.S. dollar. There are currently no known international sanctions against Qatar.
Qatar is rated AA- with a stable outlook by the three main credit rating agencies, reflecting its robust financial buffers, vast hydrocarbon reserves, and high per capita income. The country was last downgraded in 2017, following the onset of the neighbouring states’ boycott, and liquidity risks related to the banking system’s dependence on non-resident deposits, which account for more than a quarter of total deposits.
The banking sector remains overly reliant on external funding, accounting for 47% of the sector’s liabilities at the end of 2021, prompting Fitch, in April 2022, to downgrade seven Qatari banks, including the largest, on concerns that the government’s ability to support the system could be stretched by the scale of non-resident funding.
However, high energy prices have greatly strengthened the government's balance sheet, propelling a twelve-fold jump in Qatar’s budget surplus to USD12.8 billion in the first half of 2022. This will ensure sovereign default risks will remain low.
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