Saudi Threat To Close Qatar Border Has US Dollar Implications

Qatar Flag

Qatar’s aggressive courting of the Muslim Brotherhood threatens to break up the Gulf Cooperation Council (GCC) and could have reverberations on the US petrodollar trade.

ValueWalk has been predicting that the issue of Qatar supporting the Muslim Brotherhood could come to a head and destroy the GCC, which now appears closer to a reality.

Saudi threat to close border and airspace reported

Al-Arab, a London-based newspaper known to have close ties to Saudi decision makers, is reporting that the Saudis are threatening to isolate Qatar by closing their border and airspace if the Doha-based government doesn’t stop supporting the Muslim Brotherhood.

A Saudi official is said to have delivered an urgent message from the Saudi government to the Emir of Qatar Sheikh Tamim Bin Hamad Al-Thani that included a “threat” that Riyadh is reviewing its relations with Doha.

The oil-producing countries in the Middle East loyal to the United States are key to the support of the US dollar as the reserve currency of choice.  Members of the GCC agree to transact all their oil sales in US dollars, which works to maintain the US dollar as the dominant world currency. The unwritten agreement is that the US provides military protection and the oil producers continue to help maintain the US dollar as the standard for all oil transactions.  This December, in a sign of growing frustration, Saudi Arabia said it would “go it alone” in regards to attacking Iran and has expressed displeasure with US diplomatic and military decisions in the region. The rift between Saudi Arabia and Qatar is another sign of a growing fissure in the petrodollar alliance.

In this instance, Qatar is being charged with breaching the GCC’s guidelines for the policies and positions in supporting the Muslim Brotherhood, particularly towards Egypt.  The Al-Arab newspaper points out Saudi Arabia believes that the Emir of Qatar did not abide by the agreement he signed in a summit in Riyadh in the presence of the Emir of Kuwait two months ago, to stop the use of the Qatari soil in actions that harm the Kingdom.

The report noted this Saudi threat coincides with a similar Egyptian threat that was expressed by the Egyptian Foreign Minister Dr. Nabil Fahmy, who said, “We reject the Qatari stance, in form and content, and there should not be any intervention in internal Egyptian affairs.”

Closing boarder effectively controls Qatar

If the Saudis were to shut their land border with Qatar, it would mean controlling Qatar entirely, because the gulf state does not have territorial access to the world except through the Saudi port, preventing it from using Saudi airspace and withdrawing the licenses of Qatar Airways to operate flights between Saudi Arabian cities.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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