06 Jun 2017

Gulf States cut diplomatic ties with Qatar

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Saudi Arabia, the UAE, Egypt and Bahrain (the “Gulf States”) have taken a series of economic and political steps against Qatar in an escalating feud over Qatar’s alleged funding of extremist terrorism and a perceived openness towards Iran.

At present the Gulf States have announced the severing of diplomatic ties, the closing of the land border between Saudi Arabia and Qatar and the closure of air (including overflight rights) and sea routes from the Gulf States. Whilst the severing of diplomatic ties between the countries is not new (a similar incident occurred in 2014), the breadth and scale of the economic measures that the Gulf States are taking are.

The picture is still developing over exactly how these measures will be enacted in each of the Gulf States, however the practical impact is already being felt following the announcement and certain concrete steps have already been taken:

  1. The border between Qatar and Saudi Arabia is the peninsula nation’s only land border which has now been closed. With over 40% of non-oil imports including food being transported over this border to Qatar, this will have a serious impact.

  2. There appears there will be little respite in respect of Sea transport. Although it remains to be seen exactly how each of the Gulf States will treat the shipping sector, it is being reported by Reuters that the UAE has issued a proclamation that all ships flying the flag of Qatar or vessels destined to or arriving from Qatar ports are not allowed to call at the Port of Fujairah or Fujairah Offshore Anchorage “regardless of the nature of their call” until further notice. If this is the case and the other Gulf States follow suit the impact upon the shipping sector will be considerable.

  3. All of the Gulf States have banned Qatari aircraft from their airspace and reports confirm that all of the national flag carriers of the Gulf States have suspended flights to Qatar. Qatar Airways has now cancelled all flights to the Gulf States.

Clearly the above steps have the potential to seriously impact upon all aspects of international trade, ranging from sale contracts, letters of credit, charterparties and bills of lading. Whilst most of these contracts usually contain some provision for these types of events (e.g force majeure clauses in sale contracts, war risk clauses in voyage and time charters) which may excuse parties from what would otherwise be contractually required of them, caution must be used when considering whether the current situation falls within such provisions.

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