The decisions by the Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE), Bahrain and Egypt on Monday 5 June 2017 to break off diplomatic relations with Qatar, and implement a range of related restrictions, has already had effects on businesses in the MENA region and beyond. Since Monday, other states have followed suit, including Libya, Yemen, the Maldives, Mauritania, and Mauritius.

The situation is still fluid and developing, but at present the restrictions imposed appear to target principally air, sea and road transport between Qatar and the other states, as well as the operation of particular Qatari broadcasters. As far as we are aware, there has been no legislation yet passed in the UAE, KSA or Bahrain to give effect to any restrictions on trade with Qatar. The restrictions that have been introduced are being implemented by executive agencies of the relevant governments, such as port authorities and transport ministries, and publicised through circulars issued by those authorities. That reflects the historic practice in the region when implementing other trade restrictions.

Common areas of concern for businesses in the region would initially appear to be the movement of persons to and from Qatar and the performance of contracts which have been affected by the restrictions. You will find below further key aspects to consider if you are operating in the Middle East:

People

Currently, employment arrangements will be affected where Qatari nationals are working in the Kingdom of Saudi Arabia or in the UAE. It is also possible that dual contract or other business travel arrangements, requiring residents of Qatar to work both in Qatar and in either KSA or the UAE, will need to be reviewed, as these may become cumbersome or overly costly to manage going forward.

Companies should be reminding employees not to comment publically on the situation, including comments on personal social media accounts, as this may create risks for the individual as well as their employer. We recommend that companies check their social media policies and circulate these to their staff, or, where such a policy doesn't exist, ensure that key issues around the use of social media are flagged to employees.

Finally, staff may need reassurance or an understanding of their employer's plans should the situation develop further.

Whilst the prevalence and importance of social media in business is widely recognised in the region, in this environment, this type of activity could constitute an offence under national publications laws and cyber crime laws which are applicable in countries across the Arab States of the Gulf Cooperative Council. Breaches of these laws can give rise to significant fines or even custodial sentences and criticising the actions of a friendly state may also give rise to an offence under local law.

Performance of contracts

A wide variety of contracts might be affected by the restrictions imposed, whether those contracts are for the sale or supply of goods, the provision of services or, the carriage of goods. Parties may find that the performance of a contract has become more difficult, expensive or potentially impossible because of the restrictions imposed. There will be questions as to whether contracts are able to be suspended or terminated because of a force majeure event, whether they have been frustrated, or whether there are exceptions in a contract to allow performance to be carried out in an different manner, as well as the inevitable disputes over who pays for delays or increased costs that have resulted from the disruption.

For contractual arrangements which are currently being negotiated, businesses may wish to revisit obligations regarding supply, transportation, payment and force majeure to improve certainty and flexibility in those arrangements and to ensure that the terms of those contracts can support the unfolding situation.

Insurance

Recent developments are likely to have a significant effect on a variety of current and future insurance covers. It can be foreseen there will be questions regarding the application of insurance policies that typically deal with such risks, including trade credit and political risk policies. However, if matters are not resolved quickly, it can be expected that the current situation will have a significant and broad impact on a variety of other policies.

Until the current issues are resolved, re/insurers, insureds and brokers would be well advised to consider the impact of ongoing developments on, for example, insured values, indemnity periods, the application of exclusions, and other practical issues such as the ability of nominated loss adjustors to easily visit Qatar. Notices that may be required where the insured risk has changed will also need to be considered. The broader re/insurance industry will therefore need to continue monitoring developments to ensure they are fully aware of the potential impact on their rights and obligations under existing and future insurance covers.

Fast moving position

The situation is still developing quickly, with further states announcing that they have broken diplomatic relations with Qatar, and new clarifications from government bodies being published on the extent of some of the transport restrictions.