The Qatar-Dubai Competition.

Qatar has made a name for itself as an independent-minded state in the GCC. With vast ambition and the third-largest reserves of natural gas in the world, it has followed a maverick course in regional politics, often deliberately at odds with Saudi Arabia. Its Emir, Shaikh Hamad bin Khalifa al-Thani, pursues a political course which has baffled Qatar's neighbours, such as his relations with Israel. During his visit to New York, where on Sept. 25 he addressed the UN General Assembly, met with Israeli Foreign Minister Tzipi Livny as well as key Arab officials - in line with his strategy of diversifying Doha's friends (see his profile in omt12QatrWhoSep17-07). But in business, Doha's biggest economic challenge is Dubai which has emerged as the trading powerhouse in the Middle East.

Determined to show that Doha is more deserving of the status of a leading regional business centre, the Qatar Investment Authority (QIA) recently went on a spending spree. It got 20% in the LSE from another buyer as well as 10% of OMX, the Nordic exchange, after QIA had made bold acquisitions in the West and a bid for UK retailer J Sainsbury.

Qatar's moves demonstrated the growing clout of an emirate of 800,000 people (though only 20% are nationals) living in a territory roughly the size of the US state of Connecticut. Busy head-hunting international banking names, QIA is becoming increasingly bold on the international acquisition trail, building up a portfolio of about $40-$50 bn and making audacious bids.

QIA is led by Shaikh Hamad bin Jassem bin Jabr al-Thani. He says QIA is to accumulate global assets over the next 10 years, explaining: "Our hydrocarbons will not last forever - we need to secure the same standard of living for our children". Having been the architect of Qatar's foreign policy since Shaikh Hamad bin Khalifa took over power after ousting his father in June 1995, his cousin Shaikh Hamad bin Jassem is also the one leading its international business strategy; he was promoted to the largely ceremonial post of prime minister in April 2007.

Wily and outspoken, Hamad bin Jassem first put Qatar on the map through the al-Jazeera news channel, which ruffled feathers in the region by giving ample air time to opposition figures. In the broadcaster's early years, dealing with al-Jazeera related diplomatic crises became an important part of Hamad bin Jassem's job, giving him and Qatar the influence they craved. What annoys neighbours most, however, is that Qatar's regional standing has expanded; it has managed relations with both the US and Israel, while befriending some of the most radical anti-Israel forces - such as the Shi'ite theocracy of Iran and the 'Alawite/Ba'thist regime of Syria and their allies Hizbullah in Lebanon and Hamas in the Gaza Strip.

Qatar hosts the base of the US Central Command (CentCom), which is in charge of the Middle East and its periphery. Yet Doha's policies, whether at the UN or at the Arab League, often favour the opponents of the US. Shaikh Hamad bin Khalifa has made clear he has bigger plans for his emirate. Whether in the fields of tourism, aviation or finance, he seems unwilling to play second fiddle to Dubai, its better-known neighbour.

On the business front, however, Dubai has a head start and, for now, an advantage. Using income from a diversified economy - and significant leverage - it has made its mark on the global financial markets with a series of high-profile acquisitions. And, although the Dubai International Financial Centre (DIFC) has not taken off as an exchange, it has become a regional base for international banks. Qatar, however, believes its petroleum wealth should give it an edge. On the verge of bankruptcy 15 years ago, the emirate is now one of the world's richest countries, thanks to its having become the world's biggest LNG exporter and has increased oil production. Exports are set to more than double over the next four years, vastly increasing the surplus revenues available to QIA to $30 bn a year. Finance Minister Youssef Kamel confidently says the emirate may no longer need to leverage its asset acquisitions, adding: "Everything we have today is set to double".

QIA and state-controlled Borse Dubai by Sept. 20 owned 48% of the LSE. Borse Dubai got 28% of the LSE as part of a wider deal with Nasdaq to settle their long-running battle for control of OMX. Dubai bought most of Nasdaq's 31% stake in the LSE for [pounds sterling]14.40 a share in cash. In return, it was to take 19.9% in the Nasdaq/OMX group and receive cash. The move enraged QIA, which on Sept. 18 believed it was close to buying much of the LSE stake for itself. QIA also bought nearly 10% of OMX, a move widely interpreted as a sign that it, too, will make a competing offer for the Stockholm-based group. It called on OMX shareholders to do nothing in response to Borse Dubai's offer. LSE shares rose on Sept. 20, closing [pounds sterling]2.34 higher at [pounds sterling]16.87.

Qatar bought the stakes held by two hedge funds which had been instrumental in seeing off a hostile bid for the LSE by Nasdaq in 2006, believing the [pounds sterling]12.43 price it offered was too low. But before word of the deal was out, signs of opposition in the US appeared. Sen. Charles Schumer, chairman of Congress's joint economic committee, said: "This deal raises serious questions... Those questions will include - should we allow foreign governments to take over our financial exchanges and how much control and influence should those foreign governments have?"

President George W. Bush said the proposed investment by Borse Dubai in the US exchange would face a national security review. The move by Nasdaq to clinch a toehold in Europe through an acquisition of OMX caps years of unsuccessful efforts to break into the region. It is said Nasdaq agreed to allow Borse Dubai to take the stake to head off an expensive bidding war with a rival whose pockets are deeper than its own. Chief executive Bob Greifeld was on Sept. 21 quoted as saying: "The way we see this transaction is a pure win win win". In addition to the tie-up in the Nordic region with an operator which is also a technology supplier to many exchanges, it offers Nasdaq a leg up in the Middle East. He said Nasdaq was eager to break into Europe because competitive barriers were easing, leaving scope for new entrants to secure business.