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International businesses caught in Qatar crossfire

* International companies face transport, trade barriers

* Turning down work for fear of conflict of interest

* Gulf's bid for business friendly image at risk

DUBAI/DOHA, June 29 (Reuters) - International businesses are being caught in the crossfire of Qatar's dispute with its Arab neighbours as it delays shipments, lengthens travel times and prompts contingency plans in case the crisis deepens.

The feud between Arab powers threatens to undermine the region's progress in positioning itself as business friendly and raises concerns that some firms may be forced to pick sides.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cut diplomatic ties with Qatar on June 5 and imposed economic sanctions, accusing it of funding terrorism, a claim Qatar rejects.

Many multinational businesses, from builders to law firms and banks, have a base in Dubai from where they serve the region, including Qatar.

"Qatar is a valuable market for us and we want to continue here but it has become difficult and if there's no improvement we will have to review our strategy 1/8in Qatar 3/8," said a commercial manager at a European construction services company with a regional head office in UAE.

The company may be forced to stop bidding for new contracts in Qatar or wind down its operations altogether if sanctions intensify, the manager, who declined to be named because of the sensitivity of the matter, said.

Global banks are also in a bind. Some have joined lenders from the UAE, Saudi Arabia and Bahrain in curtailing new business in Qatar, while others including a few large Asian, European and U.S. banks are still providing financing.

Many of the big international banks have strong relations with both Qatar and Saudi Arabia. HSBC, JPMorgan and Deutsche Bank were involved in sovereign bond issues by both Qatar and Saudi Arabia last year. The three banks declined to comment on how they are responding to the crisis.

Suspended land, sea and air links with Qatar have had the most immediate impact on businesses.

For William Grieve, a Bahrain-based businessman with consulting work in Manama and Doha, his weekly 40-minute flight to Qatar is now a 10-hour journey via Kuwait.

"When two elephants fight, it is the grass that suffers and that's what's happening now," said Grieve.

A Doha-based executive at an international engineering firm said the situation had already forced his company to delay some projects.

"As a satellite office in Qatar we rely on being able to bring staff across from UAE regularly. Several jobs have had to be postponed due to building materials being held up in Jebel Ali port (in UAE)," he said.

"Where necessary, employees have had to travel for seven hours via Oman to get to Qatar."

One construction firm in Doha has been forced to bypass the port of Jebel Ali and import raw materials either directly or via Oman - and discovered that it has actually lowered costs in doing so, a sales manager at the firm said.

Risks to businesses, however, could increase as the four countries that cut ties with Qatar are now stepping up pressure. Last week they issued 13 demands to Doha, including closing Al Jazeera television, curbing relations with Iran and shutting a Turkish military base.

Qatar is reviewing the list but has said the demands are not reasonable or actionable.

OPPORTUNITIES AND RISKS

Governments dominate the commercial landscape of the region but they have worked hard to cultivate a business friendly image and are keen to attract foreign capital.

Qatar attracted 133 billion riyals ($36 billion) in foreign investment in 2015, the latest available figure. Opportunities in the region include oil giant Saudi Aramco's planned initial public offering in 2018, potentially the world's biggest IPO ever; the 2022 World Cup in Qatar; and the Dubai World Expo 2020.

A Qatari official downplayed concerns about the rift making life harder for businesses and said it was an opportunity for new firms to enter a lucrative market.

"Don't believe all the hype about business being affected. Qatar can weather the storm. It is business as usual for us here," said the official who declined to be named under government briefing rules.

Still, the CEO of the Qatar Stock Exchange, Rashid al-Mansoori, said the bourse may look to Asia or Europe for new consultants as transport costs for its current Dubai-based advisers have soared.

And the dispute has left some companies worried about the political risks attached to commercial deals.

On June 20, Attorney General Ali al-Marri said Qatar would pursue legal action against firms and individuals that caused harm to Qatar.

"Nobody is being asked to pick sides and I don't know if it will come to that, but if it did there would be some uncomfortable and potentially costly decisions to be made," said an Australian businessman working for a multinational with interests in Doha, Dubai and Riyadh.

Some companies are already turning down business for fear of being accused of a conflict of interest.

Law firms, for example, are being approached by Qatari individuals and businesses about potential class action law suits in the United States relating to the embargo.

"We have been approached to represent those who have been damaged by the crisis but we are not in a position to accept as we are conflicted," one lawyer said.

"Although we have business in Qatar, we also have clients in UAE and Saudi Arabia. All the law firms do."

For businesses the drying up of financial flows between Qatar and its neighbours has made it trickier to make payments.

One executive at a global engineering company, with a regional headquarters in Dubai, said his firm was making contingency plans to pay Qatar-based staff salaries through its European office if the dispute stops payments being made between Doha and Dubai. ($1 = 3.7159 Qatar riyals)

(Editing by Jason Neely and Susan Fenton)