Economy

Aftermath of Gulf Crisis: Qatar’s Economy on Shaky Legs

Chaima Lahsini

Rabat - On Monday morning, Bahrain, Saudi Arabia, Egypt and the United Arab Emirates announced that they had cut all ties with Qatar (Kuwait and Oman have not taken a public stance). Yemen, the Maldives and one of the ruling factions in Libya later followed the movement.

The rupture will not only create a wave of diplomatic chaos in the region, but it may also spark a crisis that could have dire economic consequences for Qatar. This crisis, which stems from a suspension of air traffic, sea and road links to and from Doha, the breakdown of economic ties, the departure of all Qatari nationals from the implicated territories and more, is likely to be very costly for the region, particularly with regard to trade and investment.

Qatar, Isolated in the Gulf

On June 6, Qatar Airways employees, most of whom are expatriates, were denied their work and residence permits in the Saudi kingdom. The Saudi authorities announced on Tuesday that they canceled Qatar Airways' license and decided to close the company's offices "within 48 hours", the day after Riyadh broke its ties with Doha.

This decision will have severe economic consequences for the airline. The Civil Aviation Authority in Saudi Arabia announced in a public in a statement: “We invite all passengers who have bought tickets to or from Qatar to check the Qatar website or contact their online travel agent for a refund.”

Qatar Airways, which serves nine cities in Saudi Arabia, has also suspended all of its flights to the Saudi kingdom, the United Arab Emirates, Bahrain and Egypt.

Egypt and six Gulf airlines suspended flights to Doha. The Qatar Airways company will now be forced to lengthen its many routes to Europe and the Americas, since it’s no longer able to use the Saudi airspace.

The closure of the only land access in Qatar, via Saudi Arabia, will affect imports of consumer goods. Dazed by the Saudi de facto blockade, Doha residents stormed the supermarkets Monday, and milk, rice or chicken quickly disappeared from the shelves. The Qatari government has said it will take “all necessary measures to defeat attempts to harm its population and economy.”

Qatar Stock in a Free Fall

The Doha Stock Exchange also suffered the consequences of this unprecedented diplomatic crisis.  Qatar's main share index lost more than 7% on Monday amid worries about the investment climate. Energy stocks were particularly hard hit, with Qatar Gas Transport Company and Qatar Fuel Company Q.S.C. both dropping more than 10%. Thus companies like "Makhazin", "Naqilat" or "Qatar Fuel" have lost 10% of their value.

As the world's biggest supplier of liquefied natural gas, oil prices went down after the news of the crisis broke out.  Qatar's crude output ranks as one of the smallest among the Organization of the Petroleum Exporting Countries, however, tension within the cartel could weaken the supply deal aimed at supporting prices.

On Wall Street, concerns grew about Qatar and the possible consequences of the rupture between the country and some of its closest neighbors, many of which are among the world’s leading oil producers.

Brent crude, a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide, saw its stocks fell nearly 1% on concerns that the cutting of ties with Qatar could hamper a global deal to reduce oil production.

Qatar’s TV Channels Blocked in UAE

The Qatari channels BeIN Sports and Al Jazeera also appear to suffer from the crisis, as Saudi Arabian and Egyptian leaders and technicians have resigned from the channels. Worse still, the United Arab Emirates authorities have blocked the broadcasting of the channels within the territory of the Emirate.

BeIN Sports has the sole rights in the Middle East to broadcast the English Premier League, La Liga in Spain and tournaments such as the World Cup.  The political row has also put a question mark over Qatar’s ability to host the football World Cup as planned in 2022.

A number of UAE residents were not happy with the news, and took to Twitter to express their frustration over the disruption in services, as they started searching for alternative sources to watch sports.

The BeIN Sports website has also been blocked by UAE network providers.

The situation could also have an impact on the Paris Saint-Germain Football Club, owned by Qatar, via Qatar Sports Investments and whose main sponsor is the airline Fly Emirates. Clearly, the escalation between Qatar and its neighbors has only just begun.

The US Allegedly “Blindsided” by Qatar’s Crisis

Even if Trump’s government was in no hurry to put pressure on Qatar, Washington has likely been aware that the decision to sever ties would be made by the four countries.

After Donald Trump's visit to Riyadh, things went south. On May 24, Qatar announced that its state news agency was hacked and statement on sensitive subjects were published on the site before it went down.

The fake statements planted on the agency’s website touched on the Palestinian-Israeli conflict, relations with Iran, comments on Hamas and negative views on Qatar's relationship with US President Donald Trump. The fabricated statements were attributed to the country's Emir, Sheikh Tamim bin Hamad Al-Thani.

A few hours after the hack, Qatari officials said all statements published on their state-owned agency’s website were false. In a tweet, the QNA said "the state of Qatar will investigate this matter" and hold all involved accountable.

Following the hack, media outlets in neighboring continued their coverage of the statements attributed to Qatar’s ruler, ignoring the denial issued by Qatari authorities.  Analysts and commentators invited on these media were unanimous in condemning the statements attributed to the Emir of Qatar.

The Gulf decision to cut diplomatic ties with Qatar came two weeks after Trump called on the Arab countries to “do more to fight extremism in the Middle East.” Trump’s outspoken calls against terrorism might have emboldened countries like Saudi Arabia and Egypt in their feud with Qatar, pressuring the country’s stances on Iran and various militant groups.

On Tuesday, CNN reported that FBI members who were dispatched to Qatar to investigate the alleged hack have confirmed that Russia is behind the hacking of Qatar agency’s news website.

Fitch: Gulf Crisis Won’t Affect Qatar’s Rating

“The decision by several governments, including Saudi Arabia and the UAE, to sever diplomatic and economic relations with Qatar does not directly affect Qatar's debt rating,” the rating agency Fitch said. Currently the agency assigns Qatar a rating of Qatar's AA debt with a stable prognosis.

Fitch stressed that if this dispute persists, the economic and financial consequences would be more consistent for Qatar. The agency stated, however, that the potential impact on the country's score will depend on several factors, including Qatar's political response and maintaining domestic political stability.

The agency assumes that the countries involved in this dispute will seek to avoid a long conflict with Qatar. “The very important sovereign position of foreign capital in Qatar should enable it to manage temporary macroeconomic disruptions,” the agency said.

“The consequences for the finances of the Qatari government are blurred,” says Fitch.

As in other economic sectors, the Qatari government directly or indirectly imports many of its needed goods and services. The government can also support the economic sectors particularly affected by the current disputes between Qatar and other states. “However, any reduction in budgetary spending will have a positive financial impact,” the agency said.

None of the measures announced for the moment clearly targets Qatar's financial sector, the agency said.

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