Markets Initially Shrug Off Rift With Qatar, But Long-Term Risk Exists – Analysis

By Frank Kane

Regional financial and economic markets — with the exception of the Doha exchange — on Monday largely shrugged off the fallout of the diplomatic rift between Qatar and several other Arab countries.
Most bourses in the region saw limited drops of less than 1 percent, with the oil price down 1 percent at the end of a volatile day.

The Qatar Stock Exchange index closed down 7.5 percent, however, as some of the country’s blue chip stocks felt the impact of the trading and commercial sanctions against the country.

Some experts warned that the economic impact of the actions taken against Qatar by Saudi Arabia, the UAE, Bahrain and Egypt — if they prove long-term measures — could put at risk some of Doha’s megaprojects like the 2022 FIFA World Cup.

Analysts at Citibank, the American financial giant, said the closing of Qatar’s land border with Saudi Arabia and ending of air and maritime commerce could hit economic growth. “The construction sector is a key driver of the Qatari economy and is partially dependent on overland routes for supplies,” it said.

“If sanctions are not resolved in short order, World Cup construction could be impacted, and plans for fans to base themselves in neighboring countries might also be affected,” the bank said.

Other potential risks Citi sees are a rise in food prices, an erosion of fiscal balances, and a rise in borrowing costs. “We believe that prolonged sanctions would exacerbate this and potentially make financing of external liabilities more costly and difficult,” it added.

Other experts said that the economic fallout from the confrontation between Qatar and some of its Arabian Gulf neighbors was likely to be limited.

Jason Tuvey, Middle East analyst at London consultancy Capital Economics, said there were three reasons why the impact would be temporary.

“First, the impact on energy markets is likely to be short lived… Gas supplies from Qatar could potentially be disrupted if the other Gulf countries blocked Qatari tankers traversing the… Arabian Gulf. But, given that a maritime dispute could block their own oil shipments, this seems highly unlikely. Meanwhile, reports (on Monday) morning suggest that the Dolphin pipeline, through which Qatar sends gas to the UAE, is operating as normal,” he said.

Tuvey said the regional economies are likely to shrug off the dispute. “Trade ties between Qatar and the rest of the region are relatively small. Qatar’s exports to the region are limited, with most of the country’s oil and gas exports going to Asia. Qatar’s imports from the rest of the region are also trivial,” he said.

“In any case, most are goods that are transited through the other countries, so could be diverted if necessary. One potential concern is that Qatari banks may now find it more difficult to secure wholesale financing, which could precipitate a more abrupt cooling of the country’s credit boom,” he added.

Tuvey also sees signs that the row could de-escalate quickly. “There are signs that Qatar is bowing to pressure from Saudi Arabia and its allies,” he said.


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Arab News

Arab News

Arab News is Saudi Arabia's first English-language newspaper. It was founded in 1975 by Hisham and Mohammed Ali Hafiz. Today, it is one of 29 publications produced by Saudi Research & Publishing Company (SRPC), a subsidiary of Saudi Research & Marketing Group (SRMG).

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