Qatar’s row with neighbours carries economic cost

Sunday 11/06/2017
Shortages. Shoppers stock up on supplies at a supermarket in Doha, on June 5. (AP)

Washington - Although the severing of diplomatic, trade and transportation ties with Qatar by Saudi Arabia, the United Arab Emir­ates and Egypt is not dampening Doha’s primary exports of lique­fied natural gas and crude oil in the short term, Qatar is quickly feeling the effects of what is effectively an economic blockade in ways that di­rectly affect the Gulf emirate, key industries and its citizens.

Qatar has an estimated $335 bil­lion of assets in its sovereign wealth fund and its merchandise trade with other Gulf Cooperation Coun­cil (GCC) members is minimal, as is the amount of trading that the GCC countries typically do on the Qatari stock exchange. This means that Doha is not facing an immediate financial collapse but the dispute could have severe short-term, as well as long-term, economic impli­cations for the Qatari government.

Despite its financial assets, Qatar has been borrowing heavily both domestically and abroad to help finance $200 billion in major in­frastructure spending in anticipa­tion of hosting the 2022 FIFA World Cup. It may find that borrowing will become more expensive if Qa­tari bond prices continue to dip as they did on news of the Saudi-led break in diplomatic and trade ties with Doha on June 5.

Alluding to the severing of ties, S&P Global Ratings cut Qatar’s credit rating one notch to AA- and placed it on “credit watch nega­tive,” implying another downgrade could occur soon.

Qatari banks and currency are feeling the heat from the severing of trade links as some banks from GCC countries delayed letters of credit and are moving forward with other deals with their Qatari counterparts. The Saudi central bank advised banks in the kingdom not to trade with Qatari banks in Qatari riyals.

The central banks from the three GCC members that have cut ties with Doha reportedly requested banks under their supervision to report their exposures to Qatari banks. Two of Qatar’s largest banks — Doha Bank and Qatar Islamic Bank (QIB) — rely to a healthy de­gree on loans and deposits from GCC countries, with QIB garnering around 25% of its deposits from those states.

With regional players cutting land, maritime and air transport links with Doha, Qatari citizens are facing travel nightmares regionally and elsewhere, the potential for in­creased costs of food and other es­sentials and a rise in inflation.

That does not include the per­sonal financial losses that will af­fect citizens from most of the countries involved in being able to travel to Qatar, live there or pass through there. Egypt has not re­quested that its estimated 200,000 citizens living in Qatar leave and is hoping that Doha does not ex­pel them, as this could have seri­ous ramifications for Cairo’s fragile economy. Egypt has also not called on its banks to stop doing business with Qatari banks, although some Egyptian banks halted dealings with Qatari banks on their own.

State-owned Qatar Airways, responding to the suspension of flights to and from Doha by region­al carriers including Saudi Arabian Airlines, Emirates, Etihad Airways and Egypt Air halted its flights to those countries “until further no­tice.” The Qatari airline will lose more than 50 flights a day. Flights to and from Saudi Arabia, the Unit­ed Arab Emirates and Egypt ac­count for approximately 18% of the airline’s seating capacity.

With critical regional airspace closed to Qatar Airways, the belea­guered airline must employ longer, alternative routes to European and North American destinations, re­sulting in higher fuel costs that will translate into increases in ticket prices. The state airline has begun routing European-bound flights over Iranian and Turkish airspace.

Because Qatar imports around 90% of its food from regional sup­pliers — with 40% delivered over its single land border — Saudi Arabia’s decision to close that shared bor­der resulted in trucks carrying food stranded on the Saudi side and Qa­tari citizens raiding supermarket aisles. Dairy, meat and vegetable prices are expected to spike and the Qatari regime might be forced to fly in fresh foods from Asia or Europe, although Iran has report­edly suggested it could ship food to Qatar to make up for lost imports.

Doha could face even higher costs associated with its massive World Cup spending as most of the materials needed for infrastructure and construction projects are im­ported — delivered by ship but also over the closed Saudi border.

The maritime ban imposed on Doha halted one of Qatar’s major export businesses. Qatalum — a 50- 50 aluminium joint venture owned by Qatari state energy firm Qatar Petroleum and Norway’s Norsk Hydro — reported it was unable to export its product because Qa­tari ships carrying the aluminium no longer had access to the UAE’s Jebel Ali port, where the metal is normally transferred onto larger vessels for transport to Asia, Eu­rope and the United States. The joint venture is reportedly looking at either shipping directly from Qa­tar or using an alternative regional hub.