DUBAI- A diplomatic rift between Qatar
and its Gulf neighbours may cost them billions of dollars by
slowing trade and investment and making it more expensive for
the region to borrow money as it grapples with low oil prices.
With an estimated $335 billion of assets in its sovereign
wealth fund, Qatar looks able to avoid an economic crisis over
the decision on Monday by Saudi Arabia, Egypt, the United Arab
Emirates and Bahrain to cut air, sea and land transport links.
The tiny state's newly expanded port facilities mean it can
continue liquefied natural gas exports that earned it a trade
surplus of $2.7 billion in April, and import by sea goods that
used to come over its land border with Saudi Arabia, now closed.
But parts of Qatar's economy could suffer badly if the
dispute, over Riyadh's allegations that Doha has been supporting
terrorism, drags on for months - a prospect that helped to push
the Qatari stock market down more than 7 percent on Monday.
Fast-growing Qatar Airways, at the centre of the tiny
state's effort to become a tourism hub, is likely to face losses
from being barred some of the Middle East's biggest hubs.
Qatar's government has been borrowing at home and abroad to
help finance some $200 billion of infrastructure spending as it
prepares to host the World Cup soccer tournament in 2022. A drop
in Qatari bond prices on Monday suggested the borrowing will
become more expensive - possibly slowing some projects.
Bonds of other countries in the six-nation Gulf Cooperation
Council barely moved on Monday, but some foreign bankers said
the whole region could end up paying more to borrow if
diplomatic tensions persisted.
“If this dispute goes on for a while, the ramifications
could be huge,” said an international banker based in the Gulf,
declining to be named because of political sensitivities.
“Asset managers will not differentiate between Qatar and the
rest of the GCC, and international managers will take their
hands off any credit from the GCC. If Qatar is seen as a terror
financing or compliance issue, then asset managers will be
cautious."
TRADE
Because they all rely heavily on oil and gas exports, the
GCC states have only weak trade and investment ties with each
other, which will limit the economic fallout of their dispute.
The UAE is Qatar's biggest trading partner from the GCC but only
its fifth largest globally.
Similarly, Saudi Arabia and other GCC countries
traditionally account for only about 5 to 10 percent of trading
on the Qatari stock market, according to exchange data,
suggesting even a total pull-out would not sink the market.
Nevertheless, Qatar will face higher costs in some areas.
Saudi Arabia and the UAE provided $309 million of Qatar's $1.05
billion of food imports in 2015. Much of them, especially dairy
products, came over the Saudi land border; Doha will have to
make other arrangements for them.
Construction costs in Qatar could also rise, fuelling
inflation across the economy, because aluminium and other
building materials can no longer be imported by land.
Saudi Arabia, the United Arab Emirates and Bahrain withdrew
their ambassadors from Qatar for eight months in 2014 over
Doha's alleged support of Islamist groups, but that had minimal
market or economic impact because it did not involve a ban on
transport links. Trade and investment went on much as before.
This time, Saudi Arabia has promised to "begin legal
procedures for immediate understandings with brotherly and
friendly countries and international companies to apply the same
procedures as soon as possible".
It is not clear that Riyadh will be able to persuade more
countries to cut links with Doha. But it could try to force
foreign companies to make a choice between doing business with
Qatar and obtaining access to its own, much larger market, which
it is opening up as part of economic reforms.
Cairo-based bankers said on Monday that some Egyptian banks
had halted dealings with Qatari banks. It was not clear whether
GCC banks would do the same; UAE commercial bankers told Reuters
they were waiting for guidance from their central bank.
Stock markets in Dubai and several other Gulf centres fell
on Monday - although not by nearly as much as Qatar - in a sign
that investors around the region were worried.
“Overall it's not good. I don’t think that the region has
been in such turmoil so close to home. And I think everyone is
speculating how far these steps will go forward," said
Mohammed Ali Yasin, chief executive of Abu Dhabi's NBAD
Securities.
"Everyone is hoping that there will be intervention by wise
people and things will cool down. But what we have seen is a
gradual escalation."
Source: Reuters