As diplomatic strife between Qatar and seven Arab-Muslim countries enters the second day, no signs of mending ties have been seen yet, despite increasing calls from global powers to do so.
With several business activities coming to a halt following the row, concerns over the massive impact on the economies involved in the tussle and businesses in those nations are on the rise.
After Saudi Arabia, the UAE, Bahrain, Egypt, Yemen, Maldives and Libya’s eastern-based government severed their relations with their neighbour on Monday, June 5, accusing Doha of meddling in their internal affairs and destabilising the region, private businesses have come under a direct attack.
Although Qatari business is said to be the biggest loser in the latest development, this move will also certainly be a major blow for many companies in Saudi, the UAE and other nations.
The unexpected development led to pressure on markets in the region, with the Qatar stock market suffering its heaviest fall since 2009 at approximately eight per cent during early trade.
On Monday, markets reacted to the shocking development with shares on the region’s major bourses sinking to some of the lowest levels in recent times.
“Stock markets across the region have encountered unexpected selling pressure following this development of political risk across the Gulf, with the potential for political risk being something that was not priced into the regional markets beforehand and has resulted in the stock markets being caught off-guard,” says Jameel Ahmed, Vice President of Corporate Development and Market Research at FXTM.
“It was expected that it would be possible for emerging market assets to come under pressure this week with the upcoming UK election potentially encouraging investors to develop a more ‘risk-off’ approach in mind, but this news is something that was unforeseen and has attracted the main attention for the beginning of what was already being viewed as a busy week for the financial markets,” Ahmed adds.
“The question that markets are probably wondering is how Qatar might react, with this increase in political risk potentially weighing on stocks throughout the region beyond what we saw on Monday,” he notes.
However, Qatar’s stock market rebounded in early trade on Tuesday.
Meanwhile, Mihir Kapadia, CEO and Founder of Sun Global Investments, said the diplomatic standoff may also have contributed to weakness in global stocks.
“The S&P 500, Dow Jones and Nasdaq Composite declined by 0.12 per cent, 0.10 per cent and 0.16 per cent on Monday. Energy stocks crept higher, despite declines in oil prices on the Middle East news. This also threatens to put brakes on Qatar’s $335 billion empire, through its sovereign wealth fund which exports liquefied natural gas,” he said.
“Qatar Investment Authority (QIA), the country’s sovereign wealth fund also has significant interests internationally, with shares in Volkswagen, Rosneft, Deutsche Bank and Barclays. If there is a larger GCC led standoff, the QIA may stand to face difficulties in venturing into new markets and sign deals. Qatar’s import and export industry along with its aviation industry would be the most affected if the dispute continues,” Kapadia added.
Flight movements in Doha’s airspace have suddenly encountered a big drop, as the Arab-Muslim countries have announced a blanket ban on travel and transportation to the tiny country on Arabian Peninsula.
The region’s airlines are the obvious and immediate victims of the diplomatic breakdown, with Qatar’s state airline Qatar Airways being the hardest hit, as it can no longer fly a dozen or more flights to some of the Middle East’s biggest markets.
With the travel ban, nearly 80 daily flights are expected to be grounded. Qatar Airways take the lion’s share with 52 daily flights, with the rest operated by airlines in the opposition bloc. Frost and Sullivan analysts have estimated that the move may slash roughly 30 per cent of the airline’s revenue.
It is a major loss for the UAE as well, because its four airlines are all ceasing services to Doha effective Tuesday. Emirates Airlines, Etihad Airways and budget airlines Fly Dubai and Air Arabia have already announced their decision to suspend flights.
Maritime shipping has also come to a sudden halt as Saudi Arabia, the UAE, Bahrain and Egypt restricted imports and exports to and from Qatar.
Saudi Ports Authority has instructed shipping agents not to receive vessels carrying Qatari flags or ships that are owned by Qatari companies or individuals.
Similarly, the Port of Fujairah in the UAE has issued a notice to agents and bunkering companies, saying vessels carrying Qatari flags are not allowed to use the facility.
“As part of the decision taken by the United Arab Emirates to break-off all diplomatic relationship with Qatar, vessels flying flags of Qatar or vessels destined to or arriv from Qatar ports are not allowed to call Port of Fujairah and Fujairah Offshore Anchorage, regardless their nature of call, till further notice,” said Captain Tamer Masoud, the port’s Harbour Master, in the notice.
The shutdown of the port means no seaborne trade will take place between Qatar and the four countries. Trade with these nations accounted for 8.7 per cent of Doha’s total trade in 2016.
Saudi Arabia’s decision to also close transportation through its borders has caused panic in Qatar, which depends on the kingdom and the UAE for nearly 80 per cent of food imports. Media reports suggest that thousands of trucks, carrying food supplies, were stuck at the Saudi border, unable to cross over into Qatar, which has a population of 2.5 million.
Following the reports of border closures, people in Qatar have also started to stockpile imported food.
“Supermarkets were crowded like never before. People were seen picking anything they saw on the stalls as if the stores were shutting down permanently,” said Abdul Samad, a financial analyst, in Doha, who witnessed the panic among the Qatar residents.
The meltdown will be a major blow for food exporters in Saudi Arabia.
Another major victim of the diplomatic rift will be the banks in the region. Reports have suggested that some banks in Saudi Arabia and the UAE are holding off on doing business with Qatari banks, such as letters of credit.
The fate of Qatar National Bank’s first branch in Saudi Arabia, which opened last month in Riyadh, is still unknown. There was no immediate reaction to mail sent to the bank.
Two weeks before the sudden escalation on June 5, Saudi Arabia and the UAE had banned access to Qatari media outlets, including Al Jazeera.
The kingdom shut down the local office of Al Jazeera on Monday and withdrew its licence, saying the channel tried to break the Saudi internal ranks by inciting them against the state and harming the sovereignty of the country.
It remains to be seen how this scenario will play out. Watch this space for more updates.