Wednesday,28 June, 2017
Current issue | Issue 1348, (8 - 14 June 2017)
Wednesday,28 June, 2017
Issue 1348, (8 - 14 June 2017)

Ahram Weekly

Too rich to be affected

Too rich to be affected
Too rich to be affected

ONE of the world’s richest countries and among the largest producers of liquefied natural gas, Qatar will not be overly affected by the Egyptian and Gulf decision to cut ties with the country.

Over the last few years, Qatar has emerged as a financial powerhouse buying stakes in Barclays PLC, the Credit Suisse Group and Deutsche Bank. Its investment appetite has also surpassed the financial sector as it has acquired football clubs in Europe and exceptionally expensive and extravagant properties not only in Dubai but also in the heart of London.

With such assets, Qatar has one of the largest sovereign wealth funds in the world with an overall value of $335 billion. This will cushion the effects of the decision taken by Saudi Arabia, Egypt, the United Arab Emirates and Bahrain to cut air, sea, and land transport links with the Gulf state on its economy.

Capital Economics Middle East analyst Jason Tuvey said the region’s economies including Qatar’s are likely to shrug off the dispute. He explained that trade ties between Qatar and the rest of the region were 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 trivial. In any case, most are goods that are transited through other countries, so they could be diverted if necessary,” Tuvey said.

The UAE is Qatar’s biggest trading partner from the Gulf Cooperation Council (GCC) countries, but only its fifth-largest globally. Saudi Arabia and the UAE provided almost 30 per cent of Qatar’s $1.05 billion of food imports in 2015. The bulk of these are delivered through Qatar’s border with Saudi Arabia, however, and TV talk shows on Monday displayed videos of tens of lorries carrying food being stopped at the Saudi border.

Fear of a shortage of food supplies has led those living in Qatar to buy up everything they can from supermarket shelves. But according to Reuters, the tiny state’s newly expanded port facilities mean it can import by sea goods that used to come over its land border with Saudi Arabia. These facilities will enable it to continue liquefied natural gas exports that earned it a trade surplus of $2.7 billion in April.

One potential concern, according to Capital Economics, 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. Qatar expanded in acquiring credit to finance the $200 billion of infrastructure spending needed to host the football World Cup in 2022. “A drop in Qatari bond prices on Monday suggested the borrowing will become more expensive, possibly slowing some projects,” Reuters noted.

Qatar Airways, the country’s flag carrier, could shoulder heavy losses. Its flights to Dubai, Abu Dhabi, Riyadh and Cairo are suspended. On its website, the carrier said customers were being offered refunds. Changing flight paths so that it does not have transits or flights to the countries cutting ties with Qatar will cost Qatar Airways time and money and annoy passengers.

According to the Associated Press, the air route between Doha and Dubai is popular among business travellers, and both cities are major transit hubs for travellers between Asia and Europe. FlightRadar24, a popular airplane tracking website, said that “many of Qatar Airways’ flights to southern Europe and Africa pass through Saudi Arabia.”

The fact that GCC investments account for less than 10 per cent of the Qatari stock market will make the effect of even a total pull-out of funds by these investors limited. The market reacted nervously to the news of the suspension in ties on Monday by losing 7.3 per cent of its value. However, it regained its balance on Tuesday, staying almost unchanged. This is reminiscent of what happened in March 2014 when Saudi Arabia, the UAE and Bahrain withdrew their ambassadors from Qatar, accusing the Gulf state of jeopardising regional security. The stock market slid in one session but bounced back the following day.

 

Read more:

Sanctioning Qatar

The Gulf and Yemeni crisis

Little impact from Qatar decision

 

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