How cutting diplomatic ties will affect Qatari economy

Cairo- 6 June 2017: After news emerged today that Egypt, Saudi Arabia, the United Arab Emirates, Bahrain and Yemen have decided to cut off their diplomatic relationships with Qatar and close all air, sea, and land ports to Qatari vessels, accusing Qatar of pursuing policies that are destabilizing the region, including support for regional jihadist groups and for Iran, CITI financial institution released an alert Sunday on how this serious incident would affect Qatar’s economy.


The alert confirmed these developments are significantly more serious than 2014 incident when comments made by a Doha-based cleric sparked a row that resulted in a severing of diplomatic ties between March and November of that year. “. This time, the sanctions against Qatar go well beyond the diplomatic,” CITI stated.


Comparing to 2014 incident which took only 8 months to resolve the row, the situation now is totally different as it’s not clear what is required of Qatar for these sanctions to be lifted so it is more difficult to estimate how long they will remain in the place.

“On the one hand, the severity and extent of the sanctions this time round may argue for a quicker resolution as Qatar will be particularly incentivized to resolve any differences with its neighbors as soon as possible. On the other hand, one may equally draw the conclusion that the position of Qatar’s gulf neighbors has hardened relative to 2014, and that Qatar would need to do a lot more to satisfy them. This may include addressing the issue of Al Jazeera, the Qatari international news platform that has been a perennial source of irritation to Qatar’s neighbours (and the United States) since its inception in the late nineties. This would argue for a more prolonged crisis, in our view. We do not have a strong view at this point regarding timing/duration,”the alert stated.


The alert confirmed that the more the row will remain, the more Qatar’s economic will get affected ,and here are the considerable risks regarding the economic and financial impact of these sanctions the longer they remain in the place:
A rise in food prices/inflation: a significant portion of Qatar’s food supply comes overland via Saudi: and switching to air and sea routes would raise costs.


A fall in economic growth: the construction sector is a key driver of the Qatari economy and is partially dependent on overland routes for supplies;

Risks to viability of World Cup: If sanctions are not resolved in short order, World Cup construction could be impacted, and plans for fans to base themselves in neighboring countries during the competition might also be affected.

Impact on Qatar Airways : Loss of routes and requirement to detour neighbors’ airspace could have a long-term impact on Qatar Airways business;

An erosion of fiscal balances/increase financing requirement: Any increase in transport costs or losses to Qatar Airways may be absorbed by the government, resulting in a rise in borrowing requirements by the sovereign;

A rise in cost of borrowing: we note that liquidity in Qatar’s banking sector has been severely impacted by falling oil prices, and that financial conditions have tightened and foreign liabilities in the banking sector have ballooned (currently USD105bn – compared with USD34bn net FX reserves). We believe that prolonged sanctions would exacerbate this and potentially make financing of external liabilities more costly/difficult.