Qatar is vulnerable in regional dispute

Qatar’s credit quality is destined to decline if the country remains adrift as a result of a diplomatic row with its neighbours.

Countries including Saudi Arabia, UAE and Egypt have cut ties with Qatar, suspended transport links and even banned Qatari carriers from their airspace in a dispute concerning foreign policy.

“The move to isolate Qatar is unprecedented in the GCC’s history,” said a note by ratings agency Moody’s. Although the agency did not expect Qatar’s oil and gas exports to be disrupted, it warned import costs would rise and tourism decline.

“If the situation persists, it will negatively affect the sovereign’s credit strength, primarily through higher funding costs, the potential crystallisation of contingent liabilities on the government’s balance sheet and a likely drain on foreign exchange reserves,” said Moody’s.

The dispute is believed to concern Qatar’s support for the Muslim Brotherhood, Iran and Islamist groups such as Isis. A strengthening alliance led by Saudi Arabia and Abu Dhabi aims to counter these perceived threats and, with the support of the US, hopes to force Qatar to change its loyalties.

Qatar is in a vulnerable position, says Hasnain Malik of Exotix Partners. Not only is its security dependent on the US regional air force command centre, based in Al Udeid in Qatar, but its gas economy is reliant on good relations with Iran, which owns part of its main gas field.

He asks, “The question is what action is now required to convince an emboldened Saudi and Abu Dhabi to back down?”

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