On 5 June, Saudi Arabia, Bahrain, Egypt and the United Arab Emirates decided to cut diplomatic ties with Qatar and block all land, sea and air links with the country. By doing so they made it clear that they want to isolate the country. They are accusing Qatar of sponsoring terrorism and of ‘undermining the security of its neighbours’. Qatar has been a supporter of the Muslim Brotherhood, Hamas and Hezbollah and has friendly ties with Iran. It is thereby falling out of line with the other GCC countries that strongly oppose this policy. On 23 June, the four countries sent a list of thirteen harsh demands that Qatar has to satisfy within ten days in order for the sanctions to be lifted. However, Qatar has already dismissed this list as an attempt to curb its sovereignty.

Impact on country risk

The publication of the list of demands has worsened the standoff between Qatar and its neighbours. On the one hand, Qatar’s Emir cannot accept them without losing face and, at the same time, the countries imposing sanctions cannot easily back down for the same reason. This development suggests that short-term de-escalation is becoming unlikely and the conflict is expected to be prolonged considerably. This prolongation could be accompanied by the implementation of additional sanctions against Qatar. The economic impact of the blockade is currently mitigated by two factors. First of all, given its very large foreign assets, the country has a very strong external position. While the foreign-exchange reserves are sufficient to cover 4.3 months of imports, Qatar also has a large sovereign wealth fund. Additionally, its oil and gas exports are currently still unaffected and they represent almost 60% of the country’s current-account receipts. The four sectors that are currently the strongest impacted by the boycott are tourism, the airline industry, the food sector and the construction sector. The tourism and airline sectors are hit by the ban on all flight connections to the countries imposing the blockade. The food and construction sectors are impacted because Qatar imports the largest share of its food and construction materials via its land connection with Saudi Arabia. Currently Credendo does not foresee any changes in its cover policy for Qatar. However, if the crisis is not resolved in the coming months, a downgrade of the commercial and short-term political risks is possible.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com