Qatar in Crisis

How is the country's economy fairing amid the diplomatic crisis?

Technical Analysis
23 Jun 2017
Qatar in Crisis

A few weeks back Qatar found itself in a complicated situation. Back then it was a brand-new crisis, the scope of which was difficult to estimate yet. Now that a little bit of time has passed, we can look upon the matter with a bit more certainty. This is further facilitated by the fact that the finance minister of Qatar spoke to CNN Money this week, providing valuable insight into the inner workings of Qatar’s economy. First off, to quickly recap: several Arab countries, notably Saudi Arabia, the United Arab Emirates, and Bahrain cut all diplomatic relations with Qatar at the beginning of June 2017. The officially stated reason for this decision was that Qatar is supposedly financing terrorism and upsetting the Middle East. The veracity of these claims right now is not a concern for us, because we’re here to talk about markets. Qatar found itself in some trouble, because its land borders are all with countries that cut ties. This meant that the country could not receive supplies by land anymore, causing immediate chaos for ordinary citizens looking to buy groceries. It is not a very well-known fact, but Qatar imports most of its food (rather than produce it). Additionally, there is also the strain on Qatar’s economy caused by the fact that the country can no longer export to nearby markets. Qatar’s finance minister Ali Shareef Al Emadi admitted before CNN that one of the complications resulting from this situation could be a rising inflation rate in the country. However, for the most part he didn’t seem very phased about the crisis, because he believes Qatar’s economy is strong enough to weather this storm. One way Qatar can soften the blow is by using its large assets and securities. According to Al Emadi, Qatar has investments that amount to more than 250% of the country’s GDP, which is quite impressive. He also pointed out that trade with the countries imposing the blockade is a bit overrated, amounting to less than 10% of all exports - which can easily be relocated to a different market. While imports from the blockading countries are important to Qatar, they are still less than 15% of all imports and Qatar has already found other willing partners to supply its market. Qatar boasts several big ports and one of the world’s most impressive airports, so it is well-positioned to receive imports by way of sea or air. Al Emadi asserted that the current state of trade relations is good not only for maintaining a normal standard of living despite the crisis, but to also allow further economic growth for Qatar. The ministry of finance is working close with the Qatar Central Bank to ensure all business and banking activity proceeds as normal. All banks in Qatar are believed to have good liquidity and a solid supply of foreign exchange, so investment and trading are still steady. Even though news broke out this week that Qatar Airways might no longer be permitted to use the airspace of the blockading countries. Since the airline is one of the biggest in the world and is state-owned, it contributes to Qatar’s GDP considerably. However, Qatar has so far shown that it is quite capable of finding alternatives to every challenge posed by the the countries in conflict. Regardless of the finance minister’s optimism, The Qatari riyal has dropped in value compared to major currencies over the past weeks. However, the central bank hasn’t taken action yet.

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