Pressure on Qatar grows as regional dispute escalates
Economic pressure mounted on Qatar on Tuesday, as the isolation of the country by its Arabian Gulf neighbours intensified.
Qatar stocks and bonds fell sharply for a second day as Saudi Arabia and Bahrain unleashed further punitive measures against Qatar Airways.
Saudi Arabia’s General Authority of Civil Aviation on Tuesday cancelled all licences granted to the airline in the kingdom and ordered its offices closed. Saudi Arabia, the UAE, Bahrain and Egypt all suspended direct air links.
Qatar Airways has until Friday to close all its Saudi offices, according to a statement by the Saudi Press Agency, with all licences granted to the airline’s employees to be withdrawn in a similar time frame.
“Saudi Arabia is an important market for Qatar Airways both for local traffic & as a substantial source of connecting business, [so] the licence revocation therefore represents a notable setback,” said John Strickland, the director of JLS Consulting.
The move was followed by similar action by Bahrain’s Civil Aviation Affairs department at the country’s ministry of transport and telecommunications.
There was no similar move by the UAE’s General Civil Aviation Authority. The authority could not be reached for comment.
A Qatar Airways spokesman declined to comment on the move.
Qatari equities resumed their slide on Tuesday after Monday’s record sell off, even as other bourses across the region ended little changed.
The Qatar Exchange, which slumped 7.3 per cent on Monday, initially recovered ground on Tuesday morning, rising by 3.3 per in early trading.
However stocks gave up gains throughout the day, eventually closing down 1.6 per cent.
Investment firm Aamal led sell-offs, closing down 7.9 per cent, while QIB and QNB fell 2.9 per cent and 1.3 per cent respectively.
Analysts cautioned that equities may not have reached their floor, with the possibility of further economic pressure from Saudi Arabia, the UAE and others.
“The question is what action is now required to convince an emboldened Saudi and Abu Dhabi to back down?” said Hasnain Malik of Exotix in a research note.
“This arguably needs to be answered before being seduced by the attractive valuation of Qatar equities.”
Qatari stocks’ woes were not shared by their regional peers, with other bourses across the Gulf ending little changed. However, bond prices across Gulf nations weakened on Tuesday as foreign investors hesitated to buy, concerned that the diplomatic crisis surrounding Qatar would increase risks around the region.
Qatar’s sovereign international bonds came under pressure, with its longest-dated paper – a bond maturing in 2046 – registering the largest losses. It is now down by more than 2 cents on the dollar since the end of last week.
But bond prices fell moderately across the six-nation GCC, a Dubai-based portfolio manager told Reuters.
The Qatari crisis, the most serious threat to the existence of the GCC in years, has made some foreign institutions more cautious about the region in general, at least until they see whether the dispute can be resolved without any further escalation, fund managers said.
The Qatari riyal dipped against the US dollar in the spot and forwards markets on Tuesday on speculation against the currency.
However a Qatari central bank official told Reuters that the country has huge foreign exchange reserves which it can use to support its currency, and that the bank was watching the financial sector closely.
Ratings agency Fitch said that it was leaving its AA/stable sovereign rating for Qatar unchanged, but noted that the economic and financial implications for the country would become more serious if the dispute persisted.
“We believe that the potential political and economic implications for Qatar, and the desire of other GCC members not to completely alienate Qatar, mean that both sides will work towards a relatively swift resolution,” said Fitch in a research note.
“But there is considerable uncertainty given the punitive nature of the actions announced on Monday.”
* with agencies
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Updated: June 6, 2017 04:00 AM