Companies await latest twists in GCC rift

05 July 2017

Foreign ministers of four-member bloc are meeting in Cairo to weigh Qatar’s response 

Companies including banks and financial institutions, and some trade partners of the UAE, Saudi Arabia and Bahrain are anxiously awaiting the latest twists in the ongoing political rift between Qatar and the bloc of four Arab nations to unfold, which could have serious consequences for their business relations with Doha.

Qatar is engaged in a diplomatic spat with Arab states that have accused it of funding terrorism and destabilising the region. Gulf monarchies including Saudi Arabia, the UAE, Bahrain and their allies Egypt, Libya, and Yemen moved to cut diplomatic, as well as trade and transport links, with Qatar on 5 June. The economic measures imposed include the closing of the land border with Saudi Arabia, a blockade of sea and air access, and the expulsion of Qatari officials, residents and visitors.

The bloc of four countries has jointly named 12 entities and 59 individuals who are funding or supporting terrorists or terrorist organisations, and has presented a list of demands to Qatar, which includes shutting down Doha-based Aljazeera TV, reducing ties with Iran and shutting down a Turkish military base in Qatar.

Qatar has denied the allegations and rejected the demands from the outset, saying it will not negotiate while the economic blockade remains in place. Its foreign minister, Sheikh Mohammed bin Abdulrahman al-Thani, who later said Doha was ready to engage in dialogue under the right conditions, this week delivered a letter to officials in Kuwait, which is acting as a mediator in the political crisis.

Qatar was given an initial deadline of 3 July to respond, which was later extended by 48 hours.

It is not known what Doha’s response has been to demands made by the Saudi-led alliance, but there are indications that a rejection from Qatar would entail further economic sanctions.

The foreign ministers of Saudi Arabia, the UAE, Bahrain and Egypt are meeting on 5 June in Cairo to discuss Qatar’s response and consider further actions against it.

The UAE’s ambassador to Moscow, Omar Ghobash, in the last week of June said the Gulf states already were considering further economic pressure such as reducing commercial links with countries that continue to trade with Qatar.

“One possibility would be to impose conditions on our own trading partners and say if you want to work with us then you have got to make a commercial choice,” London’s Guardian newspaper quoted Ghobash as saying in an interview.

Public exchanges between the different parties in recent weeks suggest a quick resolution is unlikely and that the stalemate may continue for some time, according to a 4 July statement from US-based Moody’s Investors Service. There is also the possibility of a restriction placed on banks based in the four-member bloc in terms of doing business in Qatar and with Qatari entities. The banks have already been asked to seize the assets and accounts of individuals and entities with terror-related links, and regulators in the UAE and Bahrain have told lenders to exercise caution when dealing with six Qatari banks.

Sources have indicated to MEED that there could be further restrictions on banks in the coming weeks and months.

“Weaker economic activity could also lead to deteriorating asset quality in the banking system and together with an escalation involving sanctions against the financial sector could necessitate a step-up in government liquidity support,” said Moody’s.

The banking system, which experienced intense volatility following the announcement of the blockade against Qatar, is now seeing a recovery and normalisation of activities. But there could be more instability in store for lenders in the region if the foreign ministers meeting in Cairo decide to up the ante and impose banking sanctions on Qatar as well. 

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