Qatar has the highest per-capita income on the planet. Its monarchy government is flush with cash and its global investment portfolio is studded with trophy assets, including London's Canary Wharf and the Paris Saint-Germain soccer team, which just bought Brazilian superstar Neymar for an astounding €222-million ($323-million). Surely this tiny country, a peninsula that juts into the western Persian Gulf, could shake off the Saudi-led blockade as easily as Neymar shakes off the defenders of every team he encounters.
Maybe not. In spite of its vast oil and gas riches, a new Moody's credit ratings report shows that Qatar is showing signs of financial strain only three months after the blockade started. Its only border, with Saudi Arabia, is sealed and the blockade shows no signs of easing.
"The Saudis have got themselves entrenched [in the blockade] and losing face is the worst thing that could happen to them," Daniel Kawczynski, the British MP who sits on Parliament's foreign affairs committee, said at a Qatar conference in London on Thursday that was sponsored by exiled opponents of the Qatari regime.
The British are especially worried that the standoff between Qatar and its new foes – Saudi Arabia, Bahrain, United Arab Emirates and Egypt – could rip apart the Gulf Co-operation Council (GCC), adding another dose of instability to the already volatile Middle East.
Qatar is one of the main foreign investors in Britain, a key supplier of liquefied natural gas (LNG) and London's top commercial landlord. It is also the most prominent investment ally of Canada's Brookfield Property Partners. Qatar and Brookfield together bought Canary Wharf, Europe's premier collection of bank towers, in 2015 for £2.6-billion ($4.3-billion). If the embargo endures and puts a big dent in Qatar's income, how much longer can the country keep writing multibillion-dollar investment cheques?
The blockade began in June when the Saudis and their anti-Qatar allies cut diplomatic ties and transport links with Qatar. They accused Qatar and its all-powerful emir, Sheikh Tamim bin Hamad al Thani, of sponsoring terrorism and backing the Muslim Brotherhood, the political force that the Egyptians banned in 2013 and declared a terrorist organization by the Saudis a year later. They accused the Qataris of cozying up to Iran, which is Saudi Arabia's great regional rival. They want the Qatar-sponsored TV news network, Al Jazeera, to fade to black and have called for regime change in Qatar. They endorsed the anti-emir conference in London.
At first, the blockade seemed more bark than bite, all the more so since it left Qatar's ports open, allowing oil and LNG exports to continue. The sheer wealth of the country and its ample financial cushion, it seemed, would give the emir staying power to humiliate the Saudis. That now seems like wishful thinking on the Qataris' part.
The Moody's report said that Qatar has injected about $38.5-billion (U.S.) of its $340-billion in reserves into the economy since June. The amount was needed to help cover some $30-billion in outflows as other Persian Gulf states chose not to roll over their Qatari deposits.
Other economic and financial numbers are heading in the wrong direction, too. Tourism has plummeted, food prices are up 4.5 per cent and trade has dropped by 40 per cent, especially in construction materials; Moody's said that about 70 per cent of these materials come from Saudi Arabia and Qatar cannot do without them since it's building the sites for the 2022 FIFA World Cup. Foreign-exchange reserves are plummeting.
The yield on its five-year bonds has climbed to 120 basis points over U.S. Treasuries, compared with 100 points before the blockade (100 basis points equals one percentage point). "In the short term, we expect tensions to persist, quite possibly to escalate," the report said. "The severity of the dispute is unprecedented, which magnifies the uncertainty regarding the ultimate economic, fiscal and social impact on the GCC as a whole."
The impact of the blockade is being felt at street and rural levels. "A lot of basic [goods and materials] are subject to shortages and inflation," Khalid al-Hail, the self-appointed leader of the Qatari opposition, said at the London conference. "A lot of Qataris are Bedouins who are used to taking their sheep and camels across the border to Saudi Arabia but are now cut off from their grazing lands, friends and, often, families."
As tensions rise between the Saudis and the Qataris, the British are getting nervous. At the conference, Mr. Kawczynski said the chances of a "prolonged conflict" were on the rise as both sides refused to budge on their positions and a mediation attempt led by the Kuwaitis and the Americans bogged down. Iain Duncan Smith, the MP who is a former leader of the Conservative Party, said he thinks the GCC, the economic union of the Arab states in the Gulf, could break up. "I think they're on the road to that," he said.
At some point, financial distress could set in, damaging Qatar's ability to invest overseas and prop up London's property market. If the Saudis and their anti-Qatar allies decide to increase the pressure on Qatar, they could block Qatar's exports of oil and gas, draining away its lifeblood in a hurry. Some Qataris fear a Saudi invasion is not out of the question, though the Americans, who operate an enormous military air base in Qatar, would not be best pleased about having to choose sides.
Whatever the case, tensions are bound to rise in the Persian Gulf. Even Donald Trump seems concerned. He himself offered to mediate. "I think you'd have a deal worked out pretty quickly," he boasted. Indeed, the art of the deal has proved elusive to the Saudis and the Qataris.
Eric Reguly