RIYADH • Four US’ Arab allies led by Saudi Arabia pushed ahead with plans to isolate Qatar in an unprecedented escalation designed to punish one of the region’s financial superpowers for its ties with Iran and Islamist groups.
Qatari stocks plunged the most since 2009 after Saudi Arabia, Bahrain, the United Arab Emirates (UAE) and Egypt said in coordinated statements that they will halt air, sea and land travel to and from the Gulf Cooperation Council (GCC) member. Saudi Arabia immediately banned Qatari planes from landing in the kingdom and said it will prohibit them from using Saudi air space as of today.
The crisis pits some of the world’s richest nations in a power struggle over regional dominance, with the Saudi-led alliance seeking to stamp out any opposition to forming a united front against Shiite-led Iran.
Their target is a country with a population smaller than Houston, but with a sovereign wealth fund holding stakes in global companies from Barclays plc to Credit Suisse Group. It’s also a home to the forward headquarters of CENTCOM, the US military’s central command in the region.
While yesterday’s escalation is unlikely to affect energy exports from the Gulf, it threatens to have far-reaching effects on Qatar and raises the political risk for the Middle East, a region grappling with wars from Syria to Yemen. Secretary of State Rex Tillerson said the US stands ready to help defuse the tension.
“It’s not in the US’ interest to see the GCC sort of unravel,” Allison Wood, an analyst with Control Risks in Dubai, said. “That would be very destabilising in a region that’s already very unstable. There are limits to the US giving tacit approval to the kind of pressures that are being applied.”
Qatar’s first response struck a defiant tone. The Foreign Ministry called the accusations “baseless” and said they were part of a plan to “impose guardianship on the state, which in itself is a violation of sovereignty”.
Brent crude rose as much as 1.6% to US$50.74 (RM216.40) a barrel on the London-based ICE Futures Europe exchange, before reversing gains to trade 0.6% down at 12:38pm yesterday in London. Heightened tensions between Saudi Arabia, the world’s biggest crude exporter, and Iran typically draw market attention to the Strait of Hormuz, through which the US Department of Energy estimates about 30% of the seaborne oil trade passes.
Qatar’s QE Index for stocks tumbled 7.3% at the close in Doha, the most since 2009. Qatar’s credit risk, measured by credit default swaps, climbed the most globally. Saudi Arabia, Egypt and Dubai were also among the worst six performers on the day, according to data compiled by Bloomberg.
“There are going to be implications for people, for travellers, for business people. More than that, it brings the geopolitical risks into perspective,” Tarek Fadlallah, the CEO of Nomura Asset Management Middle East, said in an interview to Bloomberg Television. “Since this is an unprecedented move, it is very difficult to see how it plays out.”
The five key countries involved in the dispute are US allies, and Qatar has committed US$35 billion to invest in American assets. The Qatar Investment Authority, the country’s sovereign wealth fund, plans to open an office in Silicon Valley.
Tillerson, speaking at a news conference in Sydney yesterday, said it was important that the Gulf states remain unified and encouraged the various parties to address their differences. He said the crisis won’t undermine the fight on terrorism.
“What we’re seeing is a growing list of some irritants in the region that have been there for some time,” Tillerson said. “Obviously they’ve now bubbled up to a level that countries decided they needed to take action in an effort to have those differences addressed.”
Yesterday’s actions escalate a crisis that started shortly after President Donald Trump’s trip last month to Saudi Arabia, where he and King Salman singled out Iran as the world’s main sponsor of terrorism.
“Qatar is right in the middle of the GCC countries and it has tried to pursue an independent foreign policy,” said Peter Sluglett, director of the Middle East Institute of the National University of Singapore. “The idea is to bring Qatar to heel.”
In 2014, Saudi Arabia, the UAE and Bahrain temporarily withdrew their ambassadors from Qatar. That dispute centred on Egypt following the army-led ouster of Islamist President Mohamed Mursi, a Muslim Brotherhood leader.
This time, Saudi Arabia cited Qatar’s support of “terrorist groups aiming to destabilise the region”, including the Muslim Brotherhood, Islamic State and al-Qaeda.
It accused Qatar of supporting “Iranian-backed terrorist groups” operating in the kingdom’s eastern province as well as Bahrain.
Saudi Arabia, along with Bahrain and the UAE, gave Qatari diplomats 48 hours to leave.
The crisis comes shortly after Moody’s Investor Service cut Qatar’s credit rating by one level to Aa3, the fourth-highest investment grade, citing uncertainty over its economic growth model.
“Qatar is economically and socially most vulnerable from food and other non-energy imports,” said Paul Sullivan, a Middle East expert at Georgetown University.
“If there is a true blockade, this could be a big problem for them. Rules stopping citizens of the UAE, Saudi Arabia and Bahrain from even transiting via Qatar could cause significant disruptions.” — Bloomberg