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Qatar crisis is back to square one as economy shows the strain

Qatar's economy has been hit by the sanctions imposed by a Saudi-led Arab bloc but the emirate's economy is strong enough to survive, analysts say.

[CAIRO] The Saudi-led alliance that severed ties with Qatar reinstated a list of 13 demands that must be met before talks to resolve the eight-week crisis could start, just as as fresh economic data highlighted the impact of the unprecedented boycott on the Gulf nation.

The foreign ministers of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain said there would be no compromise until Qatar ends its support for terrorism - a charge it has repeatedly denied. The bloc had initially dropped the conditions, which included shuttering Al Jazeera television, and instead referred to six broad principles it said Qatar must agree to, fueling speculation that the crisis could soon be resolved.

Sunday's announcement in Manama, Bahrain's capital, deals a fresh blow to mediation efforts by Kuwait and US Secretary of State Rex Tillerson, who flew to the region this month and presented proposals aimed at preparing both sides to hold direct talks. Those efforts have reached an impasse, a Gulf official with direct knowledge of the matter said last week.

"We are back to square one," said Abdullah Al-Shayji, a political science professor at Kuwait University. "We have not progressed an inch because we were under the impression that the 13 demands were not only null and void but channeled into six principles. It seems that they are not budging and are escalating."

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The four countries severed their diplomatic and transport links with Qatar on June 5, accusing the government in Doha of backing extremist groups in the region. Qatar denies the charges and says the boycott is an attempt by Saudi Arabia to force smaller nations into submission.


From the outset, some analysts said the coalition was betting that a prolonged isolation would extract enough economic pain that would force Qatari leaders to offer concessions.

Net international reserves dropped 30 per cent in June to 88.85 billion riyals (S$32.6 billion), according to the central bank. Data released last week showed that foreign deposits at Qatar's banks fell the most in almost two years last month as customers withdrew funds, pressuring liquidity available locally for businesses and the government.

The decline in deposits squeezed liquidity, so the central bank used reserves to "ease the crunch and to preserve the riyal peg against the dollar," said Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes, a regional investment bank. "But the drop is not that alarming in a wider sense" given that the reserves don't include the foreign assets of the sovereign wealth fund, he said.


Qatar's isolation has forced the nation to open new, more expensive, trade routes to import food, building materials and equipment. Imports also dropped 40 per cent compared with the same month a year ago.

"The disruption of trade routes will weigh on non-oil economic growth, which was already on a slowing trend," Mr Abu Basha said. "But even the new trade routes are likely to be more expensive than the older ones, which will affect growth and public finances."

To be sure, Qatar still boasts one of the world's largest sovereign wealth funds, whose holdings include stakes in companies such as Glencore Plc and real-estate landmarks such as the Shard in London. The boycott hasn't affected its exports of liquefied natural gas.


Qatar's benchmark stock index dropped 1 per cent at the close in Doha, the most in the Middle East before the announcement in Bahrain, signaling investors were expecting the Saudi-led alliance to escalate.

The countries at the heart of the crisis are all US allies.

Saudi Arabia has strong counter-terrorism ties with the US and is a top customer for American weapons. Qatar hosts the regional headquarters for US Central Command, which includes an air base the Pentagon depends on to target Islamic State.

"We're not dropping any of our demands or changing any of our stances. It's the same stance," Bahraini Foreign Minister Khalid bin Ahmed Al Khalifa said. "But we're telling the people who say there should be a dialogue, we're ready for dialogue. But for it to succeed it has to be on solid, stable grounds on which there can be no backtracking."