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Energy exports a lifeline for boycott-hit Qatar

By AFP - Jun 06,2017 - Last updated at Jun 06,2017

People gather outside a branch of Qatar Airways in the United Arab Emirate of Abu Dhabi on Tuesday (AFP photo)

KUWAIT CITY — A Saudi-led diplomatic and economic blockade against Qatar may threaten food imports, but the tiny emirate still has a lifeline through its gas and oil exports, experts said on Tuesday.

Saudi Arabia, the UAE, Egypt, Bahrain and Yemen have suspended all diplomatic ties to gas-rich Qatar, halting flights to and from the country and ordering Qatari citizens to leave within 14 days. 

Riyadh on Monday also cut off the Qatari peninsula’s only land border, threatening the import of both fresh food and raw materials needed to complete $200 billion worth of infrastructure projects for the controversial 2022 football World Cup. 

 

Food imports, aviation 

 

“An estimated 40 per cent of all of Qatar’s food supplies are transported across Qatar’s land border with Saudi Arabia,” said Anthony Skinner of the UK-based global risk consultancy Verisk Maplecroft. 

Its closure “will force the Qatari authorities to increasingly rely on sea and air freight, thereby increasing costs and inflation”, Skinner said in a report.

Fitch Ratings said the decision to cut diplomatic and economic ties with Qatar had no immediate impact on Qatar’s “AA”/Stable sovereign rating.

But if the dispute drags on, the economic and financial implications would be more serious, the international ratings agency said.

The economic impact of the diplomatic boycott was immediately visible on Monday, as shoppers flocked to Qatar’s main supermarkets to stock up on staples despite assurances by the government that there would be no food shortages.

Qatar’s only viable alternative for food imports is via Iran and the Gulf state of Oman by sea, and via Turkey, Europe and south Asia by air. 

Also hit by the economic measures is the bustling aviation sector in the Gulf.

Saudi Arabia and its allies have banned flights to and from Qatar.

Skinner said the move would force Qatar Airways, already hit this year by US President Donald Trump’s electronics ban, to change multiple routes, thus incurring even more costs.

Although Qatar has limited trade with Gulf states, its exports to Saudi Arabia — estimated at $896 million by the UN — are now expected to evaporate.

 

Energy sector 

 

Qatar is one of the smallest Arab nations with a population of 2.4 million, only 10 per cent of whom are Qatari. 

But the emirate has one of the largest per capita incomes in the world at over $100,000.

The closure of Qatar’s land border will likely leave contractors with no choice, but to import building materials by sea, driving up prices and potentially delaying the projects, Skinner said.

But Qatar’s energy supplies will remain unaffected with secured export routes through the Strait of Hormuz to Japan and southeast Asia.

Qatar is the world’s leading LNG exporter and supplies 80 million tonnes annually by sea. Only 10 per cent of its gas exports go to Middle East states, including the UAE and Egypt.

The emirate also pumps over 600,000 barrels of oil.

“I don’t see any threat to Qatar’s energy export routes. They will continue to its main Far East customers,” Kuwaiti oil expert Kamel Al Harami told AFP.

Qatar also has around $350 billion of foreign assets invested in major international companies, including a 17 per cent stake in Volkswagen.

But Qatar’s banking sector could still feel the heat of the diplomatic crisis. 

Non-resident deposits made up 24 per cent of deposits in the country’s 18 lenders in April, according to Qatar’s central bank.

 

“Qatari banks, already struggling with declining cash reserves and higher interest rates, could be hard hit if Saudi Arabia and UAE opt to withdraw their foreign deposits,” said James Dorsey, senior fellow at the S. Rajaratnam School of International Studies in Singapore.

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