Qatar has weathered the blockade imposed by its neighbours, and has been relatively successful in diversifying its supply chains. While a military escalation remains highly unlikely, the rift is likely to last for several years. Political tensions may complicate trade and investment across the region, as firms seen to be cooperating with countries involved in the dispute may lose business with the opposing side.
Qatar continues to be subjected to a diplomatic and economic embargo imposed since June 2017 by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. The blockading countries cited Qatari sponsorship of terrorist organisations as the reason for the embargo. However, their actions are also motivated by opposition to Qatar’s independent foreign policy stance, which has fostered closer relations with Iran.
Qatar has been unwilling to make concessions to the blockading countries and tensions with its Gulf neighbours remain elevated. In January 2018, both Qatar and the United Arab Emirates filed complaints with the United Nations, accusing each other’s military aircraft of violating their respective airspaces. US mediation has not led to any concrete measures towards a resolution of the dispute, and the rift is likely to last for several years. However, the presence of Turkish troops and a US military base in Qatar ensures that the embargo is highly unlikely to escalate into military conflict.
While the US military base acts as a deterrent against conflict between Qatar and its neighbours, it is also a potential target for terrorist attacks. Only a limited number of Qataris have opted to fight abroad for Islamist groups, but Islamic extremists may carry out attacks against soft targets in Qatar using firearms and improvised explosive devices. Tensions between Iran and Saudi Arabia and the US are on the rise, and while it remains unlikely, disruption to trade in the Strait of Hormuz would severely impede Qatar’s ability to export liquefied natural gas.
Qatar’s extensive wealth reserves have aided it in weathering the prolonged blockade, and it has been relatively successful in diversifying its supply chains. Real GDP is forecasted to rise slightly from 2.7% in 2018 in 2.8% in 2019, and higher oil prices are likely to support a fiscal surplus of 0.9% this year. However, tourism arrivals are unlikely to recover from their pre-embargo levels in the medium-term, which will limit efforts to diversify the economy. Similarly, a fall in foreign demand will undermine the performance of the real estate sector, as prices had fallen by around 10% as of July 2018.
Government debt has risen sharply from 31% in 2014 to 58% in 2017, but is forecasted to decline to 54% by end- 2018. Qatar’s economy is dependent on the hydrocarbon sector, which in 2015 accounted for over half of nominal GDP.
While Qatar has attempted to diversify its economy, government investment in non-hydrocarbons sectors is likely to decline once infrastructure is completed for the 2022 FIFA World Cup, while gas production will increase significantly from the North Field from 2021.
Fiscal risks are mitigated by Qatar’s sovereign wealth fund, the Qatar Investment Authority (QIA). In 2017, the QIA repatriated over USD 20 billion to offset the impact of the embargo. However, government external assets are estimated at USD 262 billion by the end of 2017, a similar figure to 2016, due to robust asset market returns.
Qatar has reduced its original budget for the 2022 FIFA World Cup by over 40%, but is still pursuing USD 200 billion worth of infrastructure development associated with the tournament and the Vision 2030 economic diversification plan. However, political tensions may complicate trade and investment across the region, as firms seen to be doing business with countries on one side of the dispute may lose business with the opposing side.
In April 2018, JP Morgan and HSBC reportedly informed Qatar that they were unable to work on the country’s bond issuance due to the risk of damaging the banks’ relationships with Saudi Arabia. In addition, there is a risk that Qatar could impose punitive tax measures against Saudi, Bahraini and Emirati business interests if the dispute escalates. Qatar’s judiciary is not independent as the Emir retains the right to appoint judges, and the judiciary is unlikely to rule against state-owned entities or firms owned by Al-Thani, Al-Attiyah, and Missned families.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iraq, Egypt, Qatar and United Arab Emirates all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Mark Wong, Managing Director of Credit, Political and Security Risks at email@example.com.
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