Qatar Cut Off: Everything You Need To Know About Monday’s Mideast Earthquake

You might be wondering why Saudi Arabia seemingly gave Qatar the Fredo Corleone treatment on Monday.

As you’ve probably heard by now, Saudi Arabia, Bahrain, the United Arab Emirates and Egypt have cut most diplomatic ties with Doha. Air and sea travel have been suspended to and from the Gulf emirate and Riyadh is closing land crossings.

Obviously, this isn’t great for Qatar. “There are going to be implications for people, for travelers, for business people. More than that, it brings the geopolitical risks into perspective,” Tarek Fadlallah, the chief executive officer of Nomura Asset Management Middle East, told Bloomberg this morning. “Since this is an unprecedented move, it is very difficult to see how it plays out.”

Yes, and the truly absurd part of this is that it stems from what Doha claims was a computer hack.

Late last month, a report containing comments attributed to Qatari emir Sheikh Tamim bin Hamad Al Thani showed up on Qatar News Agency and quickly created a regional firestorm. Here are some of those comments, purportedly delivered at a military graduation ceremony:

Qatar has strong relations with Iran.

Iran represents a regional and Islamic power that cannot be ignored and it is unwise to face up against it. It is a big power in the stabilization of the region.

He also expressed an “understanding” for Hezbollah and speculated that Donald Trump might not ultimately remain in the White House.

Apparently, Qatari state television actually ran clips of Sheikh Tamim at the ceremony, and although the anchor didn’t mention the comments, a scrolling ticker at the bottom of the screen did.

Well needless to say, that shocked the shit out of a whole lot of Doha’s Sunni allies, some of whom immediately blocked access to Al Jazeera. If, for instance, you tried to access al-Jazeera’s website in the UAE, you got this rather terse message from Emirates’ Telecommunications Regulatory Authority:

This site contains content that is prohibited.

Doha immediately went into damage control dispatching government communications chief Sheikh Saif Bin Ahmed Al Thani to put out the fire. Here’s what he said:

The statement published has no basis whatsoever and the competent authorities in the state of Qatar will hold all those (who) committed (this) accountable.

That of course doesn’t do much in the way of explaining how it was that the controversial statements ended up being run on state TV.

Subsequently, the whole fiasco was blamed on “hackers” and Doha tried to spin the debacle as further evidence of why “fake news” is so dangerous.

cyber

“There are international laws governing such crimes, especially the cyberattack. [The hackers] will be prosecuted according to the law,” Mohammed bin Abdulrahman Al Thani, Qatar’s foreign minister, said.

“The hackers also purportedly took over the news agency’s Twitter feed and posted alleged quotes from Qatar’s foreign minister alleging a plot against the country by other Arab nations,” AP wrote last month , adding that those tweets “said the small, gas-rich nation had ordered its ambassadors from Bahrain, Egypt, Kuwait, Saudi Arabia and United Arab Emirates withdrawn over the plot.” The tweets were later deleted.

“UAE-based Sky News Arabia and Al Arabiya kept running the discredited story, despite the Qatari denials,” a frustrated  Al Jazeera said on Monday.

This all comes amid suspicion in Doha that Qatar is the target of a regional conspiracy (tied in part to Doha’s support for the Muslim Brotherhood in Egypt). That suspicion was readily apparent in the foreign ministry’s response to the coordinated diplomatic attack we saw on Monday. Here’s an excerpt from the statement:

The measures are unjustified and are based on claims and allegations that have no basis in fact. This will not affect the normal lives of citizens and residents.

The aim is clear, and it is to impose guardianship on the state. This by itself is a violation of its Qatar’s sovereignty as a state.

Of course the official reason given for the alienation of Qatar is Doha’s support for “terrorist groups aiming to destabilize the region, including the Muslim Brotherhood, Islamic State and al-Qaeda.” Qatar, the Saudis say, is “supporting Iranian-backed terrorist groups operating in the kingdom’s eastern province as well as Bahrain.”

That should remind you of what happened in Bahrain and Qatif in the wake of the execution of prominent Shia cleric Nimr al-Nimr, an unfortunate incident that very nearly destabilized the entire region early last year.

Qatar has also been expelled from the Sunni alliance battling the Iran-backed Houthis in Yemen.

For their part, Iran is blaming Trump. “The rift and crumbling of unity among Gulf nations is the first result of the sword dance in Riyadh,” Hamid Aboutalebi, a deputy chief of staff for political affairs, said on Twitter, adding that “the time for sanctions has ended, cutting diplomatic ties, closing borders, blockading nations is not the way to end crisis.”

Indeed, this very well may have Trump’s fingerprints on it, especially if Washington sees a way to scapegoat Qatar for both Sunni extremism and support for Iran.

Qatar

[Qatar’s Emir Sheikh Tamim Bin Hamad Al-Thani meets with U.S. President Donald Trump in Riyadh, Saudi Arabia, May 21, 2017]

“Qatar is right in the middle of the GCC countries and it has tried to pursue an independent foreign policy,” Peter Sluglett, director of the Middle East Institute of the National University of Singapore told Bloomberg on Monday morning. “The idea is to bring Qatar to heel.”

Well, that “idea” gave a whole lot of folks the “idea” that maybe now was the time to sell Qatari assets and bet against an eventual devaluation of the riyal. Stocks plunged the most since 2009, yields spiked more than 20bps, and forwards jumped:

Qatar

Fwds

Oil initially spiked, but gave some back. Russian envoy to international organizations in Vienna Vladimir Voronkov said he doesn’t see this altering the dynamics around the OPEC pact.

Here’s a rundown of analyst chatter via Bloomberg:

  • Tarek Fadlallah, chief executive officer of Nomura Asset Management Middle East:
    • “Clearly this is going to rattle investors, mostly foreign investors, that have to play a key role in regulation reform and investment program.”
    • “Political uncertainty, particularly given recent headlines on Trump’s visit, make investors wary of investing not just in Qatar specifically, but in region more broadly”
    • Expect spike in volatility, followed by downward move in markets in general
  • Marwan Shurrab, head of high networth and retail equities brokerage at Al Ramz in Dubai
    • Sees volatility increasing in the very short-term
    • Investors will watch for any kind of announcement, or further clarification coming from governments or companies
    • Investors will assess which companies have the biggest exposure to the region and therefore, have potential revenues at risk
    • Some long-term investors could find opportunities if any signal of potential recovery
  • Majd Dola, senior research analyst at Al Ramz Capital in Dubai
    • Many U.A.E. companies have operational exposure to Qatar ranging from mid- to-large size projects, sees some “negative economic impact on already struggling companies”
      • Notes Drake & Scull has 500m dirhams worth of projects in Qatar; Arabtec has two joint ventures, pending legal cases, and receivables; DAMAC announced a 500m-dirham tower in Doha recently
    • While hard to quantify the direct impact on those companies, it won’t be positive in short- term
      • “If we take this one step further, Qatar is set to host World Cup 2020, which created a massive potential pipeline for U.A.E. developers and contractors”
    • Qatar investment funds might also be under pressure to liquidate U.A.E. holdings
      • Companies like DXBE (11% owned by Qatar investment) might face further pressure if things moved further in negative direction
  • Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital Ltd.
    • Expects some initial impact on Qatari bonds.
      • “A lot of them are held in hold-to-maturity books so I don’t expect a major pullback.”
    • Still, expects a small narrowing of bond spreads
    • Doesn’t expect move to affect bonds across the GCC at this point since they are “relatively cheap” for their ratings
    • Given the lull in market due to summer and Ramadan, technicals are probably supportive in terms of new issuance
  • Peter Sluglett, director of the Middle East Institute of the National University of Singapore
    • “Desire of the Trump administration is that nobody in that region should have any sort of relations with Iran. Qatar is right in the middle of the GCC countries and it has tried to pursue an independent foreign policy. So the idea is to bring Qatar to heel”

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