“The severity of the diplomatic dispute between Gulf countries is unprecedented, which magnifies the uncertainty over the ultimate economic, fiscal and social impact on the GCC as a whole,” said Steffen Dyck, Moody’s vice president - senior credit officer and co-author of the report. “While we expect the GCC to overcome its divisions, tensions persisting - or even escalating - would be the most credit negative for Qatar and Bahrain.”
More than three months since the diplomatic row began, Qatar faces large economic, financial and social costs stemming from related travel and trade restrictions, Moody’s said adding that Qatar’s future credit trajectory will depend heavily on the evolution of the dispute.
It said the impact to-date has been most acute for the trade, tourism and banking sectors. ‘Sizable capital outflows in the vicinity of US$30bn flowed out of Qatar’s banking system in June and July, with further declines expected as GCC banks opt not to roll over their deposits’.
Qatar Central Bank has been supporting bank funding: Moody’s estimates Qatar used US$38.5bn to support the economy in the two first months of the sanctions.
Although negative foreign investor sentiment has also increased Qatar’s financing costs and led to capital outflows, Moody’s does not expect Qatar to raise funds in the international capital markets this year. ‘This should cushion Qatar against higher funding costs for the time being’.
Among Qatar’s GCC critics, Moody’s said Bahrain is most exposed to an escalation of regional tension. Rising debt, increased issuance from other GCC sovereigns, and rising US interest rates have put pressure on Bahrain’s financing costs since 2014.
To some extent, GCC countries such as Oman and Kuwait could actually benefit marginally from the diversion of trade along other GCC routes, Moody’s said.
‘Freight traffic has suffered significant disruption as a result of the restrictions levied on Qatar. Although official data have yet to be released, cargo throughput via Dubai port is reported to have suffered as Qatari importers re-route cargo through neighbouring ports in Oman. Cargo volumes in Sohar have increased by around a third in the months following the dispute’.
Moody’s said international freight companies have implemented contingency plans to re-route traffic through neutral countries: Maersk announced in June that it would redirect marine traffic destined for Qatar via Oman, running a feeder service from Salalah.