Capital Economics, the London consultancy, has produced what it calls a “provisional judgement” of the hit to the country after the first sanctions were imposed at the beginning of June. It concluded that it was a “damaging blow” to its economy, with a 36 percent fall in imports, a dramatic rise in the cost of food, a fall in construction-sector activity and sharp tensions in the Qatari banking sector.
The sanctions did exactly what they were intended to do, by disrupting Qatari trade, affecting business confidence and shaking the financial system.
However, there is some evidence that the initial shock to the Qatari economy was sharp, but short. CapEcon, which has a track record of getting it right in regional economic analysis, said that most economic and trade indicators were better in July and the level of damage to the financial system “didn’t happen on anywhere near the same scale as during the global financial crisis.”
That is a small comfort for Doha, given that the world was on the brink of financial meltdown 10 years ago. It is also worth noting that the ATQ held off any major new sanctions last month, as tentative proposals to end the standoff were discussed amid growing international concern.
Even so, the damage was bad enough to force Qatar’s central bank to intervene, selling foreign reserves to prop up the riyal as the peg with the dollar came under pressure, and lending to the commercial banks to compensate for tighter liquidity in interbank markets.
Policymakers in Doha may be tempted to think that with measures like these they have weathered the storm and can continue to obfuscate on the basic issue of funding for terrorism, but they would be unwise to become too complacent. There are already signs that the ATQ still has plenty of ammunition if it wants to turn the screw harder, especially in the financial sector.
So far, the financial relationship between Qatar and the ATQ countries has been left relatively unaffected. While there were restrictions almost immediately imposed on land, sea and air travel and trade, banking links have so far been left untouched.
Qatari bank branches still operate in the ATQ countries, and vice versa. Customers have so far been free to carry on depositing or withdrawing funds and there has been no move to “freeze” accounts or order withdrawals on either side.
However, this must surely be under consideration. Bankers in Dubai, the biggest financial centre in the Arabian Gulf, say that the UAE regulatory authorities are demanding that Qatar-affiliated financial institutions show weekly records of financial transactions, in what must be regarded as a preparatory move to stronger action.
There are many ways in which the Anti-Terror Quartet can ratchet up financial pressure on Doha over its alleged support for terror groups.
The pressure is being applied via the international banking community too. Last week it emerged that three European banks with big Qatari investors — Barclays, Deutsche Bank and Credit Suisse — had been informally blacklisted from doing any work for big government-owned entities in the UAE capital Abu Dhabi.
At least three government-linked corporations — oil group ADNOC, Emirates Global Aluminium and diversified industrial conglomerate SENAAT — are considering stock market flotations that would normally attract those three European banks, among others hoping for a slice of the big fees that go with such transactions.
Instead, they have been quietly told not to bother to tender for the business, or were rejected virtually as soon as they did so.
The initial public offering (IPO) business in the UAE is big, but is modest compared to the huge sell-offs being planned in Saudi Arabia. There, in addition to the $100 billion IPO of Saudi Aramco being planned for next year, there is an officially estimated $200 billion worth of privatization work to be transacted over the next few years as part of the Vision 2030 transformation strategy.
None of the three banks on the UAE informal blacklist have been named among the team advising Aramco. Might they be frozen out of the even bigger privatization process? So far, I am assured by a senior banker involved in the process, that does not appear to be the case; it is still early days and very few of the planned sell-offs have got to the stage of formally announcing advisers.
But I would be very surprised if Barclays, Deutsche or Credit Suisse get any government-related advisory work in the Kingdom as long as the current standoff continues — or as long as they have Qatari investors.
So far, the Qatar economy appears to have ridden the early storm, damaged but not destroyed. But there remain many ways in which the ATQ can ratchet up the pressure.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai.