Qatari Drama Unfolds in Global Currency Markets

ForexTime Staff Writer, Samantha Robb, discusses the global impact of the pending Qatari crisis.

On the morning of Monday, June 5, Middle East tensions spilled over to the global scene and set the theme for the week to come. Saudi Arabia, the United Arab Emirates, Bahrain, Egypt and Yemen are to cut off all ties – land, air and sea – with Qatar following rumours that the country has been actively supporting terrorism.

In matters of context, things have been stirring up in the Middle East for more than a decade as the Emir of Qatar failed to gain favour with any of the neighbouring countries, ostensibly because of his foreign policies. Policies that mainly featured Saudi Arabia’s Shia opponent, Iran.

The lines have now been crossed to a point that, apart from no longer allowing any trades or air travel between the opposing regions, all citizens residing in GCC member states have been given two-week’s notice to leave and citizens of those countries are no longer allowed to travel to Qatar. Mauritius, Mauritania, the Maldives and Yemen have also joined the ban, severing all bonds with Qatar.

Qatar’s exile has not gone by unnoticed by currency markets. On Friday, June 9, the Qatari Riyal traded on the futures market at twelve-month lows. The fact both Moody and S&P downgraded Qatar’s credit rating from AA3 to AA2 and AA to AA- respectively, did not soften the blow. The agency downgrades show that the international community strongly disapprove of the developments and they have diminishing confidence in Qatar’s economic position.

The greenback reached twelve-year highs against the currency last week and despite being pegged to the dollar the Riyal was down at 3.6526. Ongoing drops in oil prices and uncertainty over long-tern sustainability of energy revenues in the region, are also playing a major factor in investor confidence. The S&P’s downgrade went as far as putting the currency on CreditWatch, a not-so-surprising twist as portfolio investment funds have been leaving the country at a swift pace. More recently, on Monday 12, Fitch announced it was reclassifying Qatar as Ratings Watch Negative (RWN).

Forex trading markets are also reacting to the ban, with Pakistani traders now refusing to buy the Riyal. In addition, number of Sri Lankan banks have also dropped the currency.

What happens next is certainly something that all of us at FXTM are keeping an eye on. If more regions follow suit, the situation will look rather grim for Qatar and they will eventually need the government to find alternative trade routes. On the other hand, Qatar might be willing to wait out the storm as the government has $337 billion in its sovereign wealth fund and currently holds the reins to crucial gas and oil fields. They are also the world’s largest LNG exporter.

 

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