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Sanctions against Qatar: The huge costs for a large exporter that also spread to the global economy

The ban of transportation of goods and citizens’ movements from and to Qatar, implemented by the most powerful Middle-Eastern countries (Saudi Arabia, UAE, Bahrain and Egypt) was a huge diplomatic shock that entails a series of economic effects. Indeed, it seems that politics are a force of impact for a small geographical country that is heavily engaged in global trade.

Qatar, one of the richest countries in the world, with large trade surpluses based on gas and oil exports, will have to sustain the consequences of that dependence. Taking into account that these exports comprise almost 40% of Qatar’s GDP, it is easy to understand the economic impact from a possible restriction of the country’s trade capacity.

In detail, the loss of access to major Gulf ports, particularly these located in the UAE, would disrupt the transportation of its gas and oil supplies worldwide. As a matter of fact, increased costs of transportation are going to have a noticeable impact particularly on the price of LNG, of which many Asian countries namely Japan, South Korea, India and China are major importers from Qatar. At the same time, it should be noted that countries that imposed these sanctions, such as the UAE and Egypt, have also increased energy dependence on Qatar.

However, these countries may also bet on the likely food security problem of Qatar which is extremely reliant on food imports. In fact, the rising costs of imports related to the shipping and road transportation ban will propel inflation, being a major threat for its citizens’ income. Furthermore, the economic consequences of these sanctions also expand to the services sector of Qatar’s economy, of which airlines and banking are integral parts. In the case of the airline industry a domino effect is implied for the tourism industry which is also a lucrative business for Qatar. Still, the banking industry may seem more robust but macroeconomic adversities would certainly have an effect in the long-term.