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Global Currency Markets on Edge as Qatari Turmoil Unravels

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Monday, June 5, 2017

News has surfaced that Saudi Arabia, the United Arab Emirates, Bahrain, Egypt and Yemen are to sever all connections to Qatar following the allegations that the region actively supports terrorism and is intent on destabilising the region. Mauritius, Mauritania, the Maldives and Libya are shortly added to the list, ending all current trade deals with the country.

Any land, air or sea connections and diplomatic relations have come to an immediate halt while, Qatari residents of the GCC member states were given two-week’s notice to vacate the regions and all residents of those countries are no longer allowed to travel to Qatar.

Context

Conflict in the Arab states has existed for decades, with the Emir of Qatar frequently being in the spotlight as the catalyst of recent tensions. He has repeatedly won the disapproval of the neighboring nations, most notably, Saudi Arabia. The Emir’s foreign policies are also the cause of for concern as they prominently featured Saudi’s rival, Iran

Ripple on the Global Markets

After Moody’s downgrade of the Qatar credit rating (from AA3 to AA2) in late May 2017 and the S&P from AA to AA-, which placed the country on CreditWatch, the futures market saw twelve-month lows for the Qatari Riyal. The global trading community is united by uncertainty in Qatar’s economic position and what its future growth prospects could be.

On Wednesday, June 7, the Riyal recorded a monumental twelve-year low against the dollar at 3.6526. Forex trading sentiment has moved against the Qatar currency as oil prices continue to take a tumble and lingering concerns over the long-term sustainability of energy revenues in the region have surfaced again.

Currency trading in favour of the Riyal has stopped from Pakistan traders, as well as a variety of Sri Lankan banks who are rumored to be following the advice of their Singaporean counterparts.

FXTM is keeping an eye on market developments and believe that the current conflict and developments has left the currency markets on shaky ground, with more negative adjustments expected to follow as events unfold.

The Future for Qatar

Locals will look to the government to find a suitable solution, as the largest majority of Qatar’s food is provided by its neighbors, and if trade routes are to remain closed the situation could become critical.

There are currently small beacons of hope for the beleaguered Arab State; one is the fact that its gas and oil fields make it the largest LNG (liquified natural gas) exporter in the world, the other is that the government has an estimated $335billion in the Sovereign Wealth Fund that may keep the country afloat in the short term. The last, but untenable scenario that could unfold would be for Qatar to close the taps of its LNG gas, potentially creating a global shortage, or at least some price volatility. Whether or not a settlement will transpire in the future, the current situation does not bode well for Qatar and its citizens, and serious economic and currency fallout seems inevitable.

Disclaimer: The content in this article comprises personal opinions and ideas and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

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