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What does the end of the Qatar blockade mean for trade between the Gulf nations?

Nicholas Earl, 28/01/2021

Investors should not expect transformative changes to intra-Gulf trade following the resolution of the Qatar diplomatic crisis earlier this month, argues Nick Wilson, chairman of the Gulf Investment Fund (GIF).

Commenting on the peaceful conclusion of talks between Saudi Arabia and Qatar, Mr Wilson outlined that while investor sentiment towards the region was likely to improve, it was unlikely to result in further economic integration, with each country continuing to take an international approach to importing goods and pursuing both hydrocarbon and non-hydrocarbon opportunities.

He explained: “For investors, this helps the region’s political outlook. But will it lead to a surge in trade between Qatar and its neighbours? No. There was limited intra-Gulf trade anyway as each Gulf state tends to export hydrocarbons worldwide and import virtually everything else from the rest of the world.”

In addition, the chairman suggested that Qatar had proven to be remarkably resilient to the restrictions imposed on the country by its neighbours.

He said: “Qatar has very effectively found new sources of supply and forged new trade links in response to the blockade. Even with Covid, the Qatar market is trading 17 percent above where it was when the blockade was imposed in 2017. Qatar has good reason to maintain its current trade arrangements.”

Nevertheless, he believed that it would help to remove any potential stigma investors might have towards investing in the region.

Mr Wilson concluded: Trust is not completely restored – particularly between UAE and Qatar – but this news removes one barrier for investors who have had the Gulf on their ‘avoid’ list for the last 3 years.

The diplomatic crisis initially began on 5 June 2017 when a Saudi Arabia-led coalition of nations, including UAE, Bahrain and Egypt severed ties with Qatar and banned Qatar-registered ships and planes from its airspace and sea routes, alongside blocking the nation’s only land crossing. The coalition, which later included Jordan, alleged that Qatar had been supporting terrorism, and was consequently violating agreements it had collectively made with other members of the Gulf Co-operation Council (GCC). This has been consistently denied by Qatar. 

The coalition then set out 13 demands for Qatar before it would lift the blockades including shutting down Al-Jazeera’s broadcasting stations, reducing diplomatic relations with Iran and closing the Turkish military base in the country.

Three-and-a-half years later on 4 January 2021, Kuwait and the US brokered an agreement between Saudi Arabia and Qatar, ending the blockade. The details of the agreement are not yet known, as does the future implications for relationships in the region.

GIF seeks exposure to emerging investment opportunities and positive fundamental factors in the GCC region that have not yet been priced in by the market.  It invests in quoted equities in the region alongside companies soon to be listed, which is a positive outcome when factoring in its results.

Earlier this month, the trust released its Q4 investment report last week, for the period between 1 September to 31 December 2020. Over the quarter net asset value rose 7.5 percent, a significant increase on it’s the index, the S&P GCC Composite, which was up 5.9 percent. In 2020 as a whole, GIF outperformed its benchmark by 9.5 percent.  GIF's share price is trading at a 10.9 percent discount to NAV compared to the five-year average discount of 13.1 percent.

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