Within the past several hours, a story that will no doubt mushroom over the coming days has developed. We have, it seems, the makings of another gulf crisis.
Early this morning, four Arab nations, led by Saudi Arabia, have announced that they have severed diplomatic ties with Qatar and are acting to close all access to the country.
According to reports, the governments of Saudi Arabia, Egypt, Bahrain and the United Arab Emirates will halt all air and sea travel to and from Qatar. The land border between Saudi Arabia and Qatar will also be closed. The four countries have given Qatari diplomats forty-eight hours to leave.
Saudi Arabia has said via its state-run press agency that the move was necessary for “the protection of national security from the dangers of terrorism and extremism” and it has urged “all brotherly countries and companies to do the same.”
The diplomatic clash between Qatar and its neighbours follows a recent cyber-attack on Qatar’s state news agency, after which comments were broadcast, apparently made by Qatar’s leader, Sheikh Tamim bin Hamad Al Thani, that expressed support for Iran, Hezbollah, Hamas and Israel. Qatar’s government denied the comments were ever made.
The closure of borders to Qatar will present a serious challenge for its leaders in Doha because the country is heavily reliant on food supplies brought through Saudi Arabia.
It is not yet known whether today’s developments will impact the supply of oil and natural gas from Qatar, and consequently these commodities’ prices. Qatar is the world’s largest exporter of liquefied natural gas (LNG) and is the world’s seventeenth largest oil exporter.
Oil and gas prices are major drivers of ‘petro-currencies’ such as the Canadian dollar, the Russian ruble, Brazilian real and Mexican peso, among others. Additionally, with oil often being a leader of commodities in general, a spillover effect may be felt by commodities-driven, but non-petro-currencies, like the Australian dollar, for example.
The Reserve Bank of Australia meet this week and on Tuesday investors will learn the latest decision by the bank’s board on the country’s official cash rate, which currently stands at a record low of 1.5%.
The outlook for the Australian economy has deteriorated recently, led by a tumble in the price of its main export, iron ore, from around $89 per metric ton in mid-March to prices in the mid-$50s last week, and by a recent change in investor sentiment towards China, which saw its sovereign credit rating downgraded by Moody’s in May for the first time since 1989. China is Australia’s largest trading partner by far and the health of its economy is vitally important to the country. The RBA have also expressed concerns about elevated levels of household debt in Australia following a housing boom, led by Sydney and Melbourne.
Such has the outlook for Australia changed, that traders are now beginning to make bets on a rate cut in the country.
Although the probability of a cut remains low – prices in derivatives markets indicate a 20% probability of a cut by the year end – Australia has joined Switzerland as one of only two advanced economies for which a rate cut is considered a possibility in 2017.
Since the RBA’s last decision on rates on May 2nd, the Australian dollar has fallen by 1.0%, 2.3%, 3.6% and 4.0% against the US dollar, Japanese yen, New Zealand dollar and euro respectively.
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