Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

Whenever crisis hits the West, the pint-sized yet deep-pocketed nation of Qatar sails into view with the promise of cash lifeboats. Whether it's the 2008 financial meltdown, President Donald Trump's infrastructure plans or the British EU exit, the promise of Qatari wealth is dangled as a way of keeping government finances and broader investor confidence afloat.

The irony now is that Qatar has its own trouble. Saudi Arabia, Egypt, the United Arab Emirates and Bahrain have severed most diplomatic and economic ties to their Gulf neighbor to punish it for its ties with Iran and Islamist groups in the region. The move is unprecedented, analysts say. Fears of a regional choke-hold on a country that's the biggest producer of liquefied natural gas sent Qatari stocks down and oil prices up.

Diplomatic Tension
Share prices have been hit by a stand-off between Qatar and four of its Gulf neighbors
Source: Bloomberg
Intraday times are displayed in ET.

While the outcome isn't easy to predict -- one investor told Bloomberg TV he hoped it would be a "short-term spat" -- the stand-off should remind western politicians and companies that Qatari cash is useful but not without hazard. Any kind of domestic political change or escalation of regional tension could affect how Qatar spends or re-allocates its riches, given how intimately bound it is to the personalities and princes managing public and private wealth.

The $335 billion Qatar Investment Authority, the 14th-biggest sovereign fund in the world, is chaired by a Qatari royal. Its assets and holdings cover Hollywood, New York office space, London apartment blocks, German cars, luxury Italian fashion and the Paris Saint-Germain soccer team. Another member of the royal family, Sheikh Hamad bin Jassim bin Jabr Al Thani, is a cornerstone investor in Deutsche Bank AG. Money isn't immune to palace politics: the QIA recently went through its second overhaul in three years.

Sovereign Assets Ranking
Qatar's sovereign wealth fund is among the world's largest
Source: Sovereign Wealth Fund Institute
Note: Data as of June 2016.

And the broader spat over Qatar's "risky balancing act" -- namely that it's an important U.S. ally and regional power-broker that's also accused of funding jihadist groups -- could spark opposition from western voters about where it is allowed to spend its money.

A U.S. Congress report in December called on Donald Trump to do more to fight terrorist financing, identifying Qatar as a "particularly permissive" source. French president Emmanuel Macron said during his election campaign that Qatar must do more to block terrorist finance flows and that France would stop offering deal sweeteners to attract its investment. Given that Qatar has promised to invest another 5 billion pounds ($6.5 billion) in the U.K. (presented as a much-needed trade boon by the Brexit cheerleaders) and $10 billion in U.S. infrastructure assets, changing political winds might have big consequences.

Again, this crisis is at an early stage and there's no reason yet to expect asset sales or political shake-ups. The U.S. says it is willing to step in to help resolve differences between the two sides.

Nonetheless, the threat of escalation is there. Financial markets are already pricing in an impact on regional banks and construction projects in Qatar. The 2022 World Cup, due to be hosted in Qatar, is a possible victim of the dispute, reckons Christopher Davidson, author of several books on the Middle East. And as rich as Qatar is, it posted its first budget deficit in 15 years in 2016. Whatever the outcome, this week's drama shows political risk doesn't always begin at home.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Lionel Laurent in London at llaurent2@bloomberg.net
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net