Qatar spent almost $40 billion (£30.3 billion) supporting its economy in the first two months of the Saudi-led blockade, ratings agency Moody's said on Wednesday.
More than three months since sanctions were imposed, "no solution is in sight," Moody's said.
According to the report, Qatar injected $38.5 billion (£29.1 billion), 23% of GDP, into its economy and financial system over June and July — more than 10% of its $340 billion (£457.6 billion) in financial reserves.
The dispute is bad news for all six Gulf Cooperation Council (GCC) countries, the agency said, but Qatar and Bahrain are the most exposed. Qatar is facing socioeconomic challenges related to travel and trade restrictions and Bahrain is most at risk from foreign investors turning away from the region, given its weak government balance sheet.
"The severity of the dispute is unprecedented, which magnifies the uncertainty over the ultimate economic, fiscal and social impact on the GCC as a whole," said Steffen Dyck, Moody's vice president and coauthor of the report. "While we expect the GCC to overcome its divisions, tensions persisting — or even escalating — would be the most credit negative for Qatar and Bahrain."
Trade, tourism, and banking in Qatar have so far been worst hit by the blockade, and in the first month alone Qatar's imports slumped 40%, compared to last year. A particular concern is the supply of construction materials, needed to build the stadia for the 2022 World Cup. Around 70% is imported from Saudi Arabia and the UAE, according to Moody's.
Although alternative trade arrangements have been made with Turkey and Iran, the report estimated Qatar is now paying ten times more to import food and medicine than before sanctions were imposed.
The restoration of diplomatic ties with Iran could "further complicate" the dispute, Moody's said, since cutting ties with the country was one of the Saudi-led bloc's initial 13 demands. In the short-term, the report said, "we expect tensions to persist, quite possibly to escalate."Moody's
Meanwhile, 10% of nonresident and private deposits in Qatari banks, and nearly a quarter of funding from overseas banks, flowed out in June and July. Qatar has also experienced a sharp drop in the number of tourists arriving from other GCC countries, where about half of its total visitors originate.
Knock-on effects in the region
Bahrain's credit profile and lack of shock-absorption capacity makes it "most exposed to a prolonged dispute," said Moody's. However, its strong alliance with Saudi Arabia and the United Arab Emirates (UAE) mitigates this risk to some extent, the report said.
On a wider level, dampened investor confidence and reduced inflows of foreign direct investment in the region could be a setback for GCC countries' ambitions to diversify their economies away from oil.
Although Moody's said a breakup of the GCC is unlikely, it stressed that "the current dispute has been exceptionally vitriolic," and said it expects a lack of trust between the countries to linger, even after the blockade is lifted.
The Saudi-led bloc dropped its initial list of demands in July, replacing them with broader commitments to combat terrorism and extremism. But Qatar continues to deny the allegations and has said it will not negotiate until travel and trade restrictions are lifted.
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