Gulf tensions will have no impact on Malaysia in short term: Economists

PETALING JAYA: The shunning of Qatar by four Arab countries is unlikely to contribute to volatility in the ringgit or have an impact on Malaysia’s economy directly in the short term, but the global economy could be adversely impacted by the surprise turn of events in the Middle East, economists say.
In a shock move on Monday, Saudi Arabia, the United Arab Emirates (UAE), Egypt and Bahrain severed diplomatic ties with Qatar, accusing it of supporting terrorism.
Sunway University Business School Professor of Economics Prof Dr Yeah Kim Leng said a widening of conflict in the Arabian peninsula may not impact the Malaysian economy directly in the short term, but it could be felt more in terms of the indirect impact on global oil markets such as supply disruptions and prices.
Yeah said if the conflict escalates, then there is a risk of the countries involved being dragged into an economic recession that will have some impact on global growth prospects as investors will become more risk averse.
The situation will add to Brexit, Donald Trump’s surprise US presidential election victory and Federal Reserve interest rate normalisation as key risks facing the global economy, he said, adding that the effects are increased market volatility and uncertainties facing the global economy.
“However, due to its negative shocks and higher economic uncertainty, interest rates will likely rise more slowly as policy makers will take into consideration the demand shock and increased political and economic uncertainties,” he told SunBiz yesterday.
Therefore, Yeah said, the Organisation of Islamic Cooperation will have to step in quickly, and the rest of the Islamic countries will have to play a bigger role in preventing the conflict from widening.
Meanwhile, MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor said he views the event as being regionally contained, noting the short-term impact will only be felt within the region.
“The impact on Malaysia is difficult to gauge at this juncture but it would be minimal, if any. I do not see investors’ confidence being affected as far as Malaysia is concerned.
“I do not foresee any changes in interest rates caused by this event,” he added.
According to FXTM vice-president of corporate development and market research Jameel Ahmad, the ringgit remains resilient against the unexpected increase in the Gulf Cooperation Council (GCC) political risks.
He said the main international driver for volatility this week is supposed to be the UK general election tomorrow, but the international community was caught completely off-guard and unprepared when a Saudi-led alliance unexpectedly cut diplomatic ties with Qatar at the beginning of the week.
Although this unforeseen development in the GCC region encouraged the Middle East regional markets to come under selling pressure, especially the Qatar Stock Exchange which plummeted by around 8%, Jameel said, it has very little impact on emerging market currencies such as the ringgit.

“The dollar has itself fallen once again against the majority of its emerging market counterparts, which bodes well for the ringgit to continue its recovery,” he said in a statement yesterday.
The ringgit dipped 0.08% to 4.2660 against the US dollar yesterday.
On the corporate front, oil and gas solutions provider Serba Dinamik Holdings Bhd was the first to say its operations in Qatar remain active and are not impacted by the ongoing rift in the Middle East.
Its managing director and CEO Datuk Dr Ir Karim Abdullah said Serba Dinamik is a Malaysian entity and is not involved in the ongoing complication.
“We provide operations and maintenance services, which are not affected by the current matter. In fact, we are gearing up for opportunities to possibly provide our support to gas producers in Qatar, due to the vacuum of contractors from these respective countries pulling out of Qatar,” he explained.
Karim stressed that the delivery of oil and gas, particularly liquefied natural gas, will not be interrupted as there are different shipping routes that are still accessible for delivery to its major buyers through Oman and Iran.
Serba Dinamik’s operations and maintenance services in Qatar contributed 16% to its total revenue last year.