S&P slashed its rating of Gulf nation Qatar due to the nation’s dispute with seven others in the region. The cut was from AA to AA-. The rating agency said the country was put on its CreditWatch list with “negative implications.”

Qatar has been charge with supporting terrorists. Due to this, Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Libya and Yemen cut diplomatic ties and stopped some import and export activity.

S&P commented:

Qatar’s fiscal and current account deficits could widen as related revenues from regional trade diminish. In 2016, 10% of Qatar’s exports was to the group of states that have blocked trade. We believe this figure includes gas exports through the Dolphin pipeline, the position of which under the embargo is currently unclear. The same group of states provides 15% of Qatar’s imports, potentially causing substantial shortages of key materials, including those used for construction projects, and food. Furthermore, the imposition of air travel restrictions could have significant implications for Qatar Airways’ profitability. We note that debt of government-related entities (GREs) accounts for approximately 85% of GDP. There is currently no indication that Qatar’s main trade partners (Japan, South Korea, China, and India), who purchase the bulk of Qatar’s LNG production, will reconsider their existing trade arrangements. These four countries account for 55% of Qatar’s total exports.

The disputes show no signs of ending soon, despite government efforts at reconciliation. Thus, the situation could get worse according to the S&P analysis:

The negative CreditWatch encompasses numerous downside risks to the rating as a consequence of recent events. We will review these as further details emerge. Specifically, we could lower the rating if government indebtedness increases materially quicker than we currently expect or if we assess contingent liabilities to the banking system or Qatar’s GREs as posing further fiscal risks. We could lower the rating if Qatar’s external financing lines reduce, prompting a draw-down on external assets and thereby impacting narrow net external debt. We could also lower the rating if additional or more- severe restrictions from either Saudi Arabia and the group of states, or from additional trade partners, are announced.

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