Qatar hit by ratings downgrade over blockade crisis

The blockade of Qatar by a bunch of Arab states has dealt a blow to the kingdom’s credit rating.

Standard & Poor’s has downgraded Qatar’s rating, warning that its diplomatic crisis with other Middle Eastern nations could prompt investors to yank money out of the country and hurt economic growth.

Several Arab countries cut diplomatic ties with Qatar this week in a dispute over regional security. Among a barrage of other measures, the United Arab Emirates and Saudi Arabia have halted all road, air and sea traffic to Qatar.

Related: Qatar keeps gas flowing to UAE despite blockade

Standard & Poor’s said Wednesday it has lowered its long-term rating on Qatar one notch to AA-, its fourth-highest level. The U.S. agency said it could cut the rating further if the crisis deepens, noting “numerous uncertainties” about how the situation might play out.

The moves against Qatar by the other Arab countries escalated in a dispute over Qatar’s alleged support for Islamist groups in the region. Qatar has denied its neighbors’ allegations and pledged to make sure the rift won’t hurt its economy.

But some businesses are already suffering. State-backed Qatar Airways, for example, has lost more than 50 flights a day from the blockade.

Related: Arab blockade is nightmare for Qatar Airways

S&P pointed out that Qatar has a powerful financial arsenal with which to defend its economy, including its $ 335 billion sovereign wealth fund.

The fund’s massive resources may be needed if foreign investors start to pull a lot of their money out, the ratings agency warned. Damage could also come from declining trade, it said.

Related: Qatar is backed by a massive global war chest

In Qatar’s favor, S&P highlighted the Gulf state’s booming energy industry and its gross domestic product per inhabitant, which is among the highest in the world. And the kingdom’s biggest trading partners — Japan, South Korea, China, and India, which buy huge amounts of natural gas from it — are all outside the politically volatile Middle East.

Another big credit rating agency, Moody’s, said Thursday that it was leaving its stance on Qatar unchanged for now.

“The initial financial market reaction has been relatively manageable,” it said in a report. “But a prolonged or deepening rift … would potentially have a more marked financial effect and increase funding costs.”