The price of oil rose and Qatari stocks plunged yesterday after Saudi Arabia and three other Arab countries cut off most diplomatic and economic ties to Qatar, in an unprecedented move designed to punish one of the region's financial superpowers for its ties with Iran and Islamist groups in the region.
Saudi Arabia, Bahrain, the United Arab Emirates and Egypt said they will suspend air and sea travel to and from the Gulf emirate. Saudi Arabia will also shut land crossings with its neighbour, potentially depriving the emirate of imports through its only land border.
Qatar's QE Index for stocks tumbled 8pc - the most since 2009 by mid morning in Doha. Dubai's benchmark index fell 1.2pc.
Qatar called the accusations "baseless" and said they were part of a plan to "impose guardianship on the state, which in itself is a violation of sovereignty".
Qatar is one of the world's richest countries and of strategic importance, being the biggest producer of liquefied natural gas.
A country with a population of just 2.3 million, its $335bn sovereign wealth fund holds stakes in companies from Barclays and Credit Suisse Group.
It also hosts the forward headquarters of Centcom, the US military's central command in the Middle East.
Emboldened by warmer US ties under President Donald Trump, the Saudi-led alliance is seeking to stamp out any opposition to forming a united front against Shiite-ruled Iran.
And while yesterday's escalation is unlikely to hurt energy exports from the Gulf, it threatens to have far-reaching effects on Qatar.
"There are going to be implications for people, for travellers, for business people. More than that, it brings the geopolitical risks into perspective," said Tarek Fadlallah, CEO of Nomura Asset Management Middle East, in an interview to Bloomberg Television.
"Since this is an unprecedented move, it is very difficult to see how it plays out."
Read more: European stocks slide on Qatar crisis
Brent crude rose as much as 1.6pc to $50.74 a barrel on the London-based ICE Futures Europe exchange, before paring gains to 0.4pc in London yesterday morning.
Heightened tensions between Saudi Arabia, the world's biggest crude exporter, and Iran typically draw market attention to the Strait of Hormuz, through which the US Department of Energy estimates about 30pc of the seaborne oil trade passes.
The five countries involved in the dispute are US allies, and Qatar has committed $35bn to invest in American assets.
The Qatar Investment Authority, the country's sovereign wealth fund, plans to open an office in the Silicon Valley. (Bloomberg)