  The international community was caught by surprise on 5 June 2017 when Saudi
Arabia, the United Arab Emirates (UAE), Bahrain and Egypt severed diplomatic
ties with Qatar, accusing it of destabilizing the region. More than one year
after this diplomatic rift, several questions remain unaddressed. This study
focuses on the regional business costs of the year-long blockade on Qatar. We
split the sample to compare the stock market performances of Qatar and its
Middle Eastern neighbors before and after the Saudi-led Qatar boycott. We focus
our attention on the conditional volatility process of stock market returns and
risks related to financial interconnectedness. We show that the Gulf crisis had
the most adverse impact on Qatar together with Saudi Arabia and the UAE.
Although not to the same degree as these three countries, Bahrain and Egypt
were also harmfully affected. But shocks to the volatility process tend to have
short-lasting effects. Moreover, the total volatility spillovers to and from
others increase but moderately after the blockade. Overall, the quartet
lobbying efforts did not achieve the intended result. Our findings underscore
Qatar's economic vulnerability but also the successful resilience strategy of
this tiny state. The coordinated diplomatic efforts of Qatar have been able to
fight the economic and political embargo.
