Qatar’s stubborn refusal to stop supporting terrorism will do more than just ruin its established trade relations in the region — the country’s reckless behaviours are likely to destroy its own economy in a way that will last generations.

On June 5, Saudi Arabia, the UAE, Bahrain and Egypt broke off relations with Doha over the latter’s destabilising regional policies. The four have accused Qatar of supporting militant Islamist groups, including the Muslim Brotherhood, and have placed sanctions on Qatar that will impact its economy.

But at a time when Qatar should be watching its accounts, reports also show the country is risking depleting its cash reserves with reckless spending, a course of action that threats its peg to the dollar, which would severely undermine business and investment. The country has been spending excessively on everything — from the mass, inhumane importation of cattle to its sudden increase in lobbying in Washington DC. This spending, combined with illiquid investment positions, is already putting pressure on Doha’s central bank to unpeg from the dollar.

The Qatari riyal has seen volatile fluctuations over the last months, trading at values far less — QAR 3.8 to the US dollar — than its official pegged rate of QAR 3.6 — due to the ‘risk premium’ being charged by banks. The riyal’s value is also being impacted by the growing number of foreign banks that are no longer buying the currency, which they see as unprofitable. A weaker currency would also impact companies operating in Qatar. The sanction imposed are hitting a number of sectors hard, including tourism, which includes aviation and hospitality, construction, infrastructure and the 2022 football World Cup-related projects, and companies in food retail.

A devalued Qatari riyal would cause inflation to spike, which would directly impact all Qatari residences. If the Qatari government were to try to stabilise prices by setting price controls, the impact would hit the profit margins of any company doing business in that country. Qatar-based companies would also find it harder to attract foreign talent, not only because of the lower value of their paycheques, but because of the diminished ability to send money home.

Doha also needs to disabuse itself of the notion that it can use the assets of its sovereign wealth fund. According to sources, there is a “lot which is hard to sell, either because of size, strategic interest or depressed values”. Analysts think the Qatar Investment Authority may need to liquidate its assets to rebuild central bank reserves, but quickly selling equities would drive stock prices down and could take months, while buyers for property assets, especially domestic ones, would not be willing to pay fair market prices.

The bottom line of these sanctions is clear. Qatar’s economy will decline by 1.2 per cent in 2017 and 2 per cent in 2018, and for no other reason than it insisting on supporting terrorism.