Qatar’s Foreign Ministry issued a statement saying a move by Egypt, Saudi Arabia, the UAE, Bahrain and Yemen to cut diplomatic ties had no legitimate justification and is founded on baseless allegations. Interestingly, the Statelet’s official statement acknowledged only that Saudi, the UAE, and Bahrain had cut ties, largely sidestepping Omm El Donia. The folks in Doha said Qatar was “exposed to an instigation campaign based on allegations that amounted to … fabrications, which proves that there are premeditated intentions to cause damage to the State.” Great writing there, folks. Not turgid or facile in the least. Don’t you have a few pet khawaget you could have paid to apply some polish?

The statement also included a promise that Qatar’s citizens and economy will be shielded from any impact. What’s looking more and more like a straight-out blockade will “not affect the normal course of life of the citizens and residents of the State and that the Qatari Government will take all necessary measures to ensure this and to thwart attempts to influence and harm the Qatari society and economy.”

Yes, it’s a blockade (or nearly so): Qatar imports nearly all of its food, and 40% of it comes in via the land border with Saudi. Saudi Arabia’s closure of Qatar’s only land border resulted in trucks carrying food for Qatar lining up across the border, unable to enter the country, according to Bloomberg. “That could mean significant trouble for Qatar, which relies on food trucked in from Saudi Arabia,” the Associated Press reports. An Iranian official said his country is willing to export food to Qatar by sea.

Also cutting ties with Qatar: Yemen, the Tobruk-based internationally recognized government of Libya, the Maldives and Mauritius all joined the fray. The Saudi-led Arab coalition fighting Yemen's Houthi rebels also expelled Qatar from its alliance, according to BBC.

Silent yesterday: Oman and Kuwait, also members of the Gulf Cooperation Council. Kuwait is positioning itself as a mediator (more below), and Oman is both (a) a very quiet diplomat and (b) reportedly struggling with the illness of its leader.

Gulf airlines are canceling flights to Qatar, with UAE flag carrier Etihad, Saudi Arabia’s Saudia, Emirates, Flydubai, and Air Arabia suspending flights there. Egypt’s ban on flights from Qatar started at 6:00am CLT today. Egypt had announced suspended air and sea links to Qatar and closed its airspace to Qatari planes.

Qatari shares were down 7.3% yesterday. The Statelet’s USD-denominated bonds “tumbled and contracts used to bet the Qatari riyal will weaken surged the most since 2009,” according to Bloomberg. “The potential risks that Qatari investors face, including the QIA, are going to increase and new deals are probably going to become more difficult to complete and face greater scrutiny,” Sven Behrendt, managing director of political risk consultant GeoEconomica, tells Bloomberg.

On the macro level: The impact of the severing of ties appears to have not shaken investors, who see these events as a regular occurrence. Prices of crude oil fell 1% yesterday, after rising 1.6% when the break was first announced, according to Reuters. Emerging markets investors downplayed the effect this would have beyond Qatar’s equity markets, Bloomberg reports. Disruptions of air travel so far appear to be the greatest issue on hand, with global airlines group, the International Air Transport Association, calling for countries to open up air routes, Reuters reports. Bloomberg sees Qatar Airways are being the biggest loser from the whole blockade.

Okay, so what’s happening here at home?

Egypt gave Qatar’s ambassador two days to leave. Egypt also recalled its chargé d'affaires from Doha, and Egyptian diplomatic sources tell Al Shorouk the siege could yet be escalated.

Egypt is asking Greece to look after the interests of Egyptians in Qatar, the Foreign Ministry said in a statement on Monday. Greece has reportedly accepted, according to Reuters.

El Sisi calls for punishment of nations “proven to support terrorism”: President Abdel Fattah El Sisi and Defense Minister Sedki Sobhi explained Egypt’s severing of ties with Qatar at a meeting with France’s Defense Minister Sylvie Goulard in Cairo yesterday to discuss military and security cooperation, according to an Ittihadiya statement. He reiterated his calls for countries to punish nations that have been proven to support terrorism. The three also discussed military and security cooperation and conflict in Libya.

Prime Minister Sherif Ismail formed a committee to look into the status of Egyptians living in Qatar. He assured the public that the severing of ties would not have an impact on Egypt’s gas imports, Al Masry Al Youm reports.

As for Qatar’s investments in Egypt, Ismail said it was too soon to tell how that would be impacted. He added that Qatari students currently studying in Egypt would be impacted.

Egyptian banks have reportedly halted dealings with Qatari banks following the decision to cut diplomatic ties, sources told Reuters. Four bankers Reuters spoke to said the “halt to transactions with Qatari banks came on internal orders from management at their banks, and excludes the opening of letters of credit required for imports. Some banks have stopped accepting Qatari currency while others are halting some treasury transactions, the bankers said. Bankers at three other lenders said they had not received any orders and that it was business as usual so far. There had been no official communication to banks from the Central Bank of Egypt on the split, the bankers said.”

If you’re banking with QNB Alahli, don’t panic: The central bank issued a statement reiterating that QNB Alahli Bank is an Egyptian joint stock company that operates as an independent legal person under the jurisdiction of the Central Bank of Egypt, Al Borsareports. QNB Alahli retains a strong financial position and continues to serve its clients, the statement added.

Egyptians living in Qatar fear losing their jobs, Amina Ismail writes for Reuters. “Egyptians are scared. They have jobs and a stable life here with their families. There is a state of panic,” one person told her. The status of some 250k Egyptian workers there is so far unchanged, said Manpower Minister Mohamed Saafan.

Naguib calls for business boycott of Qatar: Egyptian businesses should withdraw their investments from Qatar and halt dealings there, Naguib Sawiris said via his spokesperson.

The official reaction internationally did not carry much substance:

Kuwait, which did not join its other GCC neighbors in cutting ties with Qatar, appears to have positioned itself as a mediator. Kuwait’s Emir Sheikh Subah Al Ahmed Al Subah urged Qatar’s Sheikh Tamim to work to calm the situation, pressing him in a phone call not to take any action which would make matters worse, Kuwait News Agency reports. Diplomatic sources said that Kuwait delivered a final ultimatum to Tamim on behalf of KSA, Egypt, the UAE and Bahrain before the four broke off ties.

Iran blamed “The Great Satan,” of course, saying US President Donald Trump’s visit to the region stage for yesterday’s events — and warning that “it is not unlikely that we would witness more negative incidents in the region,” according to Reuters. The head of Turkey’s parliamentary committee on national security and foreign policy says Turkey was “sad” and offered to work “to normalize ties.” Russia issued a benign statement calling for a “stable and peaceful” situation in the GCC and hoped the rift will not affect “the common determination and resolve” in the joint fight against “international terrorism,” Reuters says.

Donald Trump has vowed to “calm the Gulf flareup,” Bloomberg reports. US Secretary of State Rex Tillerson briefly remembered he had a voice, saying, “We certainly would encourage the parties to sit down together and address these differences, and we — if there’s any role that we can play in terms of helping them address those, we think it is important that the GCC remain unified.”

Israel’s Defense Minister Avigdor Liberman was cheering from the sidelines and said now would be a great time for Israel to collaborate with others on fighting terrorism, Times of Israel reports.

The western English-language press is, by and large, taking the same line: Qatar had it coming, but US President Donald Trump is also to blame. See coverage in the Guardian, the New York Times and the Financial Times.

New export orders growing at survey-record pace was the highlight of an otherwise disappointing May reading of yesterday’s Emirates NBD Egypt PMI. The gauge came in at 47.3, broadly unchanged from last month’s 47.4. Overall business conditions worsened in May, marked by reductions to output and new orders. The rate of contraction, however, was the second-weakest in nine months. Another positive note was the increase in purchasing activity for the first time in 21 months. “Egypt’s private sector appears to be stabilizing, with the PMI largely unchanged from April. Encouragingly, new exports orders rose at the fastest rate on record in May, suggesting that the sharp devaluation of the pound in November is having a positive impact on exports,” Khatija Haque, Head of MENA Research at Emirates NBD, commented.

Deutsche Bank takes a positive near-term outlook on Egypt’s economy: The near-term outlook for Egypt is positive, bolstered by a growing FX reserves, capital inflows, and improvement in its current account position, according to Deutsche Bank research “special report” (pdf) which came out yesterday. The bank notes that Egypt’s FX reserves had reached USD 28.6 bn in April (it grew to USD 31.1 bn in May), but warns that sustained net inflows are needed to cover significant financing needs in FY2017-18 and FY2018-19. The bank expects GDP growth to come in at 3.9% for 1Q17.

Private sector inflows have exceeded expectations, the bank said, noting the USD 7 bn Egypt had attracted in both its eurobond issuances in January and May. Egypt’s risk premiums have diminished, the bank said. DB analysts also find it remarkable that foreign inflows into Egypt’s debt market surged following the CBE’s move to raise interest rates by 200 bps. Foreign direct investment appears to have recovered, but still remain below its pre-2011 rates. The bank does believe that Zohr coming online in 2018 will help attract significant FDI.

On the fiscal side, the state’s take from taxes on goods and services is set to rise 41% in FY2017-18, making up 36% of total budget revenue, under the assumption that value-added tax will do most of the job. However, tax revenue is likely to fall below the government's projections. The report suggests that while energy subsidies are expected to decline in FY2017-18, fuel subsidies will remain at the same previous levels.

The report expects inflation to come to about 20% by the end of 2017, partly on the back of the interest rate hike, which analysts say will take some time to take effect. If this does happen, GDP growth is projected to continue at a pace of 4%.

Investment bankers aren’t doing quite as well as they did in early 2016, but don’t cry for them — 1Q2017 was still their second-best opening quarter in nine years, according to Thomson Reuters’ Middle Eastern IB league table. Total IB fees generated in the Middle East rang in at USD 214.9 mn in the first quarter of this year, or 10% below 1Q2016 levels. Debt capital markets fees led the table at USD 75.3 mn (the best quarter since TR began compiling the table in 2000), followed by USD 65.4 mn in fees generated on syndicated loans, equity capital markets (USD 15.7 mn, down 6%), and M&A transaction (USD 58.6 mn, a 12% y-o-y dip and the worst opening quarter for M&A fees since 2013).

EFG Hermes were the only Egypt-based firm to place. Details below.

Who ran the most transactions by value?

• Total M&A with any Middle East involvement was worth USD 11.9 bn, more than double 1Q2016. Citi, Credit Suisse, and HSBC led the table.
• Total equity capital markets issuances stood at USD 528.2 mn, a 77% decline from the same period last year. The National Bank of Kuwait, PKF International, EFG Hermes and Emirates NBD were the region’s top bookrunners in 1Q2017, with EFG and ENBD tied for third place.
• Total debt capital market issuances stood at USD 31.2 bn, or 6x the total raised in the same period last year. JP Morgan, HSBC and Citi were the three top DCM bookrunners in the quarter, while our friends at BNP Paribas came in eighth, largely on the back of their work on Egypt’s eurobond.

Speaking of which: Egypt’s January eurobond was the third-largest regional debt issuance in 1Q2017 at USD 4 bn, behind offerings from Kuwait (USD 8.0 bn) and Oman (USD 4.9 bn)

Which firms made out like bandits? The Chinese, thanks to an explosion in syndicated lending by the Industrial and Commercial Bank of China and the Bank of China, which together kicked Sumitomo Mitsui to seventh place by fees in 1Q2017 from the number-one slot last year and drove Mitsubishi UFJ off the fee league table entirely.

• The Industrial and Commercial Bank of China (ICBC), the Bank of China and JP Morgan topped the overall Middle Eastern IB fees league table.
• UBS, Credit Suisse and Rothschild made the most on M&A advisory fees.
• PKF International, EFG Hermes and Emirates NBD were the best-paid ECM advisors.
• JP Morgan, Citi and HSBC cleaned up on DCM fees.
• And it was fees on syndicated loans that put ICBC and Bank of China over the top in the overall fee standings — each earned more than 4x what third-place finisher National Bank of Abu Dhabi took home.

China led inbound M&A with a 53% share of USD 5.1 bn in inbound flows, followed by the United States and the UK.

Saudi Arabia led outbound M&A with a 49% share of USD 4.5 bn in outbound flows, followed by Kuwait and the Statelet of Qatar.

Cabinet increases earmarks for fuel subsidy program in FY2017-18 budget: The cabinet economic group decided on Monday to increase the amounts earmarked for fuel and electricity subsidies by EGP 85 bn in FY2017-18, according to a cabinet statement. Around EGP 145 bn (up from EGP 110 bn) will be allocated to fuel subsidies, while EGP 80 bn (up from EGP 30 bn) will be allocated to electricity. All in all, total subsidies spending will hit EGP 330 bn on subsidies in FY2017-18, Prime Minister Sherif Ismail

Could this mean that the government will postpone the July energy price hikes? Rumors had suggested that cabinet could postpone a hike to energy prices planned for July to avoid fueling inflation. Electricity Minister Mohamed Shaker had reaffirmed, however, that the hikes were a reality, as failing to raise prices could cost state coffers and additional EGP 60 bn. MPs had said last month that they plan to discuss the matter further with Oil Minister Tarek El Molla. Also: Cabinet has not yet made it clear when it plans hike water prices, said the chairman of the Holding Company for Water and Wastewater Mamdouh Raslan, Al Shorouk reports. MPs are also opposed to the water price hike.

The Social Solidarity Ministry will establish a new pension fund if the draft Social Welfare Bill were to pass. The act will allow the ministry establish a fund and set its own investment strategy, said Minister Ghada Wali. The law, which was completed in January, will also tie annual pensions increases to inflation and set a minimum pension rate, Wali added, Al Mal reports. The news comes one day after the Egyptian Union of Trade Federations said it was presenting the House of Representatives a draft social welfare bill that would government pensions for the private sector as well as the state bureaucrats.

Egypt to harmonize port fees nationwide: Transport Minister Hisham Arafat and Suez Canal Economic Zone chief Mohab Mamish agreed to set standard fees for Egyptian ports to eliminate competition between them, AMAY reported on Monday. No further detail was given on what the new unified price would be, but the question for the industry will clearly be whether this is a prelude to an across-the-board hike in port fees similar to the one we saw in March. At the time, five major shipping lines suspended operations at East Port Said Port a fee hike there.

CLARIFICATION-Tourah Portland Cement Company (TPCC) sent us a statement explaining that the 32 workers who were sentenced to prison for a sit in on company premises were never TPCC employees. They were employees of a private security firm contracted for services on the TPCC plant. The private security firm’s contract with TPCC expired on 30 April 2017 and TPCC contracted a new security firm that offered the old firm’s workers new contract that they refused. The employees had resorted to a sit-in on TPCC’s premises and refused to leave despite having “no contractual relationship with the Company,” TPCC clarified.