Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya, Yemen and the Maldives have cut diplomatic ties with Qatar.
But what might this mean for Qatar's economy and people doing business there?
With a population of about 2.7 million people, this tiny nation on the north-east coast of the Arabian Peninsula is trying to punch above its weight.
People know about it thanks in part to its national airline (Qatar Airways), its international news station (Al Jazeera) and through sport (notably winning the right to host the 2022 football World Cup and being a former sponsor of perhaps the world's most famous club, Barcelona).
And with a distinctive skyline in the capital Doha, it has succeeded in attracting multinationals to open offices there.
So these latest developments mean there's a lot at stake.
Abu Dhabi's Etihad Airways and Dubai's Emirates are suspending all flights to and from Doha, starting from Tuesday morning. Both carriers operate four daily return flights to Doha.
Budget carriers FlyDubai and Air Arabia are also cancelling routes to Doha, with other airlines, including Bahrain's Gulf Air and Egyptair expected to follow suit.
It comes after Saudi Arabia, the UAE, Bahrain and Egypt all said they would stop flights in and out of Qatar, and close their airspace to the country's airline, Qatar Airways.
And it is Qatar's flag carrier that risks being the biggest loser. Its flights to places like Dubai, Abu Dhabi, Riyadh and Cairo will stop. That is dozens of flights a day.
Qatar Airways has already said it is cancelling its services to Saudi. It said: "All customers booked on affected flights to and from the Kingdom of Saudi Arabia will be provided with alternative options, including the option of a full refund on any unused tickets and free rebooking to the nearest alternative Qatar Airways network destination."
But being banned from large chunks of airspace in the region would also cause a major problem, forcing it to alter flight paths, inevitably adding time to some flights.
And as well as cranking up fuel bills, that could annoy passengers.
Qatar Airways' growth has come through positioning itself as a hub airline, connecting Asia and Europe via Doha.
"If a journey to Europe that used to take six hours now takes eight or nine because it has had to change routes, then that makes it far less appealing and passengers might look elsewhere," says Ghanem Nuseibeh, director at advisory firm Cornerstone Global.
British Airways is one of a number of European airlines to fly to Doha. It said on Monday that it will "continue to offer a full schedule.
Desert states, by their nature, struggle to grow food. And food security is a particular issue for Qatar given the only way in by land is a single border with Saudi Arabia.
Every day hundreds of lorries cross the border, and food is one of the main supplies. About 40% of Qatar's food is believed to come via this route.
Saudi Arabia has said it will close that border and when the lorries stop, Qatar will become reliant on air and sea freight.
"It will immediately cause inflation and that will directly affect normal Qatari people," says Mr Nuseibeh.
"If things start costing significantly more, then you're going to see the Qatari people putting increasing political pressure on the ruling family for either a change of leadership or a change of direction."
He also points out that many poorer Qataris make daily or weekly trips to Saudi to do their grocery shopping as it is cheaper. Clearly a closed border means this will no longer be possible.
A new port, a medical zone, a metro project and eight stadiums for the 2022 World Cup are just some of the major construction projects going on in Qatar right now.
Key materials, including concrete and steel come in by ship but also by land from neighbouring Saudi.
The closure of that border could, as with food - push up prices and lead to delays.
A materials shortage is already a threat that looms over Qatar's construction industry. This risks making things worse.
A lengthy closure of the airspace and land borders would "wreak havoc on the timeline and delivery" of the World Cup, says Kristian Ulrichsen, a Gulf expert at the US-based Baker Institute.
The move to end ties bans citizens from Saudi, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen from travelling to Qatar, living there or passing through it, according to the Saudi government. People affected have 14 days to leave.
Meanwhile Qataris will have the same amount of time to get out of Saudi Arabia, the UAE and Bahrain.
More significant though would be if Egypt issued a similar ban. According to one recent report about 180,000 Egyptians live in Qatar - with many involved in engineering, medicine and law as well as construction.
A loss of that workforce would pose a problem for both local and international firms operating in the Gulf state.
Trade and business
Nervousness over the unprecedented situation left Qatar's main share index more than 7% lower on Monday amid worries about the investment climate.
Many Gulf firms have a presence in Qatar, including in retail. Those stores are likely to to close, at least temporarily, believes Mr Nuseibeh.
Indeed, we're already seeing business deals begin to crumble - major Saudi football team Al-Ahli has cancelled a sponsorship deal with Qatar Airways.