In Qatar, a desert peninsula jutting into the Persian Gulf, natural gas turned the country from a pearl-diving backwater into one of the richest nations in the world.
Qatar spent three decades building supply lines, shipping tens of billions of dollars of liquefied natural gas each year through the Strait of Hormuz to ports in Asia and Europe.
The state, which derives more than 60 percent of its revenue from gas and gas-related exports, used that money to transform the peninsula into a glittering metropolis. Unpaved desert roads were replaced by monolithic corporate skyscrapers, at the base of which irrigation systems water perennial blankets of grass and fuchsia flowers.
Gas wealth financed a metro system linking the capital, Doha, with Lusail, a northern city home to a Parisian-style shopping mall and a theme park with artificial snow. Riches were also funneled into the world’s most expensive World Cup and a $600 billion sovereign wealth fund with stakes in everything from London’s Heathrow airport to the Empire State Building in New York.
Then, in February, Qatar’s door to the world slammed shut.
The closure of the Strait of Hormuz means that virtually no gas has left the coast of Qatar for more than two months. The nation is also isolated from the sea routes through which it imports everything from vehicles to products. Fears of regional instability have hurt tourism and eroded business sentiment.
Ras Laffan, Qatar’s gas production industrial hub, is closed and roads blocked. In this large port south of Doha, cargo cranes are paralyzed. Throughout the capital, hotels and boutiques are remarkably silent. Qatar’s growth forecasts have been slashed amid the cessation of LNG trade.
For Qatar, gas shipments “are nothing short of critical,” Ahmed Helal, managing director of Asia Group, a strategic advisory firm, said in a recent interview in Doha. “None of what you see here would have been possible without the wealth of energy,” he added. “That is why Qatar is rapidly falling into a very difficult fiscal situation.”
Qatar’s economic transformation began in the 1990s. It made a big bet on cooling gas from the North Field, the world’s largest natural gas deposit, in northeast Qatar, to -162 degrees Celsius. This converted the fuel to liquid, allowing Qatar to bypass regional pipelines and ship gas to all corners of the world.
It was the birth of an energy superpower. Started with its first shipment of 60,000 tons to Japan in 1996, Qatar’s production capacity had jumped to 77 million tons by 2010. For most of the next decade, Qatar was the world’s richest country per capita.
Locals remember this as a period of rapid change. North of Doha and carved into the desert, the industrial city of Ras Laffan spans more than 100 square miles of gas processing and liquefaction facilities.
To the south of the capital, along the coast stretch kilometers of industrial facilities that produce ammonia and fertilizers made from gas from Ras Laffan. Towering gas flares shoot orange flames into the sky, highlighting a landscape otherwise blurred by sand and smog.
From the 1990s to the 2010s, the economy boomed, growing at an average annual rate of about 13 percent. To fuel this expansion, Qatar relied on the influx of foreign workers. Today, about 90 percent of its 3.2 million residents are noncitizens.
Seeking to build on that momentum, Qatar said in 2019 that it would expand the amount of LNG its North Field could produce to 126 million tons a year by 2027. Before the war, its capacity was about 77 million. The expansion is considered one of the largest energy projects ever planned.
Then, at the end of February, much of that activity stopped. Unlike its neighbors Saudi Arabia and the United Arab Emirates, which have oil pipelines that can avoid the Strait of Hormuz, Qatar is geographically trapped behind the waterway.
Within 24 hours of the Iranian blockade, QatarEnergy, the state energy giant, announced that it could not fulfill its contracts. Two weeks later, Iranian missiles and drones attacked the Ras Laffan plant in Qatar, damaging critical equipment and causing a 17 percent reduction in Qatar’s production capacity.
The damage means that even if the strait opened tomorrow, it would take years to return to pre-war production. Analysts estimate that QatarEnergy has already lost billions of dollars since the war began, and every day the strait remains closed, the country loses hundreds of millions more in lost sales and ocean charter rates.
The International Monetary Fund expects Qatar’s economy to contract 8.6 percent this year before recovering in 2027. For countries like Qatar, each day the strait closes further darkens the outlook, Pierre-Olivier Gourinchas, the IMF’s chief economist, said in a recent briefing.
The war has also exposed another type of vulnerability. As part of a long-term effort to diversify away from fossil fuels, Qatar has sought to transform itself into a tourist destination and a center for international business and finance.
In 2019, Qatar removed the requirement for foreign companies to maintain local partners, while the country began subsidizing stopovers at luxury hotels for transit passengers. From Formula 1 to fencing tournaments, residents say barely a month went by before the war without a major international sporting event.
However, since the war began, the number of international visitors to Qatar has plummeted amid travel warnings from the United States and other governments. Many multinational companies, fearing regional instability, have sent staff out of the country. In March, the World Travel and Tourism Council estimated that the Middle East was losing $600 million a day in tourism revenue.
In Qatar, the change in mood is palpable. At Souq Waqif, the city’s traditional market, vendors report that there are far fewer international travelers in recent weeks than is typically the peak tourist season. In the city of Lusail, a choreographed fountain show at the Place Vendome shopping center on a recent Wednesday afternoon attracted a single spectator, slumped against a stone wall, eating a sandwich.
For Qatar, like many of its neighbors, the diversification strategy depends on sustained foreign capital, a steady supply of expatriate labor and, above all, the perception of stability, according to a recent report by Frédéric Schneider, non-resident senior fellow at the Middle East Global Affairs Council.
Images of Qatar airport under air strike warnings and Ras Laffan under missile attack, broadcast around the world, are “incompatible with that perception in ways that take time to reverse,” Schneider wrote. In that sense, he said, “the war has simultaneously damaged Qatar’s hydrocarbon and post-hydrocarbon economic foundations.”
The Qatari government, for its part, is working to project stability while protecting the population from the immediate impacts of the confrontation.
Because Qatar imports about 90 percent of its food, the maritime stalemate has forced a major reworking of supply chains. Fresh produce from Europe and grain from America, which once arrived by sea, are now diverted onto expensive air routes or trucked through Saudi Arabia.
Such a change would normally trigger runaway inflation, but prices of imported goods (such as avocados now airlifted from places like Tanzania) have risen only 5 to 10 percent, according to supermarket workers, as a result of aggressive government subsidies aimed at keeping the cost of living stable.
Residents say they generally feel safe, but the attack on Ras Laffan remains a source of lingering anxiety. Some in Doha described seeing a huge column of fire rise on the horizon on the night of the attack, the flames so intense they could be seen from the capital, accompanied by the smell of acrid smoke.
Economists predict that even if LNG revenues disappeared for years, Qatar’s deep pockets would allow it to continue paying salaries and maintaining essential services. S&P Global Ratings, which maintained Qatar’s sovereign rating this month, highlighted its “significant accumulated fiscal and external assets.”
At the same time, authorities have pressured international companies to return to avoid an exodus of foreign capital and talent. The concern is that if companies are allowed to collapse, the country’s overwhelming foreign workforce could quickly disappear, said Asia Group’s Helal.
“If there is a migration, then that starts to get pretty scary,” Helal said. So far, Qatari authorities have “done a good job of projecting calm and managing the consequences,” he said. “But is there a big fiscal deficit forming? Of course,” Helal added. “It really depends on how long the strait remains closed.”
