In Qatar, a desert peninsula jutting into the Persian Gulf, natural gas has transformed the country from a pearl-diving country to one of the richest countries in the world.
Qatar has 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, has used the money to transform the peninsula into a glittering metropolis. Unpaved desert roads have been replaced by monolithic skyscrapers, at the base of which irrigation systems water perennial blankets of grass and fuchsia flowers.
Gas wealth has financed a metro system linking the capital, Doha, to Lusail, a northern city that is home to a Parisian-style shopping mall and a theme park with artificial snow. Wealth has also been 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 New York’s Empire State Building.
Then, in February, Qatar’s door to the world closed.
The closure of the Strait of Hormuz means that virtually no gas has left Qatar’s shores for more than two months. The country is also cut off from maritime routes through which it imports everything from vehicles to products. Fears of regional instability have hurt tourism and eroded business confidence.
Ras Laffan, the industrial gas production center of Qatar, is closed and roads are blocked. In this vast port south of Doha, the loading cranes are paralyzed. Throughout the capital, hotels and shops remain remarkably silent. Qatar’s growth forecasts have been revised downwards due to the halt in LNG trade.
For Qatar, gas shipments “are simply fundamental,” Ahmed Helal, chief executive of Asia Group, a strategic consulting firm, said recently in an interview in Doha. “None of what you see here would have been possible without the wealth of energy,” he added. “This is why Qatar is quickly finding itself in a very difficult budgetary situation. »
Qatar’s economic transformation began in the 1990s. It bet big on supercooling gas from the North Field – the world’s largest natural gas reservoir, located in northeastern Qatar – to minus 162 degrees Celsius. This turned the fuel into liquid, allowing Qatar to bypass regional pipelines and ship gas to all corners of the world.
It was the birth of an energy superpower. Kickstarted by its first shipment of 60,000 tonnes to Japan in 1996, Qatar’s production capacity soared to 77 million tonnes by 2010. For most of the following decade, Qatar was the world’s richest country per capita.
Locals remember it as a time of rapid change. North of Doha and carved out of the desert, the industrial city of Ras Laffan spans more than 100 square miles of gas processing and liquefaction facilities.
South of the capital, miles of industrial plants stretch along the coastline, producing ammonia and fertilizers made from gas from Ras Laffan. Towering gas torches shoot orange flames into the sky, punctuating a landscape otherwise blurred by sand and smog.
From the 1990s to the 2010s, the economy boomed, averaging about 13 percent annual growth. To fuel this development, Qatar has relied on an influx of foreign workers. Today, about 90 percent of its 3.2 million residents are non-citizens.
Seeking to build on this momentum, Qatar said in 2019 that it would increase the amount of LNG its North field could produce to 126 million tonnes per year by 2027. Before the war, its capacity was around 77 million tonnes. 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 pipelines capable of bypassing the Strait of Hormuz, Qatar is geographically stuck behind the waterway.
Within 24 hours of the Iranian blockade, QatarEnergy, the state-owned energy giant, announced it could not honor its contracts. Two weeks later, Iranian missiles and drones struck Qatar’s Ras Laffan factory, damaging critical equipment and leading to a 17% reduction in Qatar’s production capacity.
The damage means that even if the strait were 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 charter fees.
The International Monetary Fund expects Qatar’s economy to contract by 8.6% this year before rebounding in 2027. For countries like Qatar, each day the strait is closed further darkens the outlook, Pierre-Olivier Gourinchas, chief economist at the IMF, said at a recent press briefing.
The war also revealed another type of vulnerability. As part of a long-term effort to diversify beyond fossil fuels, Qatar has attempted to transform itself into a tourist destination and a hub for international business and finance.
In 2019, Qatar removed the requirement for foreign companies to have local partners, while the country began subsidizing stopovers at luxury hotels for transit passengers. From Formula 1 to fencing tournaments, locals say that before the war, hardly a month went by without a major international sporting event.
However, since the start of the war, the number of international visitors to Qatar has fallen due to travel advisories issued by the United States and other governments. Many multinational companies, fearing regional instability, have sent staff abroad. 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 far fewer international travelers in the final weeks of what is usually the peak tourist season. In the town of Lusail, a choreographed fountain show at the Place Vendôme shopping center on a Wednesday afternoon attracted a single spectator, slumped against a stone wall, eating a sandwich.
For Qatar, as for many of its neighbors, the diversification strategy relies on sustained foreign capital, a steady supply of expatriate labor and, above all, a sense of stability, according to a recent report by Frédéric Schneider, non-resident senior fellow at the Middle East World Affairs Council.
The images of Qatar airport under air raid alert and Ras Laffan under missile attack, broadcast around the world, are “incompatible with this perception in a way that is slow to be reversed,” Mr. Schneider wrote. In this sense, he said, “the war 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 shocks of the stalemate.
Because Qatar imports about 90 percent of its food, the maritime standoff has forced a major overhaul of supply chains. Fresh produce from Europe and grains from the Americas, which once arrived by sea, are now diverted to expensive air freight routes or transported by truck via Saudi Arabia.
Such a change would typically trigger runaway inflation, but prices of imported goods — like the avocados now flown in from countries like Tanzania — have risen only about 5 to 10 percent, supermarket workers say, due to aggressive government subsidies aimed at keeping the cost of living stable.
Residents say they generally feel safe, but the strike in Ras Laffan remains a source of lingering anxiety. Some in Doha described seeing a huge column of fire rising over the horizon 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 put pressure on international companies to return to prevent an exodus of foreign capital and talent. The worry is that if businesses are allowed to collapse, the country’s largely foreign workforce could quickly disappear, said Mr. Helal of the Asia Group.
“If there is outward migration, it starts to get quite scary,” Mr. Helal said. So far, Qatari authorities have “done a good job of projecting calm and managing the aftermath,” he said. “But is a significant budget deficit forming? Of course,” added Mr. Helal. “It really depends on how long the strait stays closed.”
