DOHA, Qatar — In Qatar, a desert peninsula jutting into the Persian Gulf, natural gas has transformed the country from once an isolated corner dedicated to pearl fishing into one of the richest nations in the world.
Qatar has spent three decades building supply routes, shipping tens of billions of dollars worth of liquefied natural gas annually through the Strait of Hormuz to ports in Asia and Europe.
The state, which earns more than 60% of its revenue from the export of gas and related products, used that money to transform the peninsula into a glittering metropolis. Dirt roads in the desert have been replaced by monolithic corporate skyscrapers, at whose bases irrigation systems bathe perennial lawns and fuchsia flowers.
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The wealth generated by natural gas has financed a metro system that connects the capital, Doha, to Lusail, a city in the north of the country that is home to a Parisian-style shopping center and a theme park with artificial snow. Funds 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 New York’s Empire State Building.
Then, in February, Qatar’s doors to the world suddenly closed.
The closure of the Strait of Hormuz means that virtually no natural gas has left Qatar’s coast for more than two months. The country is also isolated from the maritime routes through which it imports everything from vehicles to agricultural products. Fears of regional instability have hurt tourism and eroded business confidence.
Ras Laffan, Qatar’s industrial gas production center, is closed and roads are blocked. In this vast port south of Doha, cargo cranes are at a standstill. Across the capital, hotels and boutiques remain remarkably silent. Qatar’s growth forecasts have been drastically reduced amid the halt in LNG trade.
For Qatar, gas exports “are absolutely key,” said Ahmed Helal, managing director of Asia Group, a strategic consulting firm, in a recent interview in Doha. “None of what you see here would be possible without an abundance of energy,” he added. “This is why Qatar is quickly entering a very challenging fiscal situation.”
Qatar’s economic transformation began in the 1990s. The country made a big bet on supercooling gas from the North Field — the world’s largest natural gas reserve, located in northeast Qatar — to -162 degrees Celsius. This turned the fuel into a liquid, allowing Qatar to bypass regional gas pipelines and ship gas to all corners of the world.
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It was the birth of an energy superpower. Boosted by its first shipment of 60,000 tons to Japan in 1996, Qatar’s production capacity jumped to 77 million tons in 2010. For most of the following decade, Qatar was the richest country in the world in terms of per capita income.
Locals remember this period as a time of rapid change. North of Doha, carved out of the desert, the industrial city of Ras Laffan encompasses more than 259 square kilometers of gas processing and liquefaction facilities.
South of the capital, miles of industrial facilities stretch along the coast, producing ammonia and fertilizers made from gas piped from Ras Laffan. Towering gas flares shoot orange flares into the sky, dotting a landscape that would otherwise be obscured by sand and pollution.
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From the 1990s to 2010, Qatar’s economy experienced exponential growth, with an average annual growth rate of approximately 13%. To drive this expansion, the country relied on a large flow of foreign workers. Today, around 90% of its 3.2 million inhabitants are not citizens.
Seeking to build on this momentum, Qatar announced in 2019 that it would expand the LNG production capacity of its North Field 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 this activity stopped completely. Unlike its neighbors Saudi Arabia and the United Arab Emirates, which have pipelines that can bypass the Strait of Hormuz, Qatar is geographically isolated behind the waterway.
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Less than 24 hours after the start of the Iranian blockade, QatarEnergy, the state-owned energy giant, announced that it could not fulfill its contracts. Two weeks later, Iranian missiles and drones struck the Ras Laffan plant in Qatar, damaging essential equipment and causing a 17% reduction in the country’s production capacity.
The damage means that even if the strait were opened tomorrow, it would take years for production to return to pre-war levels. Analysts estimate that QatarEnergy has already lost billions of dollars since the start of the war, and every day that the strait remains closed, the country loses hundreds of millions more in ship sales and charter fees.
The International Monetary Fund expects Qatar’s economy to shrink by 8.6% this year before rebounding in 2027. For countries like Qatar, every day that the strait remains closed makes the outlook even bleaker, Pierre-Olivier Gourinchas, the IMF’s chief economist, said at a recent press conference.
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The war also exposed another type of vulnerability. As part of a long-standing effort to diversify its economy away from fossil fuels, Qatar has been trying to transform itself into a tourist destination and a center for international business and finance.
In 2019, Qatar eliminated the requirement for foreign companies to maintain local partners, while the country began subsidizing luxury hotel stays for transit passengers. From Formula 1 to fencing tournaments, locals say hardly a month went by before the war without a major international sporting event.
Since the start of the war, however, the number of international visitors to Qatar has plummeted amid travel warnings issued by the United States and other governments. Many multinational companies, fearing regional instability, sent their employees 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, Doha’s traditional market, vendors report far fewer international tourists in recent weeks than is typically the height of the tourist season. In the city of Lusail, a choreographed fountain show at the Place Vendôme shopping center on a recent Wednesday afternoon attracted just one spectator, leaning against a stone wall, eating a sandwich.
For Qatar, as for 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 Council for Global Affairs.
Images of Qatar airport under air raid warnings and Ras Laffan under missile attack, broadcast around the world, are “incompatible with this perception in ways that are slow to reverse,” Schneider wrote. In this sense, he stated, “the war simultaneously damaged Qatar’s economic foundations, both in the hydrocarbon and post-hydrocarbon areas.”
The Qatari government, for its part, is working to project stability while protecting the population from the immediate impacts of the impasse.
As Qatar imports around 90% of its food, the maritime impasse has forced a major overhaul of supply chains. Fresh produce from Europe and grain from the Americas, which once arrived by sea, is now being diverted to more expensive air freight routes or trucked through Saudi Arabia.
Such a change would normally trigger runaway inflation, but prices for imported goods — like avocados now flown in from places like Tanzania — have risen only about 5% to 10%, according to supermarket workers, the 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 appear on the horizon on the night of the attack; the flames were so intense that they could be seen from the capital, accompanied by the acrid smell of smoke.
Economists predict that even if LNG revenue disappears for years, Qatar’s vast financial resources would allow the country to continue paying salaries and maintaining essential services. S&P Global Ratings, which maintained Qatar’s sovereign rating this month, highlighted its “considerable 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 go bankrupt, the country’s predominantly foreign workforce could quickly disappear, Asia Group’s Helal said.
“If there is a mass migration, the situation starts to get quite scary,” Helal said. So far, Qatari authorities “have done a good job of conveying calm and managing the consequences,” he said. “But is there a big fiscal gap brewing? Of course it is,” added Helal. “It all depends on the duration of the strait closure.”
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