Trump’s war is crippling one of the world’s richest nations
River Akira Davis
In Qatar, a desert peninsula jutting into the Persian Gulf, natural gas has transformed the country from a pearl-digging backwater to one of the richest countries in the world.
For three decades, Qatar has built supply lines, transporting tens of billions of dollars of liquefied natural gas through the Strait of Hormuz to ports in Asia and Europe each year.
The state, which derives more than 60 percent of its income from gas and gas-related exports, used this money to transform the peninsula into a sparkling metropolis. Unpaved desert roads have been replaced by monolithic corporate skyscrapers; Irrigation systems at their base irrigate perennial mats of grass and fuchsia flowers.
The gas wealth has financed a metro system connecting the capital, Doha, to the northern city of Lusail, home to a Parisian-style shopping mall and a theme park with artificial snow. Riches have also been poured into the world’s most expensive World Cup and a $600 billion ($839 billion) sovereign wealth fund that includes 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 virtually no gas leaving Qatar’s coast for more than two months. The country is also cut off from sea lanes through which it imports everything from vehicles to manufacturing. Fears of regional instability have damaged tourism and shaken business confidence.
Qatar’s industrial center for gas production, Ras Laffan, was closed and roads were closed. Loading cranes are paralyzed at this large port south of Doha. All over the capital, hotels and boutiques stand in visible silence. Qatar’s growth forecasts have been lowered due to the halt in LNG trade.
Ahmed Helal, managing director of strategic consultancy firm Asia Group, said in a recent interview in Doha that gas shipments for Qatar are “nothing but basic.” “Without the wealth of energy, nothing you see here would be possible,” he added. “This is why Qatar is rapidly falling into a very difficult financial situation.”
Qatar’s economic transformation began in the 1990s. It has placed a big bet on supercooling gas from the North Field, the world’s largest natural gas reservoir in northeast Qatar, to minus 162 degrees Celsius. This turned the fuel into liquid, allowing Qatar to bypass regional pipelines and send gas to every corner of the world.
This was the birth of an energy superpower. Qatar’s production capacity, which started with its first shipment of 60,000 tons to Japan in 1996, increased to 77 million tons in 2010. For most of the next decade, Qatar was the richest country in the world per capita.
Local people remember this as a period of rapid change. The industrial city of Ras Laffan, north of Doha and carved out of the desert, has more than 260 square kilometers of gas processing and liquefaction facilities.
Miles of industrial facilities along the coastline south of the capital emit ammonia and fertilizer from gas pipes from Ras Laffan. Loud gas explosions shoot orange flames into the sky, punctuating the landscape blurred with sand and smoke.
From the 1990s to the 2010s, the economy grew rapidly, averaging 13 percent annually. Qatar relied on the influx of foreign workers to strengthen this structure. Today, nearly 90 percent of its 3.2 million residents are noncitizens.
Wanting to further increase this momentum, Qatar said in 2019 that it would increase the amount of LNG that the Northern Field can produce to 126 million tons per year by 2027. Before the war, its capacity was approximately 77 million. The expansion is considered one of the largest energy projects ever planned.
Then, in late February, most of these activities came to a halt. Qatar is geographically trapped behind the waterway, unlike neighbors Saudi Arabia and the United Arab Emirates, which have pipelines that can bypass the Strait of Hormuz.
Within 24 hours of the Iranian blockade, state-owned energy giant QatarEnergy announced that it would be unable to fulfill its contracts. Two weeks later, Iranian missiles and drones struck the Ras Laffan facility, damaging critical equipment and causing a 17 percent 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 lost billions of dollars since the start of the war, and that with each day the strait remains closed, the country loses hundreds of millions more in lost sales and shipping charter fees.
The International Monetary Fund expects Qatar’s economy to shrink 8.6 percent this year before rebounding in 2027. For countries like Qatar, each day the strait is closed further dims the outlook, IMF chief economist Pierre-Olivier Gourinchas said in a recent briefing.
The war also revealed another vulnerability. As part of a long-standing effort to diversify beyond fossil fuels, Qatar has sought to transform itself into a tourism destination and international business and financial centre.
In 2019, Qatar removed the requirement for foreign companies to have local partners, while the country began subsidizing luxury hotel accommodations for transit passengers. Before the war, residents say, hardly a month went by without a major international sporting event, from Formula 1 to fencing tournaments.
However, since the start of the war there has been a decline in the number of international visitors to Qatar due to travel advisories from the US and other governments. Many multinational companies have sent their staff out of the country, fearing regional instability. In March, the World Travel and Tourism Council estimated that the Middle East was losing US$600 million a day in tourism revenue.
Frédéric Schneider, a nonresident senior fellow at the Middle East Council on Global Affairs, wrote in a recent report that images broadcast around the world of Qatar airport under air raid warnings and Ras Laffan under missile attack “are incompatible with this perception, which is slow to reverse.” In this sense, “the war simultaneously damaged Qatar’s hydrocarbon and post-hydrocarbon economic foundations,” he said.
Qatar is geographically trapped behind the waterway, unlike neighbors Saudi Arabia and the United Arab Emirates, which have pipelines that can bypass the Strait of Hormuz.
While the Qatari government is trying to reflect stability, it is also trying to protect the public from sudden shocks caused by tension.
Since Qatar imports about 90 percent of its food, the maritime impasse has forced a major reorganization of supply chains. Fresh produce from Europe and grains from America that once arrived by sea are now diverted onto expensive air cargo routes or trucked through Saudi Arabia.
Such a shift would typically trigger inflation to spiral out of control, but prices for imported goods (like avocados, now flown in from places like Tanzania) rose only 5 percent to 10 percent, according to supermarket workers; This is a result of aggressive government subsidies aimed at keeping the cost of living stable.
Economists predict Qatar’s deep pockets will allow it to continue paying salaries and maintaining basic services even if LNG revenue disappears for years. S&P Global Ratings, which maintained Qatar’s sovereign rating this month, drew attention to Qatar’s “large accumulated financial and foreign assets.”
At the same time, authorities have pressured international firms to return to prevent an outflow of foreign capital and talent. The concern is that the country’s overwhelmingly foreign workforce could quickly disappear if companies are allowed to collapse, Asia Group’s Helal said.
“If there is an out-migration, it starts to get pretty scary,” Helal said. So far, he said, Qatari authorities have “done a good job of maintaining calm and managing the impacts.” “But is there a big financial gap? Of course. This actually depends on how long the strait remains closed.”
