The bonanza was waiting for Qatar around the corner — and then the war with Iran ruined everything
The war between the US and Israel against Iran has severely hit Qatar's revenues from gas exports, leading to a cut of up to 30% in government budgets and about 85% in foreign aid. The IMF predicts that its economy will shrink by 8.6% this year.
Qatar has cut up to 30% from government ministry budgets and reduced funding for aid outside the country by about 85%, against the backdrop of the economic consequences of the war between the United States and Israel against Iran, reported the Financial Times today (Saturday). The small Gulf state, considered one of the richest in the world, is among the countries most significantly affected by the economic consequences of the conflict that has been ongoing for six months.
Qatar was forced to halt its liquefied natural gas (LNG) production, the country's main source of income and export, following war damage caused by Iran and due to the difficulty of transporting gas through the Strait of Hormuz. Three sources briefed on the matter said that the cuts to government ministry budgets are part of Doha's response to the sharp decline in LNG revenues.
It is unclear what the exact scope of the expenditures subject to the cuts is, but Qatar's total budget for 2026 stands at about 61 billion dollars. Tarek Yousef, a senior fellow at the Middle East Council on Global Affairs, said that the authorities are seriously considering further significant cuts next year if the crisis continues into the last quarter of the year.
"The authorities managed the crisis effectively, but the damage was enormous," said Yousef. According to him, they are using accumulated financial reserves to continue operating the economy and maintain liquidity. "But ultimately, this leaves a significant hole in the budget," he added.
The International Monetary Fund predicts that Qatar's GDP will shrink by 8.6% this year — the largest contraction among the six Gulf states, which for decades have relied on the Strait of Hormuz for energy exports and trade.
Doha has significant financial resources to deal with the crisis. The Qatar Investment Authority, the country's sovereign wealth fund, manages assets worth about 500 billion dollars, while Qatar's population is about 3.2 million people. At the same time, Doha plays a central role in mediation efforts to reach an agreement between the United States and Iran.
However, as long as there is no solution to the war in sight, the conflict is expected to continue to affect local spending in the Gulf states. It may also affect the foreign investments of the sovereign wealth funds in the region, which together manage assets worth about 5 trillion dollars.
After Saudi Arabia and the UAE led a regional boycott against Qatar in 2017, the Qatar Investment Authority was forced to repatriate more than 20 billion dollars in deposits to the country, with the aim of stabilizing the local financial sector.
"Qatar is well prepared to deal with the economic situation in the region," said a Qatari official. According to him, "Our resilience in previous crises, including the crisis in the Gulf Cooperation Council and the coronavirus pandemic, gives us the ability to deal with the current crisis without changing our long-term economic path."
There is no data available on the total volume of Qatar's funding for aid outside the country, but last year it donated 1.5 billion dollars to the UN Office for the Coordination of Humanitarian Affairs. According to a statement by the Qatari Foreign Ministry from December, this amount placed it among the five largest donors to the body.
The economic impact of the war on the Gulf states varies from country to country, but all of them have been targets for Iranian missiles and drones as part of Tehran's response to attacks by the United States and Israel. Saudi Arabia and the UAE managed to reduce some of the damage through oil exports via pipelines bypassing the Strait of Hormuz, while higher oil prices helped offset the decline in export quantities.
In contrast, Qatar and Kuwait depend on the Strait of Hormuz for their energy exports. At the same time, all the Gulf states are suffering damage to trade, tourism, food and beverage industries, and other areas that contribute to non-oil-based growth.
Farouk Soussa, a Middle East economist at Goldman Sachs, estimated that the loss of energy export revenues is costing Qatar and Kuwait between 1.5 and 2 billion dollars a week.
Bahrain, which has limited oil resources and a gross public debt-to-GDP ratio of 150% according to the IMF, is facing increasing pressure on its balance sheet. Its foreign exchange reserves stood at just over 2 billion dollars in June, compared to 6 billion dollars in March, according to Capital Economics, against the backdrop of expectations that it might need another bailout package from Saudi Arabia or the UAE. In April, Abu Dhabi agreed to a currency swap deal worth 5.4 billion dollars with Manama.
"Most Gulf states are rich enough to absorb the economic impact of the war, but the conflict is hurting them all," said Soussa. According to him, "This is a very big setback for the Gulf states — it is very expensive and there are many losses that the governments have to bear." He added that the difficult question is whether this will have a long-term impact and how much it will weigh on potential or future growth.
For Qatar, the second-largest LNG producer in the world, the impact of the war was almost immediate. Four days after the United States and Israel launched the conflict in February, an Iranian attack using a drone and missiles targeted the Ras Laffan facility, the largest LNG export facility in the world. In March, another missile attack hit Ras Laffan, reducing export capacity by 17% and causing damage that is expected to take up to five years to repair.
Some of Qatar's gas losses were offset through the 10 billion dollar Golden Pass project in the United States, shared with ExxonMobil, which exported LNG for the first time in April.
Before the start of the war, Doha was preparing for a major expansion of production as part of a 30 billion dollar investment in the North Field, the largest gas field in the world. The plan was supposed to increase Qatar's production capacity to 126 million tons per year by 2027, an amount equivalent to about 30% of global demand for LNG in 2024.
In anticipation of the expected increase in revenues, the Qatar Investment Authority expanded its workforce and almost doubled it in the last five years, after estimating that the volume of assets under its management could double within five years.
According to the sources briefed on the government's steps, Qatar continues to work on its plans to expand production capacity, in order to be able to export a larger amount of LNG if a final settlement to the war is reached.
