Qatar's LNG Dependence Turns Into Vulnerability Amid Strait of Hormuz Disruptions

Qatar's economy has long been built on liquefied natural gas (LNG), which has filled state coffers and given Doha international influence. However, disruptions in the Strait of Hormuz and damage to Ras Laffan have turned this dependence into a major vulnerability.

The country's budget is already feeling the impact, with state revenues down from $16.4 billion to approximately $7 billion in the second quarter. Expenditures reached $12.9 billion, producing a quarterly deficit of about $5.8 billion, compared to a deficit of roughly $2.8 billion in the first quarter.

Qatar's economy contracted by 7% year over year in the first quarter, driven by a 25.8% decline in output from the hydrocarbon sector. Meanwhile, the non-oil-and-gas economy grew by 3.5%. The effect on exports has been dramatic, with shipments falling by approximately 96%, resulting in an estimated revenue loss of around $24 billion.

The disruption also poses a significant risk to Qatar's longer-term growth plans, which include increasing LNG production capacity from 77 million tons per year to 142 million tons by the end of 2030. The expansion of the North Field was intended to become the country's next major source of revenue, but equipment needed for subsequent phases is facing delivery delays due to the crisis in the Strait of Hormuz.

Qatar has a substantial financial cushion that could allow it to withstand several difficult years, with S&P maintaining its AA rating and estimating the government's net financial assets at approximately $300 billion. However, the disruption is prompting changes in how Doha plans to use its wealth, with a larger share of capital expected to be directed toward building new sources of growth inside Qatar itself.