Qatar has slashed government department budgets by up to 30 per cent and cut funding for overseas aid by about 85 per cent as the US-Israel war against Iran inflicts a sharp financial shock on one of the world’s richest nations.
The small Gulf state has been among those hardest hit by the economic repercussions of the six-month conflict. It has been forced to halt liquefied natural gas production, its main source of revenue and export earnings, following war damage inflicted by Iran and the difficulty of shipping gas through the Strait of Hormuz.
Three people briefed on the matter said the budget reductions were part of Doha’s response to the sharp decline in LNG revenue. The precise amount of spending affected by the departmental cuts was not clear, although Qatar’s total budget for 2026 is about $61bn.
Tarik Yousef, a senior fellow at the Middle East Council on Global Affairs, said authorities were “seriously contemplating” substantial further spending cuts next year if the crisis continues into the final quarter. “The authorities have managed the crisis effectively, but the hit has been massive,” he said, adding that Qatar had been drawing on accumulated financial buffers to keep the economy going and maintain liquidity, leaving “a substantial hole in the budget”.
The IMF has forecast that Qatar’s GDP will shrink 8.6 per cent this year, the largest contraction among the six Gulf states, which have for decades depended on the Strait of Hormuz for energy exports and trade.
Qatar nevertheless has substantial financial reserves to cushion the impact. Doha, which is playing a central role in mediation efforts to broker a deal between the US and Iran, has a population of 3.2mn and a $500bn sovereign wealth fund through the Qatar Investment Authority. But with no resolution to the war in sight, the conflict could continue to weigh on domestic spending and potentially affect overseas investments by Gulf sovereign funds, which collectively manage about $5tn.
Qatar has previously drawn on its financial strength during periods of severe pressure. After Saudi Arabia and the United Arab Emirates spearheaded a regional embargo against Qatar in 2017, the QIA repatriated more than $20bn in deposits to stabilise the domestic financial sector.
A Qatari official said the country remained well equipped to navigate the regional economic crisis. “Our resilience through past crises, including the GCC crisis [the embargo] and Covid-19, gives us the capacity to weather the current one without changing our long-term economic trajectory,” the official said.
The reduction in overseas aid is particularly significant. While no figure is available for Qatar’s overall funding for overseas aid, the country donated $1.5bn to the UN’s Office for the Coordination of Humanitarian Affairs last year, placing it among the agency’s five largest donors.
The economic impact of the war varies across the Gulf, but all six states have been targeted by Iranian missiles and drones as Tehran retaliated against attacks by the US and Israel. Saudi Arabia and the UAE have mitigated some of the damage by exporting oil through pipelines that bypass the Strait of Hormuz, while higher crude prices have partly offset reduced volumes.
Qatar and Kuwait are more exposed because they depend on the chokepoint for energy exports. Trade, tourism, food and beverage businesses and other sources of non-oil growth are also being affected across the Gulf. Farouk Soussa, Middle East economist at Goldman Sachs, estimated that lost energy-export revenues were costing Qatar and Kuwait between $1.5bn and $2bn a week.
For Qatar, the impact on LNG production was almost immediate. An Iranian drone and missile attack targeted the Ras Laffan plant, the world’s largest LNG export facility, four days after the US and Israel ignited the conflict in February. A further missile attack in March cut export capacity by 17 per cent, with damage expected to take up to five years to repair.
Some losses have been offset by Qatar’s $10bn Golden Pass venture in the US with ExxonMobil, which exported LNG for the first time in April. Before the war, Doha had also been preparing for a $30bn expansion of production from the North Field, the world’s largest gasfield, which would have raised production capacity to 126mn tonnes a year by 2027.
Despite the disruption, Qatar is continuing to work on its expansion plans, according to people briefed on the government’s measures, seeking to ensure it can increase LNG exports if a final settlement to the war is reached. But the immediate costs are already weighing on government finances, exposing the vulnerability of even the Gulf’s wealthiest states to prolonged disruption around the Strait of Hormuz.
