LNG continues to dominate Qatari exports. Economic diversification is a wise strategy, but is it a mistake to be too guided by the relative size of other sectors?
The big news for global politics, and the economics of the Gulf region, has been the election win of Donald Trump, who will return to the US Presidency in January. The states in the region are allies of the US, with currencies pegged to the dollar. Decisions in Washington deeply impact geopolitics, in the Middle East in particular.

The recent report by the respected Institute of International Finance (IIF) on the Gulf economies noted that the change in presidency will have a significant impact, but for all that Trump is seen as a divisive and confrontational politician, the effects on the region may well be benign.

The IIF anticipates that the oil price would stay at around $70 per barrel, assuming no escalation in the conflict between Israel and Iran – the report was published in early November, three weeks before the announcement of an agreed ceasefire between the Israeli government and Hezbollah on November 26. Trump can be confrontational, but he is not a warmonger. Internationally his emphasis is more on trade than the military. He would like to reduce the overseas commitments of US forces, and is committed to policies of tariffs on imports. He will probably maintain a strong military force, but primarily to strengthen his hand in negotiations.

For Qatar, the report notes how liquefied natural gas (LNG) continues to be the dominant export earner, and is set to remain so. While Trump’s policy of encouraging oil and gas exploration by the US is likely to see greater competition and lower prices than would have been the case under a Democrat presidency, this may actually favour Qatar. The reason is that extraction costs from the North Field are among the lowest in the world, so Qatari production can remain profitable at low prices.

The IIF reports notes the massive investment by Qatar, which is the world’s largest exporter of LNG, and ‘surging global demand’. Capacity is set to increase from 88mn tonnes per year to 126mn tonnes by 2027. The IIF notes that Qatar’s long-term LNG contracts are linked to the global oil price, and that the break-even price for Qatari exports is due to fall from an already-low figure of $45 per barrel to $33 per barrel.

QatarEnergy has vertical integration through Nakilat, which owns a fleet of LNG tankers. A specialist type of tanker is needed to transport liquefied gas at low temperatures. It is the largest LNG fleet in the world and means that as a supplier, QatarEnergy can be responsive, not having to check with a freight company as to whether a ship is available for an order.

Regarding the non-hydrocarbon economy, the IIF reports that growth is subdued, noting weaker private consumption and investment, projecting growth of below 1% for 2025.

The government needs to continue encouraging private sector investment, and ensure that it is not too skewed towards real estate, where there is over-supply. It has been right to encourage tourism, and the hotel sector, entertainment venues and transport infrastructure are first-rate.

Looking at the general economic context, there is a case for increasing public sector salaries. There has been little wage growth in recent years. Now that the US Presidency is decided, inflation is low, there is a ceasefire in Lebanon, the future for LNG exports is virtually assured and the public finances are healthy, the case for pay rises is strong. The cost of living has increased during the years of low wage growth, so this will have had an effect on disposable income.

Higher salaries would stimulate aggregate demand, and create greater incentives for business investment and diversification of the economy, in line with the Qatar National Vision 2030.

For Qatar, the sheer scale of the LNG industry means that it will continue to dwarf other sectors, irrespective of how well they develop. A simple measure of the proportion of the economy that non-hydrocarbon sectors contribute compared with LNG is not a helpful indicator. Even if it is relatively small compared with the LNG juggernaut, this may still represent valuable diversification, and it is better to look at the detail.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.