In the early 1990s, Qatar was grappling with a period of economic strain – high debt levels and weak state revenues were weighing heavily on its finances. To try to transform its fortunes the small Gulf state made a decisive bet on natural gas.

It would develop its vast offshore gas reserves, and – crucially – super chill the gas into LNG (liquified natural gas) for transportation by ship to countries around the world.

That decision led to the creation of Ras Laffan – an industrial city on the coast, about an hour’s drive from the capital, Doha. Over the next three decades, it would become the world’s largest LNG export centre, transforming Qatar into one of the richest countries globally.

But on 18 March that success story was shaken.

An Iranian ballistic missile struck the main Ras Laffan gas complex, knocking out an estimated 17% of global LNG supply.

The damage will cost state-owned QatarEnergy a predicted $20bn (£15bn) in lost annual revenues, while disrupting supplies to key markets in Asia, including China. Repairs could take between three to five years.

“The attack was a shock – both to global energy markets, but also to the Gulf states themselves, which are now feeling very vulnerable,” says Karen Young, a senior research scholar at the Center on Global Energy Policy at Columbia University.

QatarEnergy’s chief executive Saad Al Kaabi said the scale of the damage had “set the region back by 10 to 20 years”.

The Iranian strike came after Israel bombed Iran’s South Pars gas field, which borders Qatar’s North Dome field. Together they form the world’s largest natural gas reserve.

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Across the Gulf the continuing conflict with Iran has caused up to $58bn of damage, according to one estimate.

More than 80 facilities have been hit since the US and Israel launched strikes on Iran on 28 February, with over a third severely damaged, according to the International Energy Agency. Along with Qatar, damage has also been reported in Bahrain, Kuwait, Saudi Arabia and the United Arab Emirates.

It has pushed the region into a major economic shock.

The World Bank has cut its growth forecast for the Middle East to 1.8% this year, as a result of the war, warning the fallout could result in long-term “scarring”.

It previously estimated growth of 4% in 2026. The bank says Qatar and Kuwait will see the biggest contraction.

Meanwhile, Saudi Arabia and the UAE have shown more resilience primarily due to some oil exports that do not transit through the Strait of Hormuz that Iran has closed.

Justin Alexander, director at consultancy Khalij Economics, which studies the region, says the impact on Gulf states is severe. He adds that it is still difficult to fully assess the damage, given the conflict remains unresolved.

“Even if the war were to stop today, there would still be a significant impact before things return to normal,” he says.

It is not just physical damage to energy infrastructure that is hurting economies.

The closure of the Strait of Hormuz has sharply reduced oil and gas exports, compounding the pressure. The narrow passage typically handles around 20% of global oil and LNG flows.

For Gulf producers, it is their economic lifeline. Saudi Arabia has been forced to rely on its East-West pipeline to transfer oil to the Red Sea port of Yanbu instead, while the UAE is using its Fujairah pipeline to bypass the strait. But together, these alternatives can carry less than half the volumes that normally pass through Hormuz.

The head of the International Energy Agency has described the situation as the “biggest energy crisis in history”. Meanwhile, Qatar’s finance minister has warned that the full economic fallout from the Iran war is yet to be felt.

Bader Al Saif, professor at Kuwait University and fellow at think tank Chatham House, says the crisis could push countries such as Qatar, Kuwait and Bahrain to also develop pipeline networks as an alternative to tanker ships.

“They can’t just rely on one route to transport oil and gas. It’s Iran today. It could be some other external threat in the future,” he says.

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The economic fallout is spreading beyond the energy sector.

Travel and tourism – a key pillar of diversification in several Gulf economies has been hit hard. The World Travel & Tourism Council estimated in March that the Middle East was losing around $600m a day in tourism revenues since the war began.

The UAE, which has spent decades building itself into a global tourism hub, has been among the most exposed. Businesses linked to travel and hospitality in Dubai are reporting sharp declines in bookings, alongside cancellations and reduced footfall. This has led to job losses and unpaid leave.

There are also signs of bigger financial system stresses emerging. Last month, Donald Trump said the US was considering extending currency swap lines to Gulf allies, including the UAE, to ease dollar liquidity pressures.

Such arrangements would allow central banks to access US dollars more easily. Yet the UAE has played down the development. Yousef Al Otaiba, the country’s ambassador to the US, said suggestions that the country requires external financial backing “misread the facts”.

The UAE has also announced it will quit oil producer group Opec, giving it more freedom to boost exports. It was the fourth-largest producer within the organisation, which controls about 37% of global supply.

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Across the wider Middle East, Gaza, Lebanon and Syria are going to continue to be reliant on financial support from oil-rich Gulf states to rebuild their economies. But that support may now come under pressure, as Gulf governments divert resources towards rebuilding their own economies.

“The large amounts of aid and investment that perhaps some people in the region need might not be available,” says Alexander.

The conflict may also impact the economic diversification programmes of Gulf nations, which are investing billions in sectors such as artificial intelligence, sports and entertainment to reduce their dependence on oil revenues.

Saudi Arabia and the UAE have funnelled billions to position themselves as regional AI and technology hubs, aiming to attract high-skilled talent.

Some analysts question whether Gulf states may reduce their investments in the US. “Those committed trillions and billions in the US will be scrutinised again by some countries,” says Al Saif.

There are also concerns that unless there is a permanent deal to end the conflict with Iran, with guarantees that the Strait of Hormuz remains open, the economic strain could deepen further.

“The Gulf states do have to prepare for perhaps an extended period of instability – an unresolved or low-intensity conflict within the region that may continue if there is no deal,” says Young.