Qatar-UK Trade Relations:
Treading a Promising Path

Relative to most of its neighbours — with Bahrain as the only exception — Qatar is geographically a small country and covers just 11,437 sq km, which makes it around the same size as the county of Yorkshire in England. However, its physical size should not serve to deceive—it is among the wealthiest countries in the world. Qatar’s is endowed with tremendous natural resources, principally oil and gas—the main source of its national wealth. Indeed, it retains the third largest reserves of natural gas worldwide. Prior to the discovery of its hydrocarbon resources, Qatar was a very poor outpost of the British Empire, functioning as a protectorate after 1916; the year which marked its exit from the Ottoman Empire[1]. Qatar gained full independence in 1971.

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Oil and gas have transformed the country and made its few citizens — little more than 300,000 — very wealthy. Qatar is heavily reliant on migrant labour, in fact, they make up approximately 2,600,000 of the total population of 2.9 million[2], equivalent to around 90% of the total residents. Qatar exports more liquefied natural gas (LNG) than any other country globally. It therefore comes as no surprise to find that oil and gas account for 80 % of government revenue[3]. There is no income tax or domestic corporate tax in Qatar.

 

The country has been keen to develop a reputation as a stable and reliable supplier of LNG while at the same time securing more long term contracts for supply, particularlyg with its Asian customer base. In November 2022, Qatar signed a 27-year agreement to supply China’s Sinopec with four million tonnes of fuel a year[4]. This ‘marks the longest gas supply agreement in the history of the LNG industry,’[5] noted Saad Sherida al Kaabi, Qatar’s Energy Minister and QatarEnergy’s CEO.

 

In a move to diversify the economy, Qatar sought to develop its financial services sector along with its manufacturing sector and the latter now accounts for 7% of GDP.[6] Additionally, Qatar is ranked third across the Middle East and North Africa region in terms of economic freedom by the Heritage Foundation in its 2022 Index of Economic Freedom. Its overall score on the Index is 67.7, placing it higher than the world average.[7] However, the Index expresses reservations about the judiciary, which it observes is ‘not independent in practice’.[8]

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Trading Relationship with the UK

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As outlined below, trade statistics for 2021 were seriously affected by the COVID-19 lockdown. British exports to Qatar were particularly distorted by the impact of prolonged lockdowns and the dislocation of supply chains. More recently, soaring prices — both for oil and gas — in the wake of the Russian invasion of Ukraine launched on 24 February 2022, have dramatically increased export revenues for Qatar. Nevertheless, many countries are now attempting to befriend this Gulf state because of its massive gas resources and its rapidly expanding LNG business.

 

Qatar is expanding its North Field project, a plan to increase its LNG export capacity from its current level of 77 million tonnes a year to 126 million tonnes by 2027. The Ukraine crisis has led to an unprecedented demand for LNG with Qatar as a key source. This is reflected in a sharp upsurge in orders for LNG tankers, 70% of which are constructed in South Korea[9]. In April 2022, there were a total of 641 LNG tankers operating worldwide. Soaring demand for LNG has triggered 163 new orders for specialist tankers to carry this commodity at a temperature of minus 163 centigrade[10]. South Korea won 105 of these new orders, yet its lack of additional capacity helped China win 57 orders last year, a steep increase on the 11 orders it received in 2021[11]. These are boom times for the LNG industry.

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Qatar exports to the UK in 2021

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source: Tradingeconomics.com

 

As the accompanying table vividly shows, Qatar’s exports to the UK are dominated by hydrocarbons. This single category dwarfs other constituents in the league table. Aircraft – most probably sales by the national flag carrier Qatar Airways, amounted to $32 million while plastics generated just over $24 million. Machinery, electrical equipment and optical and technical apparatus generated significant sums but the ninth ranked category, iron and steel products, totalled $1.5 million and the other categories in the top dozen ranking all hovered around $1 million.

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UK Exports to Qatar in 2021

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source: Tradingeconomics.com

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UK exports to Qatar are far more diversified, although the figures for 2021 must be treated with caution on account of the dislocations to supply chains resulting from the Covid-19 lockdowns. An indication of the scale of this disruption is illustrated by the latest UK Department for International Trade Factsheet, which reveals that total exports to Qatar increased by 55.4% in the year to 1 October 2022 compared to the corresponding period a year earlier[12].

 

Some 68.2.4% of UK exports to Qatar were goods in the 12 months to 1 October 2022 while 31.8% were services. Over this period, services saw a sharp increase with a gain of 52.7%, equivalent to $545.5 million[13]. Services are the UK’s strong suit and Qatar is a valuable customer for firms in the IT, banking, finance, insurance and management consultancy sectors. Qatar has also forged a number of close links with UK universities, including prestigious names such as King’s College, London; Bristol; and St Anthony’ College, Oxford.

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The scale of UK imports from Qatar was far higher: they increased by no less than 443.5% or $9.93 billion over the twelve month to 1 October 2022, reflecting the sharp hike in global gas prices. Qatar was the UK’s 26 th largest trading partner in the four quarters to the end of September 2022 and accounted for 0.7% of total UK trade. In 2021, around 4,800 UK VAT registered businesses exported goods to Qatar, while around 500 imported goods from Qatar[14].

 

The UK will be looking to conclude a free trade agreement this year with the Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) in a move to expand its post-Brexit trade performance. Such an agreement would help trade in both directions. Currently, Qatar has three preferential trade agreements in force and, additionally, its trade weighted tariff rate is 4.3 %.[15]

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Qatari Investment in the UK

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Qatar is an important investor into the UK. In London alone, it owns the department store Harrods, retains a 20% stake in Heathrow airport, a 25% share of British Airways’ (BA) parent company AIG, and a significant slice of the grocery supermarket chain Sainsbury’s. Its stake in the Canary Wharf Group — London’s new financial district — has led some to rename this neighbourhood ‘Qatar Wharf.’ The Qatar Sovereign Wealth Fund also owns the Shard, the capital’s tallest building, designed by the renowned Italian architect Renzo Piano, and home to Al Jazeera, the Qatar-owned news service headquartered in Doha. Qatar has proved to be a particularly enthusiastic investor in luxury London hotels, owning a sizeable percentage of a cluster of notable names, such as the Savoy, the Connaught, Claridge’s, and the Grosvenor House Hotel on Park Lane. In actual fact, the state of Qatar — leaving aside individual royals’ personal property portfolios — is the tenth-largest landowner in the UK[16].

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Future Opportunities Driven by the Buoyant Demand for LNG

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Given the strong demand for LNG worldwide, Qatar’s economy is likely to enjoy strong growth over the next few years. The International Monetary Fund (IMF) forecasts that GDP growth will increase from 1.6% in 2021 to 3.8% in 2027. Demand for LNG exports is clearly making Qatar even wealthier. It is worth noting that, in 2022, Europe was Qatar’s largest customer for this valuable fuel [17]. LNG now represents around 35% of Europe’s gas supply, a rise of 20% on 2021. This buoyant level of demand is further illustrated by the recently agreed long-term contract to supply Germany with LNG, finalised in November 2022 [18]. And, Qatar is actively engaged in similar negotiations with other European countries, including Belgium and, notably, the UK[19]. In the case of the UK, talks commenced over a year ago, in November 2021, with the aim of Qatar assuming the key role as ‘supplier of last resort.’[20]

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In the light of this unprecedented demand for LNG, British exporters will be paying Qatar considerable attention over the next five years. Specifically, in its moves to diversify its economy, Qatar is likely to be interested in UK expertise on IT, digitalisation, risk services, and the country’s accumulated expertise and experience in the fields of renewable energy and climate change consultancy. It is also set to benefit from British expertise on infrastructure development, particularly as it relates to ports and logistics. In parallel with London’s strengths as a global financial centre, Qatar has benefitted from a significant growth in financial services and this industry is emerging as one of the main avenues for diversifying its economy. In this context, there is considerable scope for cross-fertilisation of business expansion.

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Meanwhile, the UK is seeking to expand its LNG storage facilities,[21] so that it can import larger gas supplies from Qatar. UK companies will also be looking to Qatar for capital investment, since it is one of the leading sources of overseas investment, especially in relation to real estate, retail and transport undertakings, such as the national flag carrier BA and London principal airport hub at Heathrow.

 

Meeting in August 2022, the UK and Qatar struck two significant agreements to boost trade and investment. The occasion was the third UK-Qatar Joint Economic and Trade Committee (JETCO) and at this gathering UK trade minister Ranil Jayawardena MP signed two new Memoranda of Understanding (MoU) with Qatar’s Minister of Commerce and Industry H.E. Sheikh Mohammed bin Hamad Al-Thani[22]. These MoUs are aimed at helping British businesses to enter the Qatari market and vice versa in the case of Qatari companies. The collaboration will provide information to companies on strategic investment opportunities and provide guidance on market entry options. UK Export Finance (UKEF) also signed a memorandum with Qatar Development Bank to enhance cooperation between UK and Qatari companies by sharing combined expertise on export finance, insurance products and risk management initiatives to boost trade, specifically in priority sectors such as healthcare and life sciences, education, together with food and beverages.

 

“Qatar is an important trade and investment partner for Britain”, Ranil Jayawardena stressed at the conclusion of these talks, “I believe we should nurture and maximise the strength of our relationship to make our economies more resilient and prosperous [23]”.

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UK trade minister Ranil Jayawardena met Qatar’s Minister of Commerce and Industry H.E. Sheikh Mohammed bin Hamad Al-Thani met in London on 24 August 2022 to agree new trade partnerships at the third UK-Qatar Joint Economic and Trade Committee (JETCO).

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These encouraging signs, centred on greater trade between Qatar and the UK, indicate that this relatively small Gulf country will fulfil a crucial role in future British trade relationships with the Middle East region. A speedy Free Trade Agreement – hopefully to be signed this year - between the UK and GCC countries will serve to accelerate these promising developments.

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5 February 2023

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References

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[1] Under the Anglo-Turkish Convention of 1913, the Ottomans agreed to renounce their claim to Qatar and subsequently withdrew their garrison from Doha, although this did not take place for a further two years.

[2] Source: Qatar: country profile, House of Commons library research briefing, 19 April 2022, page 4.

[3] Source: Qatar: country profile, House of Commons library research briefing, 19 April 2022, page 2.

[4] Sinopec - China Petroleum & Chemical Corporation, is the world’s largest oil refining, gas and petrochemical conglomerate based in Beijing.

[5] Source: ‘Sinopec seals 27 year LNG supply deal with Qataris’, Financial Times, 22 November 2022.

[6] Source: Qatar: country profile, House of Commons library research briefing, 19 April 2022, page 2.

[7] 2022 Index of Economic Freedom, Heritage Foundation, Washington DC, https://www.heritage.org/index/

[8] ibid.

[9] 'Shipbuilders take record LNG tanker orders’, Financial Times, 10 January 2023. [10] ‘Shipbuilders take record LNG tanker orders’, Financial Times, 10 January 2023. [11] ‘Shipbuilders take record LNG tanker orders’, Financial Times, 10 January 2023. [12] Trade & Investment Factsheet, Qatar, Department for International Trade, 1 February 2023. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1132431/qatar -trade-and-investment-factsheet-2023-02-01.pdf

[13] Trade & Investment Factsheet, Qatar, Department for International Trade, 1 February 2023. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1132431/qatar -trade-and-investment-factsheet-2023-02-01.pdf

[14] Trade & Investment Factsheet, Qatar, Department for International Trade, 1 February 2023. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1132431/qatar -trade-and-investment-factsheet-2023-02-01.pdf

[15] 2022 Index of Economic Freedom, Heritage Foundation, Washington DC, https://www.heritage.org/index/ 

[16]  Source: MSCI Real Assets analysis quoted in ‘How `Qatar bought up Britain’, The Observer, 5 November 2022

[17] Source: ‘EU corruption scandal could hit ties with Doha, Qatar diplomat warns’, Financial Times, 19 December 2022.

[18] ‘LNG imports in the EU-27 by supplying country 2020-21 Statista Research Department, 31 January 2023.

[19] Source: ‘Germany agrees 15-year liquid gas supply deal with Qatar’, Patrick Wintour (diplomatic editor) The Guardian, 29 November 2022,  https://www.theguardian.com/world/2022/nov/29/germany-agrees-15-year-liquid-gas-supply-deal-with-qatar; see also ‘Germany to get new Qatari LNG flows through QatarEnergy, ConocoPhillips deal’,  Reuters, 29 November 2022.

[20] Source: ‘UK warned it faces ‘security premium’ for long-term gas supplies’, Financial Times, 4 October 2022.

[21] ‘Milford Haven LNG: LNG terminal expansion plan, BBC News, 17 November 2022.

[22] ‘UK agrees two deals with major gulf trading partner Qatar’, Department for International Trade, 24 August 2022, https://www.gov.uk/government/news/uk-agrees-two-deals-with-major-gulf-trading-partner-qatar

[23] 'UK agrees two deals with major gulf trading partner Qatar’, Department for International Trade, 24 August 2022, https://www.gov.uk/government/news/uk-agrees-two-deals-with-major-gulf-trading-partner-qatar.

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