Wars or military confrontations always come with dramatic, impactful changes. The economy is the most fragile or the weakest link that can be shaken with the first sign of instability. Unprecedented economic restrictive measures have been taken against Russia by the American administration. The Western bloc, EU, Australia and Japan followed suit.
On the other hand, Arabs have taken a more balanced stance regarding the Russia-Ukraine conflict and have not participated in the Western economic sanctions party- as described by an Arab economic analyst.
When we look at the economic effects of the Russian-Ukrainian war, we need to divide Arabs between oil importing countries and oil exporting ones. Why? The consequences are different. A great deal of consideration should be given to the fact that Russia is a major oil producer, and so are GCC countries, Iraq, Algeria and Libya. Both Russia and Ukraine are top grain producers in the world. However, Arabs are one of the biggest grain importers in the world. Egypt, for example, is the world’s top importer of wheat. 5.5 million tons of wheat were imported in 2021. The two Slavic countries are also major producers of minerals. A big part of the iron and steel used in construction works in the Arab World come from Russia and Ukraine.
That’s why Arab economies were negatively affected by the conflict, and how Arab citizens saw higher prices of goods. Food, gas and iron prices spiked in a relatively short period of time.
Due to oil price spike, Arab oil exporting countries will be the biggest winners, and are projected to have huge revenues and economic advantages as tension intensifies.
TRADE EXCHANGE AND FOOD ISSUES
According to official Russian statistics published by the Arab-Russian Business Council last January, the trade exchange between Arab countries and Russia reached USD 18 billion in 2021.
Arab-Ukrainian trade totaled USD 6.3 billion in 2020 with more growth in 2021, but the final statistics have not appeared yet. The total Russian-Ukrainian-Arab trade exchange is around USD 24 billion. This is only one-tenth of the Arab-Chinese trade exchange, which stood at USD 240 billion in 2020!
Despite the humble numbers of the trade exchange between Arabs, Russia and Ukraine, it didn't take the average Arab citizen a long time to feel the impact of the conflict with higher expenses for bread and gas. The two Slavic countries play a vital role in producing grain and meat supplies, as well as providing iron, steel, copper, and aircraft and automobile parts to the Arab World. This means there will be shortages in mineral, wheat, corn and malt supplies if alternative sources are not secured.
“Wheat prices have reached new records and rose by 50% since the launch of the Russian military operation last February. Consumer prices have increased. After amending the bread subsidy system and raising the price of bread, the Egyptian government has turned to India to import wheat and imposed restrictions on local wheat producers to make sure the reserves are enough to feed 100 million Egyptians.
Other countries including Syria, Lebanon, Iraq, and Algeria rely on the Russian and Ukrainian wheat, which represents 30% of the global production. Syria, for example, unless given a special exception from Russia, will face a crisis, considering that Russia has suspended wheat exports. Nobody knows what is going to happen to the Ukrainian wheat harvest season, which is supposed to begin at the end of June 2022.
Food prices, other than wheat, are now hiking due to the fact that Russia and Ukraine are major exporters of corn and malt, which are used to feed poultry and livestock. That is why the consumer price of chicken and meat is going up. This wave of food inflation is expected to continue if the conflict persists.
GCC countries, Iraq and Algeria have huge financial capabilities with relatively small populations as well as some local wheat production. They can cope with higher wheat prices and can easily turn to France, Brazil and India to bridge the gap.
Trade exchange is not the full story which also includes Russian and Ukrainian tourism. Arab countries receive millions of tourists from Russia and Ukraine. Countries like Egypt, Tunisia and Morocco rely heavily on tourism to sustain their economies.
After allowing the direct flight of Russian airlines to Egypt last July, Russian tourists, who form around 30% of the total number of tourists, flocked to Egypt in big numbers. Egypt was prepared to welcome more than one million tourists from Russia in 2022. Unfortunately, Russia pulled all its tourists from Egypt in the beginning of March.
"Nobody knows when they -the Russians- will be back to Egypt. The longer the war lasts, the more harm will be inflicted on the Egyptian tourist sector. Russians are medium-spending tourists and spend a little more than USD 1200. They are a good source of hard currency. Ukrainian tourists are stuck in Egypt and cannot go back home due to the air space blockade over Ukraine. The fear of loss of expected revenues in hard currency and higher oil prices have made the Egyptian Central Bank devalue the Egyptian pound around 15%. There is no clearer example of the impact of the Russian-Ukrainian conflict on the Egyptian economy than this one," said Sami Al-Hani, an Arab economic researcher.
In the early days of the Russia’s military operation, the Egyptian government shouldered part the cost of hosting the Russian and Ukrainian tourists until they managed to leave.
Tunisia’s tourism sector will be hit hard by the absence of Russians and Ukrainians. Tunisia received around 700,000 Russian tourists and tens of thousands of Ukrainians.
“Just like Egypt, Russians represent around one third of all tourists coming to the Arab North African country. Russians spend around USD 1 billion a year. The loss is big for a country that got the first blow in 2020 after the outbreak of Covid-19. Dubai can be an exception. Various economic reports spoke about migration of capital and businesspeople from Russia to Dubai as business practice is becoming tougher because of the Western sanctions against Russia. China has witnessed the same situation,” added Al Hani.
Arab tourism is expected to be negatively affected this year with the loss of a few billion dollars in tourism revenues. Even after the end of war, the Western sanctions against Russia will lead to economic difficulties inside Russia, forcing down the number of Russian tourists.
Arab oil exporting countries including GCC countries, Iraq, Algeria and Libya will benefit from high oil prices to achieve budget surpluses and pay their debts which have accumulated since 2015 with fall of oil prices below USD 50. Oil is being sold now at more than USD 100 a barrel.
The citizens of the above-mentioned countries will not have a problem with gas prices as they are sold at prices lower than the global price.
Imposing an embargo on Russian oil exports by the EU will raise the barrel price to historic records. Russians believe the barrel price will spike to USD 150 or 300 in worst case scenarios.
“The ongoing conflict has a positive impact on revenues of the Arab oil exporting countries with billions of petrodollars flowing to their treasuries. They will have the ability to continue spending at higher rates on infrastructure and megaprojects. Wages are expected to improve. The Saudi government has priced the barrel at USD 80 to have a balanced budget in 2022. Q1 results of the Saudi budget is expected to show a surplus. Algeria has introduced its first unemployment benefits programs. This step could have never happened without high oil prices,” commented Al Hani.
“Frankly I can’t say that the continuation of the war is in favor of exporting countries, but the end of war does not necessarily mean restoring order in the global oil market,” he added.
ARAB WAR VICTIMS
According to the very recent gas prices, one liter of gas costs USD 1.53 in Jordan, USD 1.33 in Morocco, and 99 cents in Sudan. High oil prices are making it difficult for the transport and energy and industry sectors to provide services and products at reasonable prices.
Wheat and other food imports will cost more. Arab oil-importing countries will be the biggest victims of the Russia-Ukraine war with more budget deficits being forecast in the short run. Arab oil-importing countries will resort to high-rate loans due to the rising interest rate in the US.
“Arab oil importing countries including Yemen, Jordan, Lebanon, Syria, Egypt, Sudan, Tunisia, Morocco, Somalia, and Comoro Islands will have to re-structure their subsidy programs to protect the underprivileged and fragile classes. They all need to secure food at reasonable prices and expand the safety net to ensure their stability,” said researcher Sami Al Hani.
“On the other hand, oil-rich countries are expected to provide more support and aid to oil importing countries in order to contain some of the negative effects of the Russian-Ukrainian war on their economies. The Arab governments’ main concern should “food self-sufficiency,” he concluded.