Tuesday, November 29, 2022
HomeRussia Ukraine Conflict NewsThe Economic Consequences Of The Russia-Ukraine Crisis For The Gulf Regions

The Economic Consequences Of The Russia-Ukraine Crisis For The Gulf Regions

Russia-Ukraine Crisis—While the Gulf Arab governments may prefer to avoid becoming embroiled in a “Russia vs the West” battle, the Ukraine crisis is already harming tourism, food, energy, and other economic sectors in the region.

The recent Russian onslaught on Ukraine has been dubbed “Europe’s largest war since World War II.” While Europe and, to a lesser extent, the United States will bear the brunt of the conflict, its consequences are spreading well beyond the continent. They include ramifications for a new international order as well as analogies to China-Taiwan “reunification.” While the Gulf Arab governments may prefer to avoid becoming embroiled in a “Russia vs the West” battle, the Ukraine crisis is already harming tourism, food, energy, and other economic sectors in the region.

Every year, a considerable number of Russian visitors visit Dubai in the United Arab Emirates. According to the Russian Association of Tour Operators, Dubai was the preferred destination for 6% (600,000) of Russian tourists in 2021, trailing Egypt with 10% (1 million) and Turkey with 45 percent (4.7 million).

What Are The Economic Consequences That Threaten To Affect Tourism Due to the Russia-Ukraine Crisis

Every year, a considerable number of Russian visitors visit Dubai in the United Arab Emirates. According to the Russian Association of Tour Operators, Dubai was the preferred destination for 6% (600,000) of Russian tourists in 2021, trailing Egypt with 10% (1 million) and Turkey with 45 percent (4.7 million).

The war between Russia and Ukraine is likely to reduce the number of Russian visitors, especially if the military phase of the conflict carries on and more Russian banks are barred from using the SWIFT interbank messaging system, which enables international transactions. Emirates and its partner airlines have already halted flights to many Russian locations due to safety concerns about Russian, Ukrainian, and Belarusian airspace.

The fall in tourism flows, as well as the worsening ruble-to-dollar exchange rate, will have an impact on per-visitor expenditure in Russia. This is because, according to a Visa research, Russian tourists spend more and stay longer on average than their European counterparts.

Due to Dubai’s increased reliance on tourism receipts, which generated just under one-fifth of its gross domestic product prior to the coronavirus outbreak, it is likely to face a heavier impact than Turkey or Egypt. Due to a considerable drop in inbound Chinese tourism to Dubai as a result of coronavirus-related travel restrictions in China, Russia has grown in importance as a visitor source market.

How The Economic Consequences Cause Damage To The Food Industries

Russia and Ukraine are major wheat exporters, with a combined market share of more than 25% in 2019. Harvests, access to ports and grain storage terminals, shipping and insurance costs, and the spring planting season might all be affected by protracted warfare. Since the Middle East and Africa accounted for 70% of Russia’s wheat exports in 2021, the country’s war with Ukraine has pushed food security – both in terms of availability and price – to the top of many countries’ agendas.

Egypt, for example, purchased $3.23 billion worth of wheat from Russia and Ukraine (more than two-thirds of total wheat imports), while the latter two accounted for over three-quarters of imported wheat worth $1.6 billion in Turkey in 2019.

Because of their smaller populations and higher per capita income, Gulf Arab states are less exposed to the Ukraine crisis’ interruptions and price hikes than their Middle Eastern counterparts. The UAE, Oman, and Qatar are heavily exposed to wheat imports from Russia and Ukraine; the remaining Gulf Arab states, on the other hand, buy little or no wheat from the two countries.

Russia and Ukraine, for example, raised their market share from one-third ($91.2 million) to nearly half ($154 million) of all wheat imported by the UAE between 2015 and 2019, with Russia accounting for the majority of the wheat.

Nonetheless, the UAE’s large grain storage facilities ensure that there will be no short-term supply shortages. Even in Oman, where food-related riots have already occurred, the boost from higher oil prices, which is partially due to the Ukraine situation, might help weather longer-term increases in wheat costs.

Saudi Arabia, for example, may reconsider increasing wheat imports from Russia to compensate for decreased domestic production due to the war’s disruption of supply reliability and pricing. Saudi Arabia had only recently opened its market to Russian wheat in 2020, but by 2021, it had increased seven-fold, although from a low base.

The Economic Impacts Of The Oil And Gas Sectors

Oil and gas exporters were already benefiting from higher-than-expected hydrocarbon revenue inflows prior to the Ukraine conflict. According to recent predictions by JP Morgan, Brent crude around $78 per barrel in early January exceeded the budgetary break-even price of $66.80/bbl for important Gulf states as a group in 2022.

The conflict in Ukraine has driven crude prices beyond $100 per barrel, and they could grow even higher if Russia, which accounts for 12.5 percent and 9.6 percent of global crude and refined petroleum exports, respectively, is not yet subject to US and EU sanctions. Russia is a strategic petro-state, according to Columbia University’s Adam Tooze, and its size in global energy markets likely makes it such.

According to HSBC’s calculations in a February research note, every $10 increase in the oil price adds $65 billion to the Gulf Cooperation Council countries’ oil export receipts; oil at $100/bbl would result in budget and current account surpluses worth 10% and 15% of the GCC’s GDP, respectively. On the one hand, the windfall benefits Gulf budgets by allowing them to fund economic diversification projects.

On the other side, increasing energy prices globally will result in higher prices for items that Gulf states rely on for import, such as fertilisers, food, consumer goods, medications, and solar inverters.

European leaders will face increased pressure in the long run to reduce their countries’ reliance on Russian coal, oil, and gas. This is true, even if, according to economics pundit Matthew Klein, after Russia annexed Crimea from Ukraine in 2014, Europe became more dependant on Russian energy, not less. The difference this time, should it holds, is that Europe is united in its opposition to Russia’s conduct.

Qatar could emerge as a winner, as its continuous liquefied natural gas capacity increase could result in exports that displace some Russian gas sales in Europe by the mid-2020s. Gulf governments like Oman, Saudi Arabia, and the United Arab Emirates may find receptive clients in Europe if they can deliver and verify their green hydrogen energy projects.

Which Other Districts Suffer From The Economic Impacts Caused By The Escalation

Russia-Ukraine crisis

Uncertainty over the course of the Ukraine conflict, and thus the scope and depth of future sanctions, is putting a geopolitical premium on commodities and manufactured goods, especially those for which Russia is a major producer. This presents potential or obstacles for Gulf enterprises, depending on the product.

Russia and the United Arab Emirates, for example, were the EU’s second and sixth top source countries for aluminium exports in 2019. The threat of penalties against Russia’s aluminium industry, however remote, is likely to fuel the quest for non-Russian alternatives.

The UAE’s Emirates Global Aluminium and Aluminium Bahrain, or ALBA, which rely on the EU for 22% and 12% of their respective exports, respectively, will benefit immediately from rising aluminium prices, despite their current shortage of spare capacity preventing more sales. However, growing their market share of green aluminium in the medium future may be profitable and prudent.

Nickel, on the other hand, is a different storey, with Russia accounting for 17% of global exports. Although Russia is not a crucial source, it is significant enough that supply delays caused by a protracted war confrontation with Ukraine could exacerbate pre-existing supply chain concerns that have slowed the rapid increase of renewable energy capacity in Gulf states.

Nickel is used in lithium-ion batteries, solar panels, and coating generators, all of which are important components in renewable energy generating.

As a result of the Ukraine conflict, the United States has tightened its controls on semiconductor exports to Russia; this has a direct impact on the UAE, which owns chipmaker GlobalFoundries. However, given the current global semiconductor supply shortage and higher prices, as well as the fact that Russia is a small direct consumer of semiconductors, sourcing the majority of its needs from Chinese chip manufacturers, any revenue loss from compliance with US export controls should be offset.

It is naive to believe that the Gulf states are uninterested in the Ukraine situation. While the conflict’s immediate economic impact is manageable, especially if military activities are soon concluded, the longer-term consequences of Russia’s relations with Europe and the United States will present both opportunities and problems for Gulf politicians and businesses.

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments