The Economic Consequences of the Russian-Ukrainian War for the Middle East

Energy producers stand to benefit, weak economies to suffer, experts say

Russia’s invasion of Ukraine will isolate the world’s 11th largest economy, at least temporarily. According to the February 26 edition of The Economist, the immediate global economic implications will include higher inflation, weaker growth and disruption in financial markets.

Eytan Sheshinski, professor emeritus of public finance at the Hebrew University of Jerusalem, told The Media Line that the biggest impact on the Middle East economy will be felt in the energy market and in countries that depend on it the most.

However, for some of these countries, the effect will be positive.

Russia is the largest natural gas supplier for Europe, supplying 35% of the fuel.

If that supply is reduced or cut off because of the sanctions, Sheshinski said, “there will be a demand for gas in Europe. Middle Eastern countries with export potential could fill the void and take over the European market, or part of it.

“The Nord Stream Project [a system of natural gas pipelines running under the Baltic Sea, designed to transport gas from Russia to Germany] has been frozen and there will be a huge demand for gas from Germany, France and other countries,” he said.

Israel, for example, Sheshinski explained, has a billion cubic meters of gas reserves, so it might be able to sell it to Europe. “Israel can export gas via Egypt [where it can be turned into liquefied natural gas] and from there [shipped] in Europe. Other ways to export gas will have to wait in the longer term,” he added.

If gas supply is interrupted in Europe, the price of energy-related products will also skyrocket, which will have a huge effect on the whole of the Middle East, he said.

Eldad Shavit, senior researcher at Tel Aviv University’s Institute for National Security Studies, agreed and added: “Qatar, Saudi Arabia and oil-producing countries will benefit from higher prices. “.

Sheshinski said the disruption in the supply of certain staples such as grain from countries directly involved in the war would affect food prices in the Middle East, but countries like Israel and Saudi Arabia, for example, were not going to be affected very significantly.

Shavit explained that Ukraine and Russia are the main suppliers of wheat and maize to most fragile economies in the region, such as Jordan, Egypt, Lebanon and Iraq.

However, Navvar Saban, a conflict analyst at the Omran Center for Strategic Studies in Istanbul and a non-resident scholar at the ORSAM Center for Middle East Studies in Ankara, told The Media Line that he believes the effect on these countries will not be dramatic either since they are already in a difficult position and a crisis like this is not new for them.

Sheshinski noted that there are other areas where war could affect Middle Eastern economies.

Due to the sanctions, Russian banks will be constrained and we will see less investment in projects in the region, he said, adding that if banks cannot use the international payment system SWIFT, it will hurt Middle Eastern companies that have export agreements. with Russia.

Similarly, Sheshinski continued, “for countries like Israel that have high-tech companies with branches in Ukraine, many workers have left there or are on the run, and business will be negatively affected for these foreign companies.”

And if Russian ships are barred from using the Suez Canal under sanctions, the drop in revenue will hurt Egypt, he said.

Saban said Turkey would be hit harder than any other country in the region due to the nature of its relationship with Russia.

Sheshinski agrees. “Turkey is in a difficult position because Russia has not kindly followed the path [President Recep Tayyip] Erdoğan is managing the country’s stance on the conflict, and therefore Turkey may be affected to some extent regarding its energy imports from Russia,” he said.

Saban added, “Turkey exports many of its products to Russia, which could also have a negative impact on the Turkish economy if there is any disruption.”

However, even if that happens, in the long run Turkey will manage without the Russian market, he said.

“We all know that the ties between Turkey and the United Arab Emirates are stronger than ever. So, I think that Turkey will cover the gap that could be created by the possible loss of exports to Russia with the opening of the Gulf market, and I think it’s all part of a bigger plan,” Saban said.

All the experts have concluded that the economic consequences of the war for the Middle East will not be dramatic, at least in the long term.

“In my opinion, the effect will be limited. It all depends on the next 24 hours; it depends on whether there will be an intervention by NATO countries and whether Belarus will join Russia,” Saban said.