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Russia-Ukraine conflict will not have major direct impact on Mena, say economists

Only energy and tourism sectors are likely to be impacted by the military conflict

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The Ukraine-Russia war will have not a major direct impact on the Middle East and North Africa (Mena) countries but the conflict will have an indirect impact on the region, especially the oil-producing Gulf countries of the region, say economists.

The Middle East countries’ exports to both Russia and Ukraine are relatively not big enough to have a major impact when compared to other major economies around the world, accounting for less than two per cent with each European nation.

Around 200 people have been killed and 1,115 wounded since Russia launched an attack on Ukraine on Thursday. Since then, the UAE airlines have stopped operations to Ukrainian cities, citing the safety of the flights and passengers.

“In terms of the economic effect of the conflict on the Middle East and North Africa, any hit to the Russian and Ukrainian economies is likely to have a limited direct impact. Goods exports to Russia from all countries make up less than 1.5 per cent of total exports and those to Ukraine are even smaller,” said James Swanston, economist for Mena for Capital Economics.

However, the tourism sector in the region, especially Egypt, Tunisia and the UAE, could be impacted as these regional countries are quite popular locations for Russian tourists. In addition, people from the UAE also fly to Ukraine and its neighbouring cities for tourism.

With conflict leading to a shrinking in income in Russia and Ukraine, Swanston said that “could depress tourism to the region” as very few visitors are expected to visit the region.

Mir Wasim Raja, manager, MICE and holidays, Galadari International Travel Services, said some groups which were planning to visit Serbia, Ukraine and Baku in January have put their plans on hold. “Travellers are also a bit reluctant and not very keen to go to Georgia and Armenia.”

Avinash Adnani, managing director of Pluto Travels, noted that there is no major impact on the travel sector now but believes that travel will take a hit if the conflict prolongs.

Maya Senussi, senior economist at Oxford Research, stated that Russia’s attack on Ukraine could impact Turkey on three fronts – tourism, energy prices and financial market disruption.

The biggest impact will be on tourism as arrivals from Russia accounted for 19 per cent of the total and Ukraine 8.3 per cent for Turkey in 2021.

Senussi added that the surge in energy prices will further squeeze household incomes via higher import costs, with the lira vulnerable, and inflation, which is already at a two-decade high of nearly 50 per cent. “We now forecast inflation to peak closer to 60 per cent.”

Indirect impact

James Swanston noted that indirect effects of the crisis could have a more significant impact.

“The first is the implications for global energy markets. The price of Brent crude passed $100 per barrel… The Gulf economies stand to benefit from higher energy prices as stronger hydrocarbon export receipts will bolster both current account and budget positions,” he said, adding that in contrast, balance sheets in the non-Gulf economies’ who are largely net energy importers will worsen and inflation is likely to rise where fuel subsidies have been removed.

Swanston added that oil producers may also benefit if they decide to step in to stabilise the market and ramp up output, which presents an upside risk to GDP growth forecasts.

In the long run, he noted that the escalation of tensions between Russia and the West could boost prospects for Mena gas exporters if Europe starts to shift away from a reliance on Russian gas. This could incentivise investment in the productive capacity of gas in the likes of Qatar, Egypt, Oman, and Algeria.

— waheedabbas@khaleejtimes.com

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