Materializing consequences: the effects of the Ukraine crisis on Middle Eastern economies

Published August 5th, 2014 - 08:34 GMT

In the aftermath of the tragic plane crash of MH17, where 289 people tragically and senselessly lost their lives, the US along with the European Council have declared more severe sanctions on Russia targeting the oil sector, defence equipment and sensitive technologies. Earlier in the month, the political crisis in the Ukraine had already made headlines and led to the West taking up a strongly supportive stance in favour of sanctions by enforcing an asset ban and travel freeze on selected Russian officials and fast-tracking $1 billion USD in aid to Ukraine.

It was already prior to the tragic incident that targeting Russian industries with larger and more powerful sanctions would be ‘disruptive to the global economy’ and that more severe sanctions would deepen Russian isolation. These consequences have now materialised and they are likely to present implications for the Middle Eastern economy.

The reasons for this are three-fold. While Gulf States including Saudi Arabia, Qatar, Kuwait and the UAE generate almost all of their income from the sale of hydrocarbons, sanctions on Russian oil imports by the USA and EU will initially translate into a huge price hike for Middle Eastern oil exporters.

This will lead to increased export receipts for the Middle East that will generate an overall gain in national income for these regions. However this positive is off-set by the fact that the US must remain sensitive to the Iraqi economy, which is still hugely distressed as a result of its own recent conflict and more recently, the advance of Islamist militant group, ISIS, towards Baghdad.

Should more severe sanctions be imposed on Russia in the hydrocarbons industry, the resulting price fluctuations on oil in the Middle East could completely destabilise an already unstable Iraqi economy. In addition, both Russia and the Ukraine are also major agricultural producers and exporters and the Middle East is the most dependent on imported wheat, after Sub-Saharan Africa, with more than 50 per cent of Russian wheat exports going to Egypt, Lebanon, Jordan and Yemen.

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