By: Mohammed Shabani

Translated by: Fairouz Alnajem

The economic implications of the Ukrainian-Russian war began to emerge from its earliest days through a dramatic rise in oil and grain prices. These implications were described as a provisional economic shock, that markets will correct prices in the foreseeable term, but with the war exceeding its second month with all the economic sanctions it carried on Russia and significant damage to the Russian and Ukrainian economies, the economic shock graded into a permanent shock, and lasting shock has consequences that will move the world economy to a different situation than it was, which means the markets will not return to their previous position in the foreseeable term.

Arab economies have been affected as much as the world economy. And as the Arab States' economies are different in structure and economic relationship with the two main parties to the war; Russia and Ukraine, the effects of the economic crisis on the economies of the Arab States have been divided between winners and losers. Through this article, we will determine who those countries are and why they can be described as winning or losing.

Effects on Arab-Russian Trade Exchanges

The total exports of Arab countries to Russia amounted to about $1.97 billion in 2020, a growth of more than 100% compared to 2010. In contrast, Russian exports to Arab countries in the same year amounted to about $15 billion, a growth rate up to 103% compared to 2010, tending the trade balance in Russia's favor by more than $13 billion.

As for the most important Arab trade partnerships with Russia, Egypt comes in the first place in terms of its share of exports and imports from Russia. as Egypt is considered responsible for 29% of Arab exports to Russia and about 27% of Russian imports. Followed by the UAE with 20% for imports and exports, Saudi Arabia ranked third with 10% for imports and 12% for exports, while fourth and fifth were Algeria and Morocco.

So, in terms of trade exchange with Russia, Egypt is one of the countries most affected by the Ukrainian crisis, with Egyptian exports to Russia amounting to more than $500 million, mostly focused on citrus and vegetables. As for Egyptian imports from Russia, it amounted to more than $4 billion, concentrated in wheat, sunflower oils, iron ores, and minerals.

The war in Ukraine has slowed down trade exchange between the two countries and created many logistical and remittance difficulties. which has led to a rise in the price of minerals and the iron factories in Egypt resorting to search for alternative sources of Russian minerals, while the most significant problem caused by the crisis was wheat prices, where Russia is the largest supplier of wheat. Russia's share of wheat supplies to Egypt was about 50% Egypt which is one of the world's largest importers of wheat because of its large wheat needs of 20 million tons per year, of which its domestic production covers less than 50%.

The Ukrainian crisis prompted the Egyptian government to buy 460 thousand tons of European wheat in an international tender in April, as the highest price per ton in this tender was $460 including shipping, which represents a 36% rise from the last deal to buy wheat made by the Egyptian government before the Ukrainian War. That is, Egypt's loss of wheat only could exceed $58 M of the last transaction only!

On the other hand, the UAE is one of Russia's leading trading partners in the Arab region, where economic cooperation between the two countries has expanded steadily in recent years, and trade exchanges between the two countries have grown to over $6 billion in 2020, with Russia's share of about $5 billion. Diamonds and gold along with foodstuffs and minerals are among Russia's most prominent exports to the UAE.

While Dubai became the most prominent transit trading hub to and from Russia. In general, the most significant implications of trade exchange between the Arab States and Russia are represented by the high prices of wheat and minerals, along with other commodities such as coal, and refined petroleum, which is among the most prominent commodities exported by Russia to the GCC countries. These economic damages have been reflected in varying proportions in all Arab countries. Egypt is also one of the most affected, particularly about its exports of fruit, citrus and vegetables to Russia, as well as the most affected by imports, because of Egypt's large need for wheat imported from Russia, which the war forced to seeking an alternative to Russian wheat at a high price.

Effects on Arab-Ukrainian Trade Exchanges

Arab-Ukrainian trade has witnessed considerable growth in the last decade, with Arab exports to Ukraine rising from $161 M in 2010 to more than $560 M in 2020, with more than 245%. While Arab imports from Ukraine for the same year amounted to about $5.8 billion, with growth up to 9.5% compared to 2010. Although imports from Ukraine is about 9 times larger than from Arab exports, they are slowly growing and have fluctuated in size from year to year.

Concerning the relative importance of trade between the Arab countries and Ukraine, Saudi exports constitute about 24% of total Arab exports to Ukraine followed by Morocco at 21%, Oman at 19%, and the UAE at 15%. Concerning the commodity structure of exports, oil derivatives from the GCC countries accounted for most exports to Ukraine, while fertilizers (natural and chemical), cars and fish accounted for most of Morocco's exports to Ukraine.

Egypt occupies the largest share of Ukrainian imports into the Arab countries, accounting for about 28%, followed by Saudi Arabia at 12%, Iraq at 10%, and the UAE at 8%.

So, in terms of imports, Egypt is the country most closely associated with Ukraine, as in the case of Egyptian-Russian trade exchanges, the trade effects of the war in Ukraine are the shortage of wheat imports and higher prices, which also applies to the case of Morocco, which imports about 12% of its wheat needs from Ukraine.

Biggest Winners and Losers of High Energy Prices

Although all Arab States have been adversely affected by high prices for minerals, wheat and many other essential agricultural and food commodities, non-energy-exporting Arab States have been further affected. The budget in Egypt, Morocco, Lebanon, Jordan and other countries has more burdens owing to high energy prices. In contrast, the GCC countries, Iraq, Libya, and Algeria have benefited greatly from this rise, with Iraq's oil revenues in March alone amounting to about $8.5 billion, the highest amount the Iraqi treasury has earned from oil imports since 1972.

Of course, not only Iraq, the oil-exporting Arab countries have achieved huge returns because of the dramatic rise in oil prices. Qatar and Algeria have also benefited from higher natural gas prices and increased European countries' need for Arab gas to reduce reliance on gas imported from Russia, where the two energy giants "Sontrac" and "Eni" of Italy have signed a memorandum of understanding to increase the quantity of natural gas exported to Italy.

The significant increase in energy prices provides Arab exporting countries the possibility of covering the overall rise in commodity prices, especially agricultural, food and minerals, and even achieving fiscal surpluses, particularly for the Gulf Cooperation Council (GCC) States, as their need for such commodities is lower than Algeria's and Iraq's need, which have a large population.

Tourism Sector Losses due to Ukrainian War

Tourism is an important economic sector for many Arab countries, especially Egypt, Morocco, Tunisia and Lebanon. The Ukrainian crisis has caused negative implications for the sector in general. But Egypt's tourism sector is the hardest hit, about one-third of Egypt's 13 to 15 million tourists per year are Russian and Ukrainian. Their numbers are expected to decline owing to both countries' economic distress and the difficulties of movement, travel and remittances for Russian tourists.

Implications of Capital Movements

The impact of the Ukrainian crisis has not only reflected on trade and tourism movements but has also extended to Arab mutual investments with Russia and Ukraine. The most important and general impact is investors' resorting to safe investments and away from investment risks in Arab developing countries. Capitals began to invest in treasury bonds, gold and bank deposits, especially after the US Fed raised interest rates, which has also raised the cost of heavily public debt on many Arab States, particularly Lebanon, Egypt and Tunisia.

Regarding Arab-Russian investments, figures show that the cumulative total of Russian investment projects in the Arab region in 2020 was about $40 billion.  as the United Arab Emirates is considered one of the most investment-oriented countries with Russia. UAE investments in Russia account for about 80% of total Arab investments in Russia. In contrast, Russian investments in the UAE account for approximately 90% of Russian investments in the Arab world. The number of Russian companies in the UAE reaches more than 4,000. More than 450 Russian companies in Egypt operate mainly in the tourism and energy sectors, with a total capital of about $60 M.

Russian investments in the Arab region are unlikely to be significantly affected, first because of its modest size, and second because of the exception of Western sanctions against Russia to the energy sector, which is the largest sector with which Russian companies are active in the Arab region, On the other hand, Russian capitalists were welcome in the UAE, where the Emirate of Dubai is more likely to benefit from the implications of the Ukrainian crisis for Russian VCs. As the number of Russian businessmen migrating from the West to Dubai is expected to increase in search of a safe haven for their money.