Economic Impact of the Russia-Ukraine Conflict: A Blow to the Region?

Riad Hamade
Friday 18 Mar 2022

The Ukraine war has captured widespread media attention in recent weeks, with news organisations providing wall-to-wall coverage and reports appearing on phones, televisions, radios, magazines, and newspapers.

We have been bombarded with images and videos of horrific destruction, human misery, and geopolitical maneuverings, which is both engrossing and terrifying to say the least.

However, the impact of this war on our region is less clear and less well reported. To us, it is more than a human-interest story; it has a direct impact on people. That is why Asharq Business with Bloomberg has dedicated extensive coverage of the Russia-Ukraine crisis providing up-to-date news and in-depth analysis while shedding light on the conflict’s economic secrets.

What now?

As a result of political power plays, we occasionally hear about gas, oil, and in rare cases, wheat, and today it is discussed in the context of Germany's initial reluctance to take strong measures against Russia or the US president's concern about rocketing inflation ahead of the crucial mid-term elections.

To begin with, the rise in oil prices has a double effect: Arab oil producers will benefit with oil prices returning to levels that will allow them to generate massive budget surpluses after 8 years of ballooning deficits. We can expect increased pressure on the government to begin spending more of the windfall as well. So, it's mostly good news, right?

Yes, for oil producers, but not really for those who must import their energy needs because it will raise the cost of living even more than the Covid-induced supply-chain squeeze has already done. As a result, this will have significant impact on the entire region’s population, and not just those in non-oil producing countries; but at least oil producers will be able to mitigate the impact.  

It does not stop there. Many Arab countries must now budget for higher prices for wheat and other agricultural products imported from Russia and Ukraine. Egypt for example imports 84 percent from the two countries, while Lebanon imports 60 percent from Ukraine and Saudi Arabia around 1.2 million tons of Russian wheat. Alternatives exist, but they will be more expensive. This is, in a nutshell, another round of inflationary pressure; Add to that the fact that the Russian currency has plummeted, and you can expect far fewer Russian tourists to be able to afford a trip to Egypt or Dubai.

Of course, this is a global phenomenon. Central banks were increasingly concerned that inflation would become sticky, requiring them to intervene to limit the supply of money and reduce the rate of inflation. In that context, the Fed has just announced that it will raise borrowing costs this month, and with another inflationary surge expected as a result of the Ukraine war, borrowing will become significantly more expensive. While many countries in our region have pegged their currencies to the dollar, this will make your mortgage, car loan or any other debt you have or want to take much more expensive.

* The writer is Director of Business News, Asharq News

Short link: