As you already know, in the Middle East region, starting from October 2023, experts and analysts have been actively predicting a global crisis related to security and economics. Let’s try together to understand this crisis, its trends and development, risks and opportunities for business.
The events of October 2023 laid the foundation for a crisis that could engulf the Middle East, Africa and Europe. The brewing conflicts in the Strait of Aden have become the second step towards a global security and economic crisis. The risks for commercial shipping in the Red Sea and Indian Ocean are increasing, and the costs of transport companies are increasing, which indirectly affect the final cost of goods for businesses and households.
The risks of shipping in the Red Sea due to a security crisis in the Strait of Aden and the hypothetical risks of a security crisis in the Strait of Hormuz in the event of an escalation of conflicts in the Middle East could lead to problems with the supply of crude oil and petroleum products, which would affect global oil and fuel prices. Together with the G7 countries’ bailouts against oil from the Russian Federation, these developments could be a crushing nail in the hole for economic development around the world. In such a situation, countries that have access to their own or cheap imported oil to provide their economies with this energy resource may benefit.
However, at the moment, there are too few arguments to implement such an apocalyptic scenario for global industry. For commodity markets, increased tensions pose supply risks, with energy markets being the most vulnerable. However, for oil and LNG, we do not yet see any fundamental impact on supply.
Refiners and consumers may face some initial challenges as supply chains adjust to the longer route. Given the uncertainty and risk of spillovers, oil prices are likely to remain relatively well supported. For oil prices to rise significantly, we would need to see an even greater escalation and/or significant loss of oil supply.
In addition to petroleum products, the Middle East crisis also covers food products. For example, the European Union imports 35% of table grapes from India at the peak of the harvest, fresh ginger from China in the UK has risen in price by more than a third, coffee buyers are forced to replace Vietnamese coffee with more expensive Brazilian coffee. Exports were also hit. Italian suppliers shipping $4.4 billion worth of apples, kiwis and citrus fruits to Asia doubt the produce can be delivered fresh.
However, shortages and high markups on products are most likely short-term in nature and serve to reduce sales volumes of products imported from the East until logistics improve. Thus, reducing the volume of product sales, the stock will remain until new suppliers are found or until the products are delivered along the “long” sea route bypassing Africa.
In addition to the obvious risks of disruption to global logistics, there are also indirect risks directly and indirectly related to events in the Strait of Aden. Such as negative consequences for the economies of the countries of the region associated with logistics routes. For example, Egypt, which has stable revenues from duties in the Suez Canal in the amount of $8.8 billion (based on the results of the 2022/2023 financial year), may lose part of it.
Trade volumes through the Suez Canal fell nearly 44 percent year-on-year in the week ending Jan. 19, to a seven-day rolling average of 2.8 million tons, according to data published by Port-Watch, an International Monetary Fund (IMF) platform tracking disruptions to trade. maritime trade flows.
Last week, Suez Canal Authority (SCA) Chairman Osama Rabie said ship traffic through the canal had fallen by 30 percent since the start of 2024 compared with 2023.
Even though that Israel, the West Bank and Gaza are the most affected from the conflict and the military actions. But the economic impact extends far beyond the combat zone. The neighboring countries of Egypt, Jordan and Lebanon are already experiencing economic echoes. Amid fears about the risk of escalation, visitors have cancelled their travel to the region, severely damaging the lifeblood of these economies. Where Tourism, which accounted for between 35% and nearly 50% of goods and services exports in these economies in 2019, is a very important source of foreign exchange and employment. There will be repercussions on growth in tourism-dependent economies such as Lebanon, where hotel occupancy rates fell by 45 percentage points in October compared to a year ago.
Since the world is experting a huge changes at geo-political and economic levels, which, of course, is accompanied by the formation of many conflict hotspots and profound transformations and changes occur in political and economic alliances and blocs. And the events in middle-east are part of these global changes. This leads to founding a new opportunities for new players in business and economics.
We should not forget that the risks of shipping in the Red Sea are high only for ships belonging to a number of states, and not to all without exception, which provides opportunities for maritime cargo companies from Asia and Africa to increase the number of contracts for the delivery of cargo through the Strait of Aden.
All this will take some time and then the supply chains will be restored, but economic losses will be significant for transport maritime companies from countries such as the USA, Great Britain, Israel, and in the future, possibly other countries included in the Eurozone. But an increase in demand for African cargo carriers could generally become a stimulus for the growth of the regional economy and a trigger for attracting external investment.
In terms of investment during this crisis period, Egypt could be a good destination, since the country’s government is making great efforts to attract foreign investment, therefore special preferences for investors can be obtained. Keeping in mind that Egypt represents the gate for many trading markets in the region of Middle-East and North Africa (MENA).
The International Labour Organization (ILO) and the Islamic Development Bank (IsDB) unveil on December the first ever study on scenarios for strong industrial and climate development policies in the Middle East and North Africa region. This study implies that MENA region could create 10 million new jobs by 2050 through decarbonization and green industrial growth and accelerate GDP to 7.2 per cent and employment to 5.3 per cent in less than three decades, through strong industrial and climate development policies. And this means that this region has a good potentials in the future and with prospects for economic and commercial growth, especially in the fields of green and renewable energy and many other fields.
Many countries in middle east are witnessing a massive public boycott movement against Brands, products and companies that support the Israel or representing supporting countries for Israel. The most prominent of these brands that were boycotted McDonalds, Starbucks, French cosmetics, ZARA…etc. and practically all products or brand from USA, EU and UK are under these movement. These Boycott movement gives a huge opportunity for the alternative products and partners from Russia and China, Since the people of Arab world now are looking for China and Russia as a more reliable partners.
Chinese dynamism and rapid compatibility with the requirements and demands of the Arab market led many Chinese products, most notably clothing, replacing Western products among the groups boycotting them. This dynamism is not purely mature in Russian companies and policies yet.
To summarize, we see that the highest risks are mainly short-term in nature and related to current logistics communications. If you are planning to do business in the Middle East, then it is better to use logistics services from companies from Asia or Africa. The crisis in the short term may in one way or another affect most sectors of the economy in the Middle East, but the most sensitive are the oil and gas sector and the food sector. Greater economic risks in the short term await eurozone countries that depend on energy and food exports from Asia.
One of the opportunities that can be gained from this situation is working with food imports in the short term from South America. Also building new relationships with sea freight carriers from Asia and Africa. In the medium term, since this crisis has the risk of escalating the conflict in the region, it is possible to consider the possibility of investing in the transport or infrastructure sector in Egypt.
