Exactly one year after Russia’s fatal invasion of Ukraine, the global geopolitical and economic landscape has changed perhaps irreversibly. The Middle East and North Africa is amongst the regions facing the strongest and most diverse challenges and opportunities of this global shock. After the Covid-19 pandemic and continuing waves of popular unrest, the war in Ukraine further exacerbated already existing crises and triggered important shifts in the regional dynamics. This article highlights some of the most pronounced new developments in the MENA region and provides an overview on some of the key issues to look out for in 2023.
MENA resource-scarce republics in financial distress
Over the course of the last year, already existing economic crises in the region, such as in Egypt, Lebanon and Tunisia, have intensified and thus increased the pressure on the states to rapidly settle for loan agreements with the International Monetary Fund (IMF). For example, it is estimated that over 80% of the Lebanese population lives below the poverty line. Tunisia’s national debt amounts to almost 90% of GDP, and the Egyptian pound has lost another 50% in value compared to February 2022. The wheat supply shortage hit the MENA-countries particularly hard and was not devoid of social implications. In most Arab countries, staple foods are heavily subsidized by the state and these subsidies constitute an unspoken social contract – affordable food for social peace. If the states are no longer able to provide these subsidies, the already weak legitimacy of the governments starts to become non-existent. This is an issue particularly pronounced in Egypt, Tunisia, and Morocco. Although the grain deal brokered by Turkey in late July has alleviated food shortages and some of the related social and political tensions, the situation remains difficult. Large grain importers such as Egypt and Tunisia paid a high price for keeping social tensions in check by subsidizing import wheat, thereby vastly depleting their foreign currency reserves. The results are painful downgrades on credit ratings, and IMF deals with reform demands, that are not only incredibly hard to fulfil, but also likely to meet fierce popular resistance.
Energy-security likely to trump ideology in 2023
Another consequence of the war in Ukraine was that the western countries increasingly turned to the MENA-countries to reduce their dependency on Russian oil and gas. As a result of this new dynamic, the energy producing countries in the Gulf are expected to generate $1.3 trillion in fossil fuel revenues over the next four years. This boost in financial and political weight, in turn, allows them to approach their foreign affairs in a more diversified and confident manner, knowing full well that critique over human rights and civil liberties is likely to remain negligible in 2023. Is is also evidenced by the fact that other countries in the region with a history of complicated relations with the West are reconsidered as alternative energy suppliers. Algeria, who recently concluded new energy deals with Italy and Spain, finds itself in a much stronger position vis-à-vis its European partners than two years ago, and it is not afraid to pronounce clearer demands. Likewise, the Libyan government in Tripoli recently signed a high-dollar gas production and supply contract with Italy. The disputed (but internationally recognised) government in Tripoli has thus experienced a new boost in legitimacy vis-à-vis its internal contestants. The hunger for Middle Eastern and North African fuel also revitalised unfinished projects such as the EastMed pipeline. Finally, the US-brokered maritime agreement between Lebanon and Israel, allowing for gas exploitation, can also be seen as a consequence of the Ukraine war.
No unified front, but a new geopolitical confidence
Politically speaking, the war between Russia and Ukraine has been a tough line to walk for most MENA countries. Very few have taken a clear position, as evidenced by the numerous abstentions from votes in the UN General Assembly. Some rather overtly rallied behind Russia such as Algeria, Iran and Syria, while some placed themselves closer to the western camp such as Libya, Iraq and Israel. Few, however, joined sanctions or delivered weapons to eighter side. Overall, this is not a new trend in geo-political alliances, but the war has further accentuated the dynamics. Yet the new dynamics in the region and the power boost of energy producing countries certainly lead to a new pragmatism in bilateral relations. Especially the Gulf-countries are diversifying their contacts in an increasingly multi-polar world. Their newly gained self-confidence is exemplified by the OPEC’s decision last summer not to comply with the western request to increase oil-production. On the other hand, this further geopolitical retreat of the US does not mean that the other great powers were effectively able to fill the gap. Russia’s lobbying to let Syria back into the league of Arab states has for example also not been successful. As a consequence of the increased self-awareness of the MENA-region, we are also experiencing a regionalisation of the dynamics. The energy-producing countries are increasingly positioning themselves as moneylenders in a crisis ridden environment. For example, Saudi Arabia and the UAE have given loans to Egypt and bought formerly state-owned Egyptian companies. Parallel to the UN-led peace talks, Saudi-Arabia has established direct negotiations with the Houthis in Yemen. An absolute novum was also that the league of Arab states, and some individual countries in the MENA-region, have offered to mediate between Russia and Ukraine. Although this initiative might come as a surprise given the huge amount of conflict they have in their own backyard, it speaks for the newly gained self-perception and confidence of countries in the region.
New opportunities on the global market
Other than crises and a boost for energy supplying countries, the war in Ukraine has also created chances for some states in other sectors. The war has triggered a run on high-tech weapon systems. As a result, individual MENA countries have positioned themselves as viable suppliers. The obvious example is Iran furnishing its Shahed drones to Russia. But also Morocco, as the first African and Arab country, has recently supplied its Soviet-made tanks to Ukraine. The biggest winner however is Israel. While the government remains reluctant to officially supply weapons to Ukraine, Israel’s private defence sector - already one of the largest weapon suppliers worldwide - experienced a big increase in demand from Europe for Israeli weapon systems. On another dimension, the sanctions against Russian finance and logistics institution had also a significant effect on international fertilizer markets. With Russia’s exports dwindling, Belarus’ production stalled due to sanction regimes, and many producers such as India curbing exportation fearing for their food security, agricultural producers around the world were turning to Morocco. For decades, Morocco has been investing heavily in phosphate mining and fertilizer production, some of it in its internationally disputed Western Sahara Territories. The North African kingdom controls an estimated 70% of the world's phosphate, a key ingredient for fertilizer production, and has already announced plans to increase domestic phosphate production by 3 million tons by 2023. In times where food security worldwide is at risk, Morocco’s gate-keeper position as a reliable and politically stable regional and supra-regional fertilizer exporter is giving it a new geopolitical weight. Amongst a leading role in West-African diplomacy, this is also likely to increase international lobbying for a Moroccan-controlled Western Sahara.
The dynamics triggered by the war in Ukraine have had and ambiguous effect on the MENA-region. On the one hand, they exacerbated existing crises and brought some of the countries on the brink of economic collapse. On the other hand, the new geopolitical and economic dynamics proved favourable to some MENA states. Above all the oil-producing countries, but also others such as Morocco and Israel experienced an increased self-confidence that is likely to further influence geopolitical developments in 2023.
Gabriele Guzzi is the Co-Founder of Ishtar MENA Analytics and our Senior Analyst for the Mashreq region. He studied in Zurich, Beirut, and London and is currently working on MENA foreign policy in Switzerland.
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