Chronicle of the Middle East and North Africa

Arabs and the Ukrainian War: Economic and Political Considerations

Arabs and Ukrainian War
Servicemen of Ukrainian Military Forces wait at their positions in the Luhansk region on March 2, 2022. Anatolii Stepanov / AFP

Ali Noureddine

The timid response of the Arab countries to the war on Ukraine was not understandable to their Western allies, especially Egypt and the GCC countries, since they have the most influence on the Arab League.

The League’s official response didn’t go beyond providing help and support to the Arab communities in Ukraine, all while maintaining a neutral stance and refraining from blaming any party. It may be due to the relations and interests with Russia and Ukraine. In short, the official statement of the Arab League was confined to calling to solve the crisis through dialogue and diplomacy, respect the principles of international law, and self-restraint.

In the Security Council, the United Arab Emirates made a shocking display. Along with India and China, it abstained from voting on a draft resolution proposed by the United States condemning the Russian military attack on Ukraine.

Although Russia’s veto power overturned the decision, the Emirati position was merely a symbolic expression of the Gulf states’ reluctance to side with their Western allies in this diplomatic clash against Russia. Elsewhere, Saudi Arabia neutralised itself from the war consequences with practical decisions, not a mere symbolic stance. The Kingdom of Saudi Arabia insisted not to satisfy the American demand by increasing its oil production, despite the rise in global fuel prices to their highest levels in seven years due to the Ukrainian war.

However, Saudi Arabia adhered to its previous agreement with Russia within the OPEC+ regarding the quantities of oil produced by its member countries. The Saudi stance will maintain the rise in the oil prices due to the ongoing war.

Consequently, the pressure of these prices on the Western industrialised countries’ economies will escalate. Practically, KSA’s response kept the oil prices card in Russia’s hand, which doesn’t bode well with the US.

Most Arab countries distanced themselves from the consequences of this war or its developments. Egypt only called for dialogue and diplomatic solutions, which would facilitate the political settlement of the crisis. At the same time, the official Egyptian position rejected the economic sanctions imposed on Russia.

Even Jordan, an ally of the US in the region, stressed the importance of self-restraint, de-escalation, and peaceful settlement of the conflict. Qatar‘s response balanced between demanding respect for Ukraine’s sovereignty over its territory and showing neutrality between the two parties by asking to resolve the dispute through diplomatic means.

The Qatari foreign minister was keen to contact the two parties to demonstrate the balanced Qatari position.

In short, Arab responses did not go beyond cautiousness. They avoided getting involved in sharp situations, with a few exceptions, such as Syria, which went so far in solidarity with Russia that it voted in the United Nations General Assembly against a draft resolution calling on Russia to stop using force against Ukraine.

Only five countries voted against this resolution, including Russia and Syria, compared to 141 countries that voted for the resolution, and 35 countries abstained. In any case, it was clear that Syrian President Bashar al-Assad’s praise of the Russian military operation, considering it a “historical correction”, was to maintain the Russian military support for his regime.

On the other hand, Libya‘s response was among the harshest Arab responses condemning the Russian military operation. The National Unity Government condemned Russian aggression, considering it a violation of international law.

In practice, the National Unity Government seemed to mind its urgent need for Western support to preserve its authority. Besides the possibility of offering Libya as an alternative source of natural gas to meet the needs of the European market after the suspension of the Nord Stream 2 project, which was supposed to supply the European market with Russian gas.

The Lebanese Ministry of Foreign Affairs responded similarly, explicitly condemning the Russian military intervention. Still, the statement caused a division within the Lebanese government over their official position.

Thus, except for some cases related to apparent political considerations, the Arabs were cautious and quietly conservative in their responses to Ukraine’s war.

Some believed that some Arab countries, especially the UAE, made a deal with Russia to betray their Western allies. Although most Arab countries, and all Gulf states, voted again in favour of the decision to demand Russia to stop military operations, official responses continued to suggest that the overwhelming majority of Arab countries adhered to neutrality between the conflicting parties.

This approach also was clear since the Arab countries, especially the financially influential Gulf states, refrained from imposing economic sanctions, like the West, on Russia, which augmented the Western officials’ feeling of betrayal by their Arab allies.

In fact, this Arab reluctance is inseparable from economic and political interests. The Gulf states took an early glimpse of the economic opportunities and benefits of the Ukrainian-Russian military conflict, especially regarding the rise in oil prices and the increased demand for liquefied natural gas.

That is what prompted countries such as Saudi Arabia to forgo trying to save their Western allies with measures to curb the rise in crude oil prices. On the other hand, it was clear that other countries, such as Egypt and Jordan, foresaw the gravity of such a conflict on their economic interests, especially regarding wheat and food supply lines from Russia and Ukraine.

Hence, the reason that prompted them to pressure towards peaceful and diplomatic solutions, with no intention to aggravate the confrontation between the two sides.

Finally, these developments were linked to an exchange of positions within the Security Council, as happened between the UAE, which abstained from voting against Russia, and Russia, which voted for the Council’s decision to impose an arms embargo on the Houthis.

The Gulf: Economic and Money Opportunities

The war in Ukraine fuelled fears in the international financial markets, unleashing a sudden and rapid increase in oil and gas prices.

As of Thursday, March 3, the price of West Texas Intermediate rose to $110.3 per barrel, a level not previously recorded since 2013. Brent oil price rose to $111.44 per barrel, an unprecedented record level since 2014.

On the other hand, gas prices experienced fluctuations that were no less severe, with the price of natural gas rising to $3.52 range per gallon, an increase of about 21 cents from the price of a gallon during the past month and about 90 cents during the past year.

The rise in gas prices in the global market represented the most sensitive sign since the European markets are linked to Russian gas imports, and the war in Ukraine coincided with the high demand for gas during winter.

For the Gulf states, this development meant nothing but an increase in oil and gas imports in the global markets and mending their budgets, burdened by debts that had accumulated during the oil prices crisis in 2020.

It is precisely from this angle that the Saudi position, refusing to increase oil production above the quantities agreed upon with Russia in the OPEC+, is comprehensible, despite all the American pressures to persuade the Saudis to increase production rates.

Increasing production rates, as requested by the US, will simply mean curbing the rise in oil prices that the Gulf states are enjoying currently.

Nord Stream 2 suspension was good news For the Gulf states, especially Qatar, as this development meant that Europe would increase its dependence on the Arab liquefied natural gas. That will also increase their negotiating power against their Western allies. In other words, the developments in Ukraine opened up financial and political opportunities for the Gulf states.

But at the same time, the Gulf states found very significant political opportunities in the Russian-Ukrainian conflict. The UAE exploited the crisis politically for its interest by bartering the Russian vote in the Yemeni file, with its abstention from voting against Russia in the Ukrainian file.

Winning Russia’s vote is of exceptional importance to the UAE, given Russia’s veto power in the Security Council. As for Russia, the UAE’s abstention from the vote was symbolic support of great importance, given that the vast majority of the world rallied against it in the Ukrainian file.

The considerations of the Gulf states were not limited to economic benefits from the war in Ukraine or some side deals with Russia, as happened in the Security Council. The Gulf states have recently acquired many complex economic interests that have prompted them to distance themselves from this conflict and refrain from taking any harsh stance against Russia.

For example, in 2019, the Sovereign Wealth Fund and the Qatar Investment Authority partnered with the massive Russian oil company Rosneft. They alone own about 19 per cent of its shares. Qatar also has other significant investments in Russia, such as acquiring a stake worth more than $500 million in VTB Bank and a stake of more than 25 per cent of Pulkovo Airport shares.

The UAE has begun to consider crucial economic priorities as it approaches the Russian file since the value of its trade with Russia recently increased by about 78 per cent, compared to 2019. On the other hand, in addition to all its trade and investment relations with Russia, KSA still considers Russia an indispensable partner leading OPEC+, which played a key role in engineering the global oil market and setting production rates in line with the interests of the exporting countries.

In short, the Gulf states have their reasons for pacifying Russia and refraining from sharp responses against its assault on Ukraine, especially its economic interests. They also have good side deals and economic benefits, which resulted recently from the outbreak of the conflict in Ukraine.

Thus, their contentment as a spectator, without showing much willingness to help Western countries to pour the pressure on Russia.

Finally, the Gulf economic interests in Russia, especially Qatar’s investments in the oil and banking sectors, explain the Qatari position, condemning economic sanctions against Russia because these sanctions will eventually affect Qatari investments.

Arab Countries and Food Concerns

Arabs and Ukrainian War
Taoufik, the master baker, inspects the bread at his bakery in the El Menzah area of Tunis on February 27, 2022. Russia’s invasion of Ukraine could mean less bread on the table in Egypt, Lebanon, Yemen and elsewhere in the Arab world where millions already struggle to survive. Tunisia relies on Ukrainian and Russian imports for 60 percent of its total wheat consumption, according to agriculture ministry expert Abdelhalim Gasmi. FETHI BELAID / AFP

The quantity of wheat exported in world markets exceeds 207 tons, about 17 per cent of which is exported from Russia, and 12 per cent is exported from Ukraine.

Together, the two countries account for about 29 per cent of the total exported wheat. This issue mainly explains the panic that led to the rise in wheat prices to their highest levels in more than a decade, which also explains the possible disruption of wheat supply chains to Arab countries.

Precisely for this reason, many Arab countries, such as Jordan and Egypt, are anticipating the effects of rising international wheat prices on their prices, not to mention the possibilities of cutting off their available wheat stocks.

In Egypt, the immediate result of the armed conflict was an increase in the price of a wheat ton by about EGP 1,000, to reach EGP 6,500 per ton, an increase of nearly 18 per cent. This rapid rise prompted the Egyptian government to cancel two tenders to purchase wheat to increase its strategic stock because of its cost on the Egyptian treasury.

But Egypt’s genuine concern today lies in any possible disruption to wheat supply chains from Russia or Ukraine, given Egypt’s reliance on the two countries to secure more than 80 per cent of the wheat it imports. In such a scenario, Egypt will face two dilemmas concurrently: the high cost of securing wheat and the difficulty securing it from international markets.

Knowing that the high cost of importing wheat will increase the deficit on its balance of payments, i.e. net financial transfers between Egypt and abroad, which will inevitably affect the exchange rate of the local currency.

Jordan faces the same dilemma, primarily since it relies on imports to secure about 90 per cent of its annual wheat consumption. For a country whose import bill is about $5 billion, any rise in international wheat prices will translate to pressures on its balance of payments and an increasing need for foreign currency to import food.

Noting that Jordan, in particular, is blessed with a balanced reserve of wheat that exceeds 1.3 million tons, securing the country’s need for wheat for more than 15 months, which gives the Jordanian government a lot of flexibility in dealing with the issue.

In any case, it is clear that the Arab countries that refrained from sharp responses towards the conflict, such as Egypt and Jordan, had their food security considerations, which prompted them to press for a diplomatic and peaceful solution to the crisis. It was also apparent that these countries were trying to maintain a balanced relationship with Russia and Ukraine so that their food imports would not be affected by taking sides.

In conclusion, except for Syria, Libya and Lebanon, Arab countries took a balanced stance towards Russia and Ukraine, refraining from sharp responses towards this conflict, which was reflected in the disciplined, conservative position taken by the Arab League. That stance expresses the political and economic balances that govern the circumstances of these countries.

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