High oil prices ignite GCC investment across MENA region in 2022

The profound implications of Russia’s invasion of Ukraine are plain to see. Most developed markets have embargoed Russian oil exports — around 10 percent of the world’s total — while oil traders have started moving away from Russian oil for fear of further sanctions.

The biggest beneficiaries of these moves are major crude exporters in the Middle East, who have received major windfalls from high oil prices. But beyond gross domestic product growth, the wider economic effects of this growth are being felt across the region.

When oil prices spiked from supply shortages, Asian and European markets looked toward the Gulf states to satisfy their demand. The Gulf Cooperation Council bloc is likely to hit its highest GDP growth since 2011, jumping to 6.1 percent this year from 2.5 percent in 2021, according to MUFG Research.

This windfall is being used to power growth and to invest in long-term projects to transition away from carbon. Around $1.4 billion of planned GCC construction and transportation projects were stalled in 2021, but the sustained increase in oil prices will likely help fund these projects. The pipeline for future projects is vast, with Saudi Arabia (at 63 percent) and the UAE (at 22 percent) accounting for 85 percent of this work in the bloc, increased oil revenue this year will likely fast track these projects.

Also, several GCC countries have pledged to move toward a clean energy economy, and now have the capital to continue to fund these projects. GCC financial institutions have invested $2.4 billion in environmental, social and governance sukuk issuance, comprising green and sustainability-linked sukuk in the first quarter of 2022. The debut issuance of $900 million from Bahrain-based Infracorp, the infrastructure investment arm of the GFH Financial Group, was the largest ESG sukuk issued during the first three months of the year.

But besides the Gulf states, at least one non-oil-producing country stands to benefit immensely — Egypt.

GCC countries have pledged several billion dollars of investment in Egypt. Spiking fuel and food prices have caused the nation to suffer rapid inflation and substantial drops in foreign reserves. As in 2013, the Gulf states have come to Egypt’s rescue, with high oil prices making lavish investment even easier. Saudi Arabia has already pledged $15 billion over 10 years, while the Kingdom’s Public Investment Fund has already deposited $5 billion into the Central Bank of Egypt. PIF has yet another $10 billion on hold to be invested across the Egyptian economy. The UAE’s Abu Dhabi sovereign wealth fund ADQ has invested $2 billion since March, and Qatar has also pledged $5 billion.

Egypt is a cultural hub and one of the largest Arab countries in the Middle East. Their economic and political stability is inextricably linked to the stability of neighboring countries and the region as a whole. For example, during the Arab Spring, the destabilization of the Egyptian economy and government sent shockwaves across the Middle East, including demonstrations in stable countries such as Jordan. While we are not facing another round of protests in the region, stability in Egypt matters, and the foundation of stability in a country is a functioning economy.

Outside the Gulf, North African states also stand to benefit as Europe seeks to pivot away from Russian energy dependence. The Egyptian Natural Gas Holding Company and Italian oil and gas giant Eni signed an agreement in April to increase gas production and liquified natural gas exports.

Additionally, Algeria signed an agreement with Eni, also in April, to increase their oil exports to Italy by 50 percent, by 10 billion cubic meters of gas by the end of the year.

These agreements with Italy open up a new market for clean energy in North Africa and Europe, stimulating these economies as they recover from the COVID-19 pandemic. These agreements also contribute to the European demand for energy as their markets pivot away from Russian oil.

Iraq has also been able to gain from these recent moves in the energy markets. According to Iraq’s oil minister, the country has exported $11 billion worth of oil — approximately 100 million barrels— in March alone, the highest monthly profit in 50 years. Oil production accounts for 65 percent of Iraq’s economy, which means these oil exports have given a much-needed economic stimulus to Iraq’s struggling economy. Iraq’s economy is projected to lift by 8.9 percent in 2022, according to the World Bank. Furthermore, a new OPEC forecast has projected 4.5 percent growth in the Iraqi economy between 2022 and 2024, with inflation at 3 percent. These projections are a direct response to the current global energy market.

However, non-energy exporters face a difficult year ahead. In particular, Jordan, Lebanon, and Syria in the Levant do not enjoy the same domestic resources as the countries mentioned above. But while they are not able to directly participate in the favorable energy markets like their resource-rich counterparts, GCC economic surplus will likely lead to increasing aid and foreign direct investment in their economies. For example, the Saudi government’s humanitarian organization the King Salman Humanitarian Aid and Relief Center signed an agreement with France to provide $38.2 million to Lebanon in conditional aid in April.

While oil prices are likely to fall in the coming months as the global demand for oil reaches equilibrium, the global energy market over the last few months have had profound effects on the Middle East and North African region. Oil-producing countries in the area have produced significant economic gains, increased regional investments, and balanced country budgets. Furthermore, Egypt has been able to capitalize on recent oil shortages to court international investment in its hydrogen markets.

• Adam Karadsheh is a Geoeconomics Fellow at the Cambridge Middle East and North Africa Forum, a think tank based in the UK researching the politics and international relations of the Middle East and North Africa.