Why Europe’s fate matters to the Middle East and North Africa
The EU is facing a rough winter. Overdependence on Russia for its energy needs has left many countries across the continent vulnerable to cuts in natural gas flows and price spikes in fossil fuels. There is talk of energy rationing at a time of sluggish growth and rising inflation. The dreaded “s” word — stagflation — is on many lips, and the ensuing political turbulence will rattle several governments.
The fate of Europe matters a great deal to the Middle East and North Africa region. After all, the EU’s $18 trillion economy makes it a key piece of the triumvirate of key nodes that are critical to the global economy — the other two being the US and China. It also matters a great deal to North Africa given the robust trade ties across the Mediterranean, the 5.5 million North Africans living in Europe, the supply chain links to European industry, and the flow of remittances from Europe headed mainly to Morocco, Tunisia and Algeria.
The recently concluded Jeddah Security and Development Summit declared a “joint vision toward a peaceful and prosperous region,” as noted by the assembled leaders from the Gulf Cooperation Council and the US, as well as Iraq, Jordan and Egypt. As always, prosperity begins with sound policies at home, but can also be rocked and buffeted by rough winds from abroad.
There are numerous rough external winds facing many Middle East and North Africa states today: Rising food and energy prices, a slowdown in China (a major energy buyer), global sluggishness, rising debt loads across emerging markets, supply chain disruptions and geopolitical uncertainty. Among these, however, a key factor will be the fate of Europe.
That is why the recent announcement by the European Central Bank that it will raise rates by half a percentage point as part of its inflation battle is not just a story for the financial pages, but will have real consequences for the MENA region as well.
The ECB, like the US Federal Reserve, is aiming to cool inflation without tanking the economy. Given the rising debt load in several countries — notably Italy’s 150 percent public debt to gross domestic product — the danger of successive rate rises would be a rapid rise in borrowing costs. So, the ECB laid down a marker, with the formidable Christine Lagarde, its president, pushing through a proposal that will allow the central bank to buy bonds and even private securities of EU countries in danger. This was a powerful warning to speculators: Do not take large positions against European markets; you will lose in a battle with the central bank.
The ECB move could help stabilize many European economies, though the region still faces many headwinds. Russia’s war in Ukraine will continue to cast a shadow over the region, and inflation will sap the consumer.
When it comes to energy, North African gas producers can help make up for some of the shortfall of Russian gas. Algeria is already a major natural gas supplier to Europe — the third largest after Russia and Norway. Algerian state energy firm Sonatrach has been doubling down on new exploration spending. The future looks bright for Algerian gas to Europe.
Meanwhile, in a remarkable deal that reflects the new temper of our times, Egypt is set to export Israeli liquefied natural gas to Europe via two Egyptian LNG plants. The memorandum of understanding was signed this month at the East Mediterranean Gas Forum in Cairo. Another major new development took place this week during the visit of Saudi Crown Prince Mohammed bin Salman to Greece. Both sides signed an agreement to develop green hydrogen and clean energy initiatives jointly. The crown prince noted that Saudi Arabia would like to help "turn Greece as a hub for hydrogen to Europe," describing it as "a game changer for both of us."
Qatar, one of the world’s largest liquefied natural gas exporters, is also well positioned to boost its European market share. Right now, the bulk of Qatari LNG heads to Asia. But with billions in new investments and an ambitious production expansion schedule, more can be expected to flow to Europe over the next decade. As for oil, Saudi Arabia and Iraq are reportedly diverting more of their oil flows to European refiners to help make up for the shortfalls from Russia.
Europe will need a more diversified and stable energy supply to maintain its status as a key pole of the global economy. Key poles, such as Europe, are both supply and demand engines for the world, creating multiplier effects among their main partners. North Africa’s trade profile is heavily European, and its tourist flows are the same. A sluggish Europe will add to the challenges already faced across North Africa, most notably food price inflation and slowing growth. As for the Levant and the GCC states, they also have deep commercial and political ties across Europe and benefit when the continent thrives.
Europe will need a more diversified and stable energy supply to maintain its status as a key pole of the global economy.
Further, as economies deteriorate, societies fray and become more susceptible to populist nationalist movements. In Europe, those movements tend to be skeptical of migrants and, more broadly, of Muslim migrants. The rise of a new wave of populist nationalists could pose new challenges for MENA governments more accustomed to dealing with centrist parties.
It should come as no surprise in our globalized economy that the fate of Europe matters to the fate of the world. For its neighbors across the Mediterranean in North Africa or the Levant that are highly correlated to European markets, or its allies in the GCC states, the fate of Europe will help determine their own fate in a precarious moment. Ramping up energy supplies to Europe will have a virtuous cycle effect: It will boost Europe at a critical time, supporting a continent that is vital to the economic future of the region.
- Afshin Molavi is a senior fellow at the Foreign Policy Institute of the Johns Hopkins School of Advanced International Studies, and the founder and editor of the Emerging World newsletter. Twitter: @AfshinMolavi