Published on March 29, 2014
The Ukraine-Russia crisis has been the talk of the town for the past few weeks. Experts have busy analysing the situation and the implications of this standoff for various nations. The impact on the Gulf region, however, is unclear. Trade exchanges between Ukraine and GCC countries are negligible. Exports from Ukraine to Saudi Arabia in 2012 were worth only $926 million. But this amount is equal to only 0.5 per cent of Ukraine’s GDP.
In 2012, Saudi exports to Ukraine amounted to only $150 million, equal to 0.05 per cent of the country’s exports. Over the last decade only 2 per cent of exports from Ukraine went to GCC. And over the same period only 0.02 per cent of Gulf’s exports went to Ukraine, as their key export commodity is irrelevant to Ukraine. Ukraine is largely dependent on Russia for its energy needs.
Ukraine accounts for only 0.2 per cent of global GDP and thus the country does not have a major role to play at the global level either. The country accounts for 3 per cent of emerging markets’ debt and 0.1 per cent of international bank claims. Their external public debt stands at $10 billion but as the European Union has offered financial support for $15 billion the chances of a default in its debt repayments are highly unlikely.
Nevertheless, Ukraine is the world’s third largest exporter of corn and sixth largest exporter of wheat. Thus, the economic problems in the country could lead to a significant rise in food prices.
Ukraine acts as an energy distribution hub- 20 per cent of Russian gas is exported as LNG to Japan and South Korea, while the remaining 80 per cent is exported as dry gas to Europe, which passes through Ukraine. Europe is heavily reliant on Russia for natural gas. Thus, the Ukrainian breakdown would affect Europe first. Countries like Germany, Turkey and Italy in particular use majority of the Russian gas. If the need to buy natural gas in the spot market arises, increasing energy costs will lead to rising manufacturing costs as well as inflation.
If Russia secures trade sanctions, Gulf countries may benefit provided that Russia and the GCC compete in the same market as energy exporters. Russia is one of the largest producers of oil in the world and the second largest exporter after Saudi Arabia. Thus, any issue that disrupts Russian energy exports could lead to a rise in oil prices and larger fiscal surpluses for the GCC.
The disruption of Russian energy exports would also push Gulf countries to increase production. Saudi would enjoy increased revenues from greater volumes as well as higher prices. But even Saudi Arabia would fail to recompense a sharp decline in Russian exports, which would impact global growth. Nevertheless, GCC would be one of the few regions to profit from this crisis.
The advantages of avoiding any further escalation of conflict are many. Russia relies on oil and gas for nearly half of its budget. The EU accounts for 50 per cent of its trade, but Russia accounts for less than 10 per cent of EU’s trade. China’s neutral stand may also not help Russia as China accounts for only 10 per cent of Russian exchanges. The corporate community would also not want the sanctions to be implemented. Even if the sanctions are imposed it would take a long time for them to have an impact as Russia is self-sufficient in terms of fuel and food.
Experts believe that the solution to this problem is complicated but as long as matters don’t get out of hand, the conflict can still be contained.
