The coronavirus, relentlessly spreading and rampaging across the globe, will have an enormous impact on the region of the Middle East which is already embroiled in multiple problems including a series of conflicts, sectarian violence, economic crises, refugee problem and widespread political unrest. The latest figures of COVID-19, as we speak, has already reached more than 1,00,000 confirmed cases, with over 6500 deaths in the region. Iran is the worst affected of all the countries in the region with more than 70,000 confirmed cases and over 4500 deaths. Even the health facilities in many of the countries in the region are not ready to cope with a large influx of patients as either they are at war (in case of Syria and Yemen) or bankrupt (Lebanon and Iran) or unstable (Iraq).
The pandemic will drastically impact economies across the globe, but the effect on the Middle East will be huge and as a result the countries depending upon the remittances from the region will also suffer. The GDP of the region which stands at US$ 3.5 trillion is expected to decline significantly in 2020. This figure could be higher if the compounding effect of low oil prices and the slowdown of economies due to the closure of various public institutions and private sector enterprises do not get the required stimulus from their respective governments.
The COVID-19 crisis has led to a significant decline in oil prices which has cost the region nearly US$ 11 billion in net oil revenues between January and mid-March 2020. During this time, the region’s businesses have lost a massive US$ 420 billion of market capital, i.e., about 8 per cent of the total market capital in the region. On the other hand, the tourism sector is also predicting a significant loss as it contributes a major part to the economy of countries like Egypt, Iran, Turkey, Palestine and Israel.
The pandemic is also affecting various key job-rich sectors in the region. For instance, tourist cancellations have reached 80 per cent in many of the countries, while the sectors such as hospitality and retail have also been adversely affected. As the pandemic ravages economies and businesses, the crisis could cause job loss of more than 1.7 million people in the region at an alarming pace with unemployment to spike above 1.2 per cent. With a large number of people employed in the service sector, there is a fear of an increase in unemployment due to lay-offs. This situation is particularly perilous for low-income migrant labourers who could be left impoverished without any governmental support. Although the charities have stepped in to fill the gap, the prospect of job losses will also affect other economies as they contribute billions of dollars in remittances. The amount of money sent home by migrant workers is as high as US$ 70 billion to US$ 75 billion and in many estimates double of the official number. This forms a major part of the economy in various South Asian and South East Asian countries.
According to the International Monetary Fund (IMF), the economic outlook for the Gulf States this year looks bleak. The GCC is expected to post deficits in 2020 and will possibly slide into recession. The fiscal deficits of GCC is projected to reach 10-12 per cent of GDP in 2020, implying an additional financing stimulus of around US$ 150 billion to US$ 170 billion.
Unless the GCC nations choose to intervene, the crisis will lead to the collapse of small and medium enterprises (SMEs) in the region where they constitute a critical component of the economic future. Saudi Arabia and the UAE have started following the Chinese model in setting up stimulus packages for their SMEs, but many countries like Egypt, Jordan and Lebanon have much difficulty in providing these businesses with the support they need to weather the crisis.
The aggregate economic impact is likely to be very large, with the most recent data suggesting the global economic impact will be comparable to the 2008–2009 recession, in which GDP was reduced by more than 2 per cent worldwide and in the Middle East by more than 11 per cent. The comparison with the recession of 2008 gains importance because despite the dramatic economic slowdown, the Middle East economies performed well and did a decent job of weathering that crisis. The combination of a looming recession coupled with an unprecedented health crisis in these countries, given the terrible state of their health systems, will be a disaster.
The consequences as a result of collapse in crude oil price could stretch well beyond the economic fallout and have the potential to undermine the stability of systems where the political and the social consensus rely directly on the redistribution of revenue generated by the oil exports. While it is hard to predict the political, economic and social ramifications of this pandemic, from a geopolitical perspective it will lead to a shift in the regional balance of power, with China playing a major role. Beijing has replaced the US in providing timely assistance to the countries in the region. It has been proactively lending support to governments across the region from Algeria to Tunisia and from the Palestinian National Authority to Iran supplying necessary medical equipment and sharing scientific knowledge and medical expertise. With its mask diplomacy, Beijing has donated more than 2,50,000 masks to Iran and other countries in the region.
Therefore, the effects of this deadly outbreak on the geopolitics of one of the most volatile regions in the world are playing out on various levels. While the regional power struggles between Iran, Saudi Arabia and Israel continue to evolve, the question arises how COVID-19 is going to change the nature of the power balance.
This article was published in the International Policy Digest on April 23, 2020. Click here to read
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.