Skip to content Skip to Search
Skip navigation

Oil will cushion Middle East from economic impact of Ukraine war

The war in Ukraine will sharply reduce economic growth in the Central Asian region in 2022, but higher oil prices will partly cushion the blow for the Middle East and North Africa, the International Monetary Fund said on Wednesday. Both regions, however, will feel the impact of surging commodity prices, the IMF said, warning higher wheat prices alone could increase the Middle East and Central Asia’s combined external financing needs by up to $10 billion.

“The war in Ukraine will be the dominant factor shaping the outlook, compounding global headwinds from faster-than-expected normalization of monetary policy in advanced economies, China’s slowdown and a lingering pandemic,” it said.

Economic growth in the Caucasus and Central Asia is projected to slow to 2.6 percent in 2022 from 5.6 percent in 2021, due to close trade and financial linkages with Russia, reliance on remittances and tourism, and “exchange rate and cross-border payment spillovers”. Even oil producing Azerbaijan’s economic growth is set to slow to 2.8 percent in 2022, from 5.6 percent last year, as it relies on tourism from Russia and Ukraine, and is exposed to wheat and fertilizer imports from the two countries, the IMF said.

Russia and Ukraine are both big producers of commodities such as wheat and supply disruptions due to the war have sent commodity prices soaring. Inflation is seen at 10.7 percent in Central Asia, a result of currency depreciation pressures and commodity price surges. “The recovery is set to lose steam for oil importers, with increasing divergence across countries, while most countries will also continue grappling with elevated inflation.”

Growth for the Middle East and North Africa (MENA) is forecast at 5 percent, down from 5.8 percent in 2021. In the six oil producing Gulf Arab states, growth is projected to accelerate to 6.4 percent from 2.7 percent last year. Inflation in MENA is expected to remain elevated at 13.9 percent due to higher food and energy prices and, in some cases, exchange rate depreciation and lax monetary and fiscal policies.

Regional oil importers such as Lebanon and Tunisia are being hit by higher commodity prices and tightening financial conditions, fuelling inflation and worsening external and fiscal accounts. But oil and gas exporters will benefit from higher energy prices, more than offsetting the impact of tightening financial conditions and lower tourism revenues, the IMF said. Global benchmark Brent crude hit $139 a barrel last month, its highest level since 2008, but prices have eased in recent weeks due to growth concerns.

The IMF’s April report assumes that the price of oil will average $106.83 a barrel in 2022. The IMF earlier this month upgraded top oil exporter Saudi Arabia’s economic growth outlook to 7.6 percent in 2022, citing higher oil output and prices, from 3.2 percent in 2021. Its previous forecast was 4.8 percent. The kingdom’s economic growth is forecast to slow to 3.6 percent in 2023.