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Gas crisis may attract ‘energy migrants’ to Middle East

International companies may have to rethink their strategy as bills continue to rise

European companies hit by fuel price hikes and shortages will look to the Middle East as a region of abundant energy supply Reuters/Eric Gaillard
European companies hit by fuel price hikes and shortages will look to the Middle East as a region of abundant energy supply

The practice of direct foreign investments is typically founded in locations offering prospective investors a relatively favourable supply of key business inputs.

On the physical side, these include availability of land or property, infrastructure and raw materials.

On the intangible side, it’s elements such as the regulatory environment and taxation.

Touching both are factors like staff availability and quality, and the local industry ecosystem and supply chain.

Depending on the industry in question, these factors hold different relative weights for different sectors.

An IT company, for example, is likely to be most concerned about employee qualifications and skills.

For a distribution company, it’s probably more about the availability of suitable premises and the surrounding transport infrastructure.

However, I think that all might be about to change.

Pick up any UK or European newspaper in the last two months and a constant, loud and increasingly urgent thread is the energy crisis facing the continent, which shows no sign of abating with the Nord Stream gas pipeline now out of action for the foreseeable future. 

While governments across the continent are taking direct and significant action to ease bills through subsidies and price caps, guarantees and credits, the picture remains dire.

Although government intervention is likely to mitigate against worst-case scenario price rises for companies (previously predicted to exceed 700 percent in the UK) and the gas price is approximately 30 percent off its late-August high, business models are under significant strain.

There are threats to the very viability of many industrial and manufacturing firms for whom high-energy consumption is an essential input in their production processes. 

When you also factor in the increasingly likely prospect of energy supplies being restricted and rationed, even those that can still afford to operate may not be able to do so at their intended capacity, meaning they also face a loss of earnings.

As the European energy crisis worsens through the coming winter, I do wonder if we’ll see the first corporate energy migrants looking to regions like the Middle East with abundant, affordable, stable and long-term sources of power – both hydrocarbon and renewable – as their only option to keep operations going.

If it’s a stark choice between that and going out of business, I think it’s likely that energy supply will become a primary driver of direct foreign investments, superseding many of the “usual” factors outlined above.

No doubt the marketeers will still attempt to intrigue and entice us to live in a 170km-long glass strip in the desert, and who knows what the next Middle East mega-project will promise.

But for now and the foreseeable future, the region’s direct foreign investments attraction messaging could be altogether more prosaic, basic and crude: “We got gas”.

Joe Hepworth is CEO of trade support company British Centres for Business 

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