Dual Impact on the Middle East – Oil and COVID-19

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The impact of novel COVID-19 virus is likely to be immediate and long lasting as it spreads across every country in the MENA (Middle East and North Africa) region. Even before the COVID-19 had its impact, the oil market was in turmoil with large scale protests in Irag, Algeria and Lebanon. This outbreak has brought about a massive political and economic change to the region.

Tourism and oil trade have dominated the regions economies over the past decades. Tourism alone contributes 8-10% of the total GDP of many of the MENA nations. Oil is the dominant industry and oil-producing and non-oil producing nations have benefitted from it. If not directly through the production of oil, then through expatriate workforce.

The Corona crisis reduced the demand for oil from China, one of the largest consumers, and this caused a tumble in the oil prices globally. With many nations coming to a standstill due to lockdowns and decreased economic activities, oil became the one commodity that no one had an appetite for. The current revenue loss is projected at upwards of $200 billion.

Countries imposed travel restrictions, airlines were grounded, and borders were closed, shutting down the tourism industry in totality. Every country that depended on tourism is looking at large scale unemployment and huge losses starting at $1 billion dollars at least. Workers in both sectors have faced job loses, salary cuts and many expatriate contract labour have found themselves in even worse positions of being unable to return to their home countries.

As per the IMF prediction the economies of the MENA region are set to shrink by a minimum of 3% in this year and if the recovery is slower then the number might be more abysmal. Economies are pegging their hopes on 2021 for recovery and most has written off 2020 as a total loss. The governments need to focus on fiscal stimuli packages and in some countries international aid in order to sustain their economies from tumbling further. The foreign reserves of these nations are likely to deplete, and the future would see several austerity measures being put in place by the government to stabilize the economy.

The new age industry driven by the internet and e-commerce has also heavily suffered from the Corona impact. Many of these companies are dependent on foreign partner funding and with the state of the economy being dull across the world, funding might be a huge problem in 2020. The e-commerce industry would be the fastest to recover if they can work around the hygiene requirements of COVID-19 virus restriction. Another way to survive for small entrepreneurs is to adapt their businesses to the necessity supplies that are required at the moment like mouth masks, PPE kits, sanitizers, etc. This temporary adaptation might help them tide over the current crisis and help them stay afloat to move back to their core business when the economy becomes buoyant in the coming year.

The regions biggest issue is of security. In the past the MENA region has faced security issues owing to economic crisis and the leaders have to careful to ensure that there is no unrest and that people are taken care of. Short term measures will help people tide over the current crisis situation but in the long term the government needs to offer support that will help companies get back on their feet so that all jobs can be secured.

The scale of the COVID-19 infection means that no country will be left untouched by its effects.  If economies are tumbling then the effect of the Corona virus will be amplified and in a sensitive region like the MENA region, it is important to ensure that the government does enough to maintain peace during this time of crisis.