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Middle East one of most vulnerable regions due to Russia-Ukraine war: IMF official

“Over the last five years, there has been underinvestment in oil production [globally],” the IMF official said.

Published: Updated:

Much of the international attention is focused on Russia’s invasion of Ukraine. But the ongoing war, now entering its second month, is directly impacting the Middle East in more than one way.

On the one hand, the West, led by the United States, is trying to pressure Gulf members of OPEC+ to increase oil outputs.

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But on the other hand, several countries in the region are at risk of having food shortages.

“The Middle East is one of the most vulnerable [regions] in the world due to its dependence on commodities,” a senior IMF official said.

Speaking on background to a group of reporters in Washington, the official said the region was “known for the high level of consumption.”

Lebanon, for example, only had enough wheat supply “for a month or a month and a half,” the country’s economy minister said at the start of the month.

And the minister, Amin Salam, warned of “greater consumption” of oils, sugar and other imports during the upcoming month of Ramadan.

Numerous other countries in the MENA region depend on Ukraine and Russia for wheat.

Egypt’s government has said it would need to increase subsidies on items such as bread.

While the IMF official said oil-exporting countries were doing “very well,” he mentioned inflation as a factor that would not spare any country in the region.

“These are all second-round [inflation] effects of the problems at hand,” the official said, referring to the war in Ukraine.

‘No shortage in oil supply’

Following the US decision to ban Russian oil imports and much of Europe following suit, Moscow continues to see its oil pumped into Europe and even the US via third countries.

However, the decision has had ramifications, with domestic oil prices skyrocketing.

According to the senior IMF official, increasing output from oil-producing countries is not the issue. “There has not been a supply shock for the prices to increase in the way they have; this is a geopolitical issue.”

The official was quick to note that there is a need for the public to differentiate between oil and gas.

The repercussions of Russian oil bans are not as harmful as the decision to prevent any gas from Moscow.

A worker walks at the Majnoon oil field, near Basra, Iraq, on March 27, 2022. (Reuters)
A worker walks at the Majnoon oil field, near Basra, Iraq, on March 27, 2022. (Reuters)

There are several reasons for this, but mainly that it takes years to set up the infrastructure to transport natural gas. This also includes the need for LNG tankers and other technical procedures vital for transporting and importing gas.

As for oil, the world demand is around 100 million barrels per day.

Russia is responsible for just 5 million barrels a day of crude oil, according to the US Energy Information Administration.

And despite sanctions, Russian oil is still being purchased by countries like China and India, albeit at a discounted rate.

The same applies to Iranian oil exports, which have not stopped despite sanctions. The IMF official said that Tehran is forced to sell its oil at a “discounted rate” because of its inability to access all markets.

If a nuclear deal is reached between the US and Iran and sanctions relief allows for Iranian oil to enter the global market, this will have little impact on domestic oil prices, according to the official.

“There is no need, right now, in the market for an increase in [oil] supply,” the official said.

One of the main reasons for the current oil crisis is the lack of investment in the energy sector as more politicians seek “clean alternatives.”

A key to rectifying the markets could be US policy towards energy. Since the Biden administration took office, much of the focus of his advisors and officials has been on so-called clean energy and combating climate change.

Several European states have adopted similar policies.

Germany, one of the most dependent countries on Russian gas, decided to phase out nuclear energy under former Chancellor Angela Merkel. But a lack of investment in renewable energy sources has found Germany stuck between a rock and a hard place when it comes to cutting off all Russian imports of gas.

“Over the last five years, there has been underinvestment in oil production [globally],” the IMF official said.

On Monday, the UAE’s energy minister seemed to agree. “Nobody listened when we said more investments were needed in oil and gas,” Suhail al-Mazrouei said in an interview with Asharq Business.

South Stream pipeline

Gas pipes bearing the flags of Serbia and Russia (R) lie on the ground near the Serbian village of Sajkas, where Serbia ceremonially launched its leg of Russia's South Stream pipeline before the project was cancelled, December 10, 2014. (Reuters)
Gas pipes bearing the flags of Serbia and Russia (R) lie on the ground near the Serbian village of Sajkas, where Serbia ceremonially launched its leg of Russia's South Stream pipeline before the project was cancelled, December 10, 2014. (Reuters)

Apart from the oil-exporting countries, Egypt is “just fine,” the official said, alluding to Egypt’s increase in gas exploration, production and exporting.

Alongside Egypt, Algeria and Qatar are being looked at as Europe tries to diversify its energy dependence.

US Secretary of State Antony Blinken will head to Algeria this week where he will inaugurate the United States as the Country of Honor at the Algiers International Trade Fair, the largest trade show of its kind in Africa.

Separately, the IMF official revealed high-level discussions to reactivate the South Stream pipeline and gas from Azerbaijan. “It is very doubtful that the US will sanction third countries, which currently, and could in the near-future, transport Russian gas to the West.”

The South Stream pipeline was scrapped after Russia annexed Ukraine’s Crimea in 2014.

Read more: General voices concern for US troops as Iran-Israel attacks increase

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