Skip to content Skip to footer
Search

Loading Results

Middle East Economy Watch

July 2022

Oil booms and hydrogen looms

Our last report was written on the cusp of the invasion of Ukraine and at a time when there were expectations that factors such as OPEC+ tapering and a potential Iranian nuclear deal could dampen energy prices and inflation. Instead, the world looks very different now, with significant implications for the Middle East. 

Inflation is trending up across the region and countries that relied heavily on food imports from Russia and Ukraine, notably Egypt and Lebanon, are facing significant challenges. The surge in oil prices adds to their problems, although for the region’s energy exporters it is obviously a tremendous boost to their fiscal position. The major question we explore in this issue is how these countries are likely to utilise this windfall. We do not expect the same kind of spending splurge that happened in 2008, but instead we anticipate that much of the surplus will be used to pay down debt and drive investments at home and abroad.

Energy security concerns in Europe have transformed the Western approach to Middle East hydrocarbons, which are the main alternative to Russian energy in the short-to-medium term. However, the longer-term commitment to the energy transition remains and may even be accelerated by this crisis. We therefore also explore the outlook for hydrogen, which is expected to play an important role in the future circular carbon economy. Several countries in the Middle East—particularly Saudi Arabia, UAE and Oman—have developed aggressive plans to produce and export hydrogen.

Meanwhile, although COVID-19 infection rates have been rising in recent weeks in the region, they remain very low by recent and international comparisons and there have been very few recent deaths. As a result, most restrictions have been lifted and travel and tourism have begun to rebound. While we must be vigilant for new variants and waves, the broader outlook for the region’s non-oil economy looks encouraging. 

Qatar, in particular, is booming in the run-up to the World Cup, with its population growing by 8.5% y/y in May. However there are concerns, as we discuss, that this population trend could reverse sharply after the tournament, with negative consequences for the non-energy economy.

Follow us