The Trade Numerologist: War, Oil Dependence, Israel, Iran and Other Challenges of Middle East Trade
As European and Arab leaders gathered in late February for a summit in Egypt, they promised to focus on boosting trade between the two regions. "Being closer is in fact not a choice but a must," said European Council president Donald Tusk.
European leaders aren't the only ones wishing things were a bit different. One of global trade's linchpins is also one of its most vulnerable. For decades, the Middle East has been beset by war, sanctions, poverty, inequality, corruption, the boom-and-bust cycles of the oil trade, and Arab-Israeli tensions.
A key challenge faced by the richest Middle Eastern economies is weaning themselves off an overdependence on oil and diversifying their export base.
One economy trying to transition to a more balanced economy is Saudi Arabia. Over the course of his decade, the desert kingdom's exports of oil to the US, once its largest customer, have declined precipitously.
Saudi Arabia crude oil exports to US, first 11 months, barrels
- 2018: 285.1 million
- 2017: 328.9 million
- 2016: 368.7 million
- 2015: 353.6 million
- 2014: 416.1 million
- 2013: 434.3 million
- 2012: 466.4 million
To compensate for lower demand from the US, Prince Mohammed bin Salman has been turning toward Europe, China, India and other big Asian economies. Over two million Indians work in Saudi Arabia, and India imports vast amounts of oil from the kingdom.
Saudi Arabia is also trying to diversify by hiking exports of products made from petroleum like chemicals, aluminium, fertilizers and plastics. Saudi Aramco is planning an initial public offering, which will generate cash it can use to diversify. It's also been seeking to prop up the oil price, which has become more difficult with increased US production and the declining power of the Organization of Petroleum Exporting Countries, or OPEC.
Saudi Arabia exports of petroleum-based products to US, first 11 months, 2018
- Organic chemicals: $331.9 million (+26%)
- Aluminium and articles: $204.3 million (+39%)
- Fertilizers: $175.3 million (+43%)
- Articles of iron and steel: $92.9 million (+26%)
- Plastics: $79.3 million (+56%)
At the same time, Saudi Arabia is cutting imports from the US, Europe and China, and hiking imports from India.
Saudi Arabia imports, first 11 months, 2018
- China: $15.7 billion (-6%)
- US: $12.5 billion (-18%)
- Germany: $6.7 billion (+1.1%)
- India: $5 billion (+7.1%)
- UK: $4.5 billion (-9%)
- France: $3.8 billion (-13%)
- Japan: $3.8 billion (-13%)
- South Korea: $3.6 billion (-23%)
- Netherlands: $3.5 billion (+33%)
- Italy: $3.3 billion (-16%)
Still, for time being, China is likely to remain Saudi Arabia's top source of foreign imports.
Chinese exports to Saudi Arabia, 2018
- Electronics: $2.9 billion (+10%)
- Electrical machinery: $2 billion (-14%)
- Furniture, bedding, lamps: $1.4 billion (-10%)
- Iron and steel: $924.5 million (-26%)
- Apparel, knit or crochet: $868.1 million (-22%)
- Apparel, not knit or crochet: $804.6 million (-50%)
- Articles of iron or steel: $710.1 million (-9%)
- Plastics: $702.7 million (-4.1%)
- Car, trucks and parts: $681.8 million (+41%)
- Ceramic products: $540.5 million (-4.4%)
One useful way to study the Middle East's trade economy is to look at the export numbers of Turkey, which exports to both Israel and Arab countries and supplies them with a vast number of industrial goods, especially steel.
In 2018, exports to Turkey's key Middle East trading partners mostly fell, although they rose to Israel and North African countries.
Turkish exports to Middle East customers, 2018
- Iraq: $8.4 billion (-7.9%)
- Israel: $3.9 billion (+14%)
- United Arab Emirates: $3.1 billion (-66%)
- Egypt: $3.1 billion (+29%)
- Saudi Arabia: $2.6 billion (-4%)
- Iran: $2.4 billion (-27%)
- Algeria: $2 billion (+18%)
- Morocco: $2 billion (+20%)
- Libya: $1.5 billion (+70%)
- Syria: $1.3 billion (-1.5%)
Israel is an outlier, of course. Israel's main trading partners are outside the Middle East. When it does ship to Arab countries, its shippers usually conceal the destination of their exports by tagging the destination as "unidentified country."
Israel's top destinations for exports, first 11 months, 2018
- US: $15.3 billion (-2%)
- China: $4.4 billion (+53%)
- UK: $4.2 billion (-11%)
- Unidentified country: $3.1 billion (-19.6%)
- Netherlands: $2.1 billion (-0.6%)
- Belgium: $2 billion (-21%)
- India: $1.9 billion (+9%)
- Turkey: $1.7 billion (+34%)
- Germany: $1.6 billion (+9%)
Israel's top exports are diamonds and other precious stones, electronics and pharmaceuticals.
Meanwhile, the biggest economy after Turkey remains Iran. With sanctions dissuading US companies from selling to Iran, those in Asia and Europe are picking up the slack.
Iran top import sources, 2018
- China: $12.1 billion (-2%)
- United Arab Emirates: $6.2 billion (-15%)
- South Korea: $2.8 billion (-22%)
- Germany: $2.7 billion (-2.5%)
- Turkey: $2.6 billion (-15.5%)
- Switzerland: $2.3 billion (-33%)
- India: $2.2 billion (+0.5%)
- France: $1.5 billion (+0.5%)
- Italy: $1.2 billion (-18%)
- Russia: $1.1 billion (+47%)
Iran is viewed mainly as a market by European companies. Its exports are focused on neighbors in the Middle East, and powerhouse Asian economies like China, India and South Korea.
Top export destinations, Iran, 2018
- China: $9.4 billion (+4.3%)
- Iraq: $8.7 billion (+42%)
- United Arab Emirates: $7.2 billion (+9%)
- Turkey: $4.3 billion (+106%)
- Afghanistan: $3.2 billion (+19.5%)
- India: $2.4 billion (-10.4%)
- South Korea: $2.1 billion (-42.6%)
- Pakistan: $1.2 billion (+45.1%)
- Thailand: $853.4 million (+44%)
- Indonesia: $823.5 million (+80%)
A recent study by the Council on Foreign Relations pointed out that "in the 1950s, per capita income in Egypt was similar to that in South Korea; Egypt's per capita income today is less than 20 percent of South Korea's."
To rectify the Middle East's economic issues, the report said, "countries must not only liberalize trade but also pursue a regulatory agenda that encourages genuine economic competition."
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
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