Abu Dhabi
Source: Al-Ittihad Newspaper
Emirati Thinkers
Prof. Dr. Ali Mohammed Al-Khouri
Amidst the growing geopolitical tensions and rapid economic transformations taking place in the Arab region, Arab countries find themselves in a delicate phase filled with complex challenges. These challenges force governments and decision-makers to prepare for a different economic and political future. The region has become an arena for competition and conflict between major and regional powers seeking greater hegemony and influence. It has become a well-established fact that geopolitical conflicts in the Arab region no longer occur in isolation from the major changes in global markets. There is a reciprocal relationship between political conflicts and economic crises, with each affecting the other, making the situation more complex and even threatening the stability of some countries.
Several international reports point to the magnitude of the economic challenges facing the region. According to economists’ forecasts, oil prices could increase by 30 percent above expected levels if the ongoing conflicts in the Middle East escalate. Any escalation in major oil-producing regions would lead to significant increases in global production costs and, consequently, commodity prices, further exacerbating the inflationary pressures currently facing the world. With the continuation of conflicts, such an increase would reduce global growth by at least 0.2 to 0.3 percentage points (approximately $200 billion), a clear indication of the extent to which geopolitical risks are linked to global economic fluctuations.
Although the decline may appear relatively small, its cumulative impact goes beyond its immediate financial value, as it brings about a tangible change in the conditions of some developing countries and the most vulnerable economic sectors, particularly in terms of job losses, reduced investment, and deepening economic inequalities. A recent International Monetary Fund report, released last July, predicted that global growth would stabilize at around 3.2 percent, compared to 2.8 percent in 2023.
Although global inflation is expected to decline to 4.8 percent in 2024, this decline remains above pre-COVID-19 levels, potentially adding further challenges to attempts to restore global financial balance. The report indicated that inflationary pressures remain a major concern, especially in light of the complexity of the global geopolitical landscape, which makes it more difficult to restore monetary policy stability, represented by controlling inflation rates and interest rates.
These challenges coincide with a slowdown in Chinese economic growth. China’s growth rate is expected to fall to 4.5 percent in 2024, its lowest level since 1990. This slowdown will directly impact countries that rely on trade with China, whether they import Chinese goods or export their products to the Chinese market, exacerbating global economic risks. In addition to these numerous geopolitical challenges, global interest rates have risen to their highest levels in four decades, placing additional pressure on developing countries with weak credit ratings. These countries face significant economic challenges due to their mounting debt burden, which has reached levels not seen since 2000. This could have long-term implications for the stability of the global financial system, especially if economic growth continues to slow and developing countries become unable to repay their debts or finance their economic projects. With the escalation of these developments, global trade is entering the midst of radical transformations that could reshape the map of economic relations between countries. Geopolitical competition between major powers, particularly between the United States and China, will lead to a reshaping of global supply chains, with both powers adopting protectionist policies and expanding trade restrictions on their exports. This will prompt international institutions and companies to reconsider their trade strategies based on geopolitical alliances rather than economic interests alone.
Trade protectionism is clearly on the rise in 2024, as many countries, particularly in Europe and North America, seek to alter industrial policies to secure flexible alternatives for supply chains and reduce reliance on geopolitical adversaries. This trend raises concerns about the future of economic globalization, the possibility of trade decoupling between major powers, and the potential for a global division—commercially, economically, and politically.
Pragmatically, to confront these challenges, policymakers have no choice but to adopt “helicopter” strategies or a comprehensive, bird’s-eye view to bolster the resilience of national economies and enhance their ability to withstand future shocks. Building global trade alliances, stimulating investment in diversifying supply chains, and coordinating monetary and fiscal policies between central banks and governments’ development policies are all necessary steps to protect the economic stability of national systems.
In light of the changing geopolitical-economic landscape, Arab countries must adopt an economic diversification strategy that promotes productive economies based on regional integration, reduces their reliance on foreign exports as a primary source of income, invests in emerging industries and technology, and encourages innovation. These efforts may be the only guarantee to protect the region’s economies from global market fluctuations and geopolitical tensions. Although the path ahead for the global economy in 2024 looks challenging, well-thought-out strategies can help address anticipated economic crises, support financial stability, and achieve sustainable growth that serves the goal of economic resilience in the face of global shocks.
The pillars of such strategies must focus on secure, long-term supply chains and agile, adaptable economic policies that respond to rapid changes, while keeping an eye on opportunities for innovation and investment in the future. With a national vision and proactive plans, the Arab region can transform challenges into opportunities and reshape its economic future based on more solid foundations. However, the question that arises is: Are Arab countries capable of grasping the importance of taking bold and decisive steps to confront looming challenges, or will they continue to rely on apparent stability?
Therefore, given the rapid pace of geopolitical and economic transformations, the urgency of developing new and radical solutions is an important temporary element in overcoming future crises. However, short-term solutions alone will not be sufficient. Rather, they must be part of a long-term vision to harness challenges and transform them into engines of growth and advancement. They must also put the region on a more stable path in the changing global economic order.
