Abu Dhabi

Source: Alittihad Newspaper

Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

In light of the increasing geopolitical tensions and rapid economic transformations that the Arab region is experiencing, Arab countries find themselves in the midst of a delicate phase filled with complex challenges, which impose on governments and decision-makers to prepare for a different economic and political future. The region has become an arena for competition and conflicts between major and regional powers seeking more dominance and influence. It has become a given that geopolitical conflicts in the Arab region no longer occur in isolation from major changes in global markets, as there is a reciprocal relationship between political conflicts and economic crises, as each affects the other, which makes the situation more complicated and even puts the stability of some countries at stake.

Many international reports indicate the size of the economic challenges facing the region. According to economists’ expectations, oil prices may witness a 30 percent increase over expected rates if the ongoing conflicts in the Middle East escalate. Any escalation in the main oil-producing regions will lead to significant increases in global production costs, and consequently commodity prices, and will also increase the inflationary pressures facing the world today. With the continuation of conflicts, such an increase will reduce global growth by at least 0.2 to 0.3 percentage points (about $200 billion), in a clear indication of the extent to which geopolitical risks are linked to global economic fluctuations.

Although the decline may seem relatively small, its cumulative impact goes beyond the immediate financial value, as it creates a tangible change in the conditions of some developing countries and the most vulnerable economic sectors, especially in terms of job losses, reduced investment, and deepening economic disparities. A recent report by the International Monetary Fund, issued last July, expected global growth to 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 is still higher than pre-COVID-19 levels, which may add 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 scene, which makes it more difficult to restore monetary policy stability, represented by controlling inflation rates and interest rates.

These challenges coincide with the slowdown in Chinese economic growth, as China’s growth rate is expected to fall to 4.5 percent in 2024, the lowest level since 1990. This slowdown will directly affect countries that depend on trade with China, whether they depend on importing Chinese goods or exporting their products to the Chinese market, which increases the severity of global economic risks. In addition to this large number of geopolitical challenges, the rise in global interest rates to their highest levels in four decades is placing additional pressure on developing countries with weak credit ratings. These countries face major economic challenges due to the increasing debt burden, which has reached levels not seen since 2000. All of this may have long-term effects on 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.

As these developments escalate, global trade is entering the midst of radical transformations that may reshape the map of economic relations between countries. Geopolitical competition between major powers, especially between the United States and China, will lead to a reshaping of global supply chains, with both powers pursuing protectionist policies and expanding the scope of trade restrictions on their exports, which will push 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, with many countries, particularly in Europe and North America, seeking to change industrial policies to secure flexible alternatives for supply chains and reduce dependence on geopolitical adversaries. This trend raises concerns about the future of economic globalization, the possibility of trade decoupling between major countries, and the prospects of dividing the world commercially, economically, and politically.

Pragmatically, to meet these challenges, policymakers have no choice but to adopt helicopter strategies, or a comprehensive view – from the top – to strengthen the resilience of national economies, and enhance their ability to face 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 changes in the geopolitical-economic map, Arab countries must adopt an economic diversification strategy that enhances the productive economy based on regional integration, reduces their dependence 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 road ahead for the global economy in 2024 appears to be full of challenges, well-thought-out strategies can help confront expected economic crises, support financial stability, and achieve sustainable growth that serves the goal of economic resilience in the face of global shocks.

Such strategies should focus on secure long-term supply chains, agile economic policies that are adaptable and responsive to rapid changes, and an eye on opportunities for innovation and investment in the future. With a national vision and proactive plans, the Arab region can turn challenges into opportunities and reshape its economic future on more solid foundations. But the question that arises is: Are Arab countries able to understand the importance of taking bold and decisive steps to confront the looming challenges, or will they continue to bet on the continuation of apparent stability?

Therefore, in light of the successive pace of geopolitical and economic transformations, the speed of thinking about new and radical solutions is an important temporary element to overcome the upcoming crises. However, short-term solutions alone will not be sufficient. Rather, they must be part of a long-term vision to exploit challenges and transform them into engines of growth and progress. They must also put the region on a more stable path in the changing global economic system.