COVID-19 Causes Dramatic Change in MENA Consumer Habits

2020 was set to be a record year for retail in the Middle East. The six-month long Dubai Expo was supposed to attract shoppers from around the world and the region’s malls prepared for ever-increasing numbers of shoppers. The coronavirus has crushed all of this hopeful expectation, with lockdowns and curfews bringing sales through retail stores to a grinding halt.

Unforeseen changes

Throughout the Middle East and North Africa (MENA), Ramadan and Eid-al-Fitr equal the Christmas season in Europe and North America. Shoppers flock to retailers for new clothes, festive food, and gifts for friends or family. But the COVID-19 epidemic meant closed mosques and few retailers outside of grocery stores allowed to operate.

These trends have created a make-or-break moment for many retailers in the region. Those who were already providing online sales, or were ready to make the transition, have come out as winners, while those lagging behind have struggled to survive.

Now that online shopping is no longer a necessity, with shops and malls reopening, it appears that consumers in the MENA region have structurally changed their consumer behavior. A study done by Ernst & Young (EY) revealed that 92% of shoppers in the UAE and Saudi Arabia had changed their shopping habits, with half of those considering it a “significant” change.

Altered paradigm

The EY survey showed a dramatically altered retail paradigm. Forty-seven percent of those surveyed signaled that in the coming two years they expect to do their grocery shopping online and 50% of correspondents said they will consciously reduce their amount of physical shopping to less frequent visits for larger purchases.

The retail landscape in the region is changing rapidly. This follows years of construction on new retail malls that hoped to generate a “casual shopping” experience, where trips to retailers is seen as a form of entertainment in itself. For malls and shopping centers the trend will precipitate a renewed focus on generating “experiences” for shoppers that they cannot have at home, mixing shopping with visits to movie theaters or culinary experiences.

Global e-commerce was worth $25.6 trillion in 2018 and the trend towards online shopping has since accelerated. Whether brick-and-mortar stores can again attract customers by providing new experiences remains to be seen as convenient online shopping is now the safer choice amid persistent worries over the global pandemic.

World Struggles to Stand Against Israeli Annexation

With less than a week until Israeli annexation plans could feasibly commence, countries around the world are expressing very different reactions to Israel’s intended moves. The responses have been varied as global alliances, religious convictions, and economic factors weigh on nations’ willingness to risk conflict with Israel and its powerful ally in Washington.

While few nations have expressed outright support for the clear violation of international law, the rhetoric employed by those in opposition indicates that few are willing to position themselves as “anti-Israeli” or risk the ire of our global hegemon. That annexation would risk the local peace progress is nothing but a statement of simple fact, but most world leaders are reluctant to venture beyond restating this.

The EU

European leaders have received Israel’s annexation plans with much bombastic diplomatic language, but have been reluctant to make any threats if Israel proceeds with its planned violation of international law.

Germany’s foreign minister, Heiko Maas, traveled to Israel to discuss the matter, but even before departure had to admit he would offer no practical threat that could provide an incentive for Israel to halt its plans.

Over 1,000 parliamentarians have since signed a letter opposing Israel’s planned annexation, but the letter does little more than express “serious concerns” or highlight the “destabilizing potential” of Israel’s publicly stated intention to break international conventions on warfare, the Charter of the United Nations, and the basic premise of national sovereignty.

The US

In the US wide-spread political support for Israel has led to fragmented partisan splits on the issue. While many politicians have spoken out against annexation, the language used reveals much more concern about implications for Israel’s security than the well being of “annexed” Palestinians.

Their entire concept of an “agreed upon” annexation according to an unsigned peace plan originates from diplomatic novice Jared Kushner’s heavily criticized proposal. Much of the US press has opposed annexation but has done so primarily from a perspective that focuses on Israeli security.

Many have claimed that the annexation plans, and their timing, are a direct Trump ploy to create a new narrative before the US presidential elections in November 2020.

Arab nations

The Gulf Cooperation Council and the Arab League have condemned annexation plans and endorsed the establishment of an independent Palestine. However, other than highlighting the obvious breaches of international law, the Arab world has so far not shown a united front against a possible expansion of Israeli land at the expense of Palestinians.

Only Jordan has posed a clear ultimatum to Israel by threatening war. Jordan is highly dependent on the US and fears its possible retaliation, just like many Arab states, but stands alone in offering a practical disincentive to Israel’s plans. Prime Minister Benjamin Netanyahu sent the director of the Israeli secret service to Amman last week with a message for Jordan’s King Abdullah II. Whether Israel can force Jordan to renege on its commitment remains to be seen.

Israeli Settlers

People living in Israeli settlements in occupied Palestinian territories generally oppose annexation plans. Even though many of these settlements would become part of Israel following annexation, settlers fear the plan does not go far enough and would create momentum for the establishment of a small, fragmented Palestinian state, which they categorically oppose.

Billboards along Israeli highways feature Hebrew slogans urging Netanyahu to “do it right,” calling on him to annex all of what remains of Palestinian land. While annexation of more land than included in the Trump “peace plan” would be controversial, it would be no more illegal than Israel’s current plans.

Palestinians

For Palestinians, especially those living in the occupied territories, annexation is simply an inevitable reality. “These areas are already [as good as] annexed… It’s all in their hands” a farmer in the West Bank told the BBC. But many Palestinians see the looming annexation as the logical next step in the decades-long Israeli encroachment on Palestinian territory.

Israel has intensified evictions of Palestinians in the Jordan Valley and locals see annexation as inevitable. “Everyone is scared about annexation, no one wants to live under the occupation’s law,” Palestinian activist Sami Hureini told Al Jazeera, as locals appear to have no illusions over Israeli intentions.

The UN

On June 24, UN Secretary-General Antonio Guterres joined in the growing chorus of voices opposing annexation rhetorically. “We are at a watershed moment,” Guterres told the UN Security Council (UNSC), saying, “If implemented, annexation would constitute a most serious violation of international law.”

But the head of the UN is as powerless to stop Israel as those living in the occupied territories. As long as Israel proceeds with the blessing of the US, international law is of little consequence.  The power of the US alone could prevent any strong response against annexation.

The crisis over Israeli annexation has revealed once again that we are all living under American hegemony that in practice can supersede international law, the UN, and the will of the rest of the globe. Underneath political posturing, angry letters, and formal diplomacy, all nations continue to tremble at the prospect of angering the US.

Russian Sources Signal Possible End to Oil Production Cuts

With oil prices nearing their highest since early March, Kirill Dmitriev, one of Russia’s top oil negotiators  signaled his will to draw down production cuts on Friday June 19. Dmitriev is one of the key players leading negotiations with the Organization of Petroleum Exporting Countries (OPEC). Agreements between OPEC and the Russian-led alliance of non-OPEC countries, called OPEC+, have been one of the primary factors in the efforts to stabilize the oil market.

With demand for oil increasing as economies reopen, Russia appears to see no point in further extending production cuts. The existing agreement calls for a global production cut of 7.7 million barrels per day, from August to December. From January 2021, production cuts would drop to 5.8 million barrels per day, lasting until April 2022 when the agreement expires.

Price uptick

In April, oil prices hit their lowest price since the turn of the millennium as high global supply met an unprecedented dip in demand when flights were grounded, citizens faced lockdowns, and non-essential economic activity dissipated. In April prices hit $16 per barrel, with WTI briefly dipping into historic negative territory amid a scramble to offload futures before their expiry.

The extreme fluctuations in the already volatile oil market prompted most of the world’s oil producing countries to come together to establish painful, but necessary, production cuts in order to ease over supply that led to oil storage running out, with tankers and oil bunkers used as temporary storage to accommodate for a lack of buyers.

OPEC+

Ever since, any news around negotiations over production cuts between OPEC and the OPEC+ groups has led to swings in global oil prices. Now that demand is increasing and most OPEC members report compliance with the agreed upon cuts, meetings have revolved more around suring up lagging countries like Iraq and Kazachstan.

The current oil price hovers around $40, sufficient for Russia to balance its budgets. For many higher-cost oil producers however, the current price means losses, involuntary production cuts and even bankruptcies. The US shale gas industry, Canadian tar-sand extraction and Brazilian off-shore oil all struggle to survive at current prices, while countries like Saudi Arabia would be able to live with “lower for longer.”

OPEC

But while many OPEC members in the Gulf could make a profit on current prices, their national budgets have been based on much higher prices, leaving major gaps. A country like Iraq, that has some of the cheapest oil to extract, still needs oil prices to be at $56 per barrel in order to fund the $135 billion in estimated state revenue. The country has struggled to comply with OPEC’s agreed cuts as most of its oil production is done by foreign supermajors, leading to difficult negotiations.

Many countries of the Gulf Cooperation Council (GCC) similarly presented ambitious budgets for 2020, expecting much higher revenues than those that materialized due to the COVID-19 crisis. For these countries production cuts remain one of the few tools to drive prices up further, but it appears that major players like Russia and Saudi Arabia would prefer oil prices to not increase too rapidly, in order to prevent a resurgence in its higher-cost competitors like shale gas.

Diverging forecasts

Saudi Arabia and Russia are expected to have a much larger market-share in the near future. After a decade of losing market-share to US producers, Saudi Arabia is expected to have the largest market-share since the 1980s. With production down significantly and demand slowly returning, prices are likely to go up in the long run.

Investment bank JP Morgan Chase in early March predicted oil to hit $190 per barrel due to a “supercycle” where a downward swing in prices is followed by equally dramatic upswing. The bank’s predictions were squashed by the COVID-19 related drop in demand, but its experts remain confident that a “bullish supercycle is on the horizon,” according to CNN.

“The reality is the chances of oil going toward $100 at this point are higher than three months ago,” JP morgan’s Christyan Malek. However, uncertainty remains as economic results are highly dependent on public health successes in containing the spread of the coronavirus. BP has slashed its forecast, expecting COVID-19 to have an “enduring impact on the global economy.”

IIF: Gulf Countries Facing Historic Economic Crisis

The six nations that comprise the Gulf Cooperation Council (GCC) are facing heavy impacts from the coronavirus pandemic and a drop in oil prices amid a sudden demand slump. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates are in for a difficult period according to the International Institute for Finance (IIF), a global association of financial institutions.

The Institute had already announced that emerging markets are facing an “unparalleled sudden stop,” with capital leaving the economies of developing nations at never-before-seen rates. Capital is flowing from emerging markets to developed ones at over five times the rate at the worst point of the 2008 global financial crisis.

Triple threat

For the six GCC countries, local economies are suffering from a trifecta of bad news. Capital flows are moving to developed nations and oil revenues have cratered while tourism, hospitality, retail, and travel sectors are all facing unprecedented difficulties due to stringent COVID-19 measures.

Despite the overall relatively successful containment of the coronavirus, GCC countries are set to see a contraction in real gross domestic product (GDP) of 4.4% according to IIF predictions. The World Bank in 2019 had predicted GDP growth between 1% and 4% for most GCC countries, an improvement over the previous year. Oman was considered one of the Council’s members most likely to grow, with an increase estimated at 3.7% due to increased natural gas production.

Oil revenue and state budgets

But the coronavirus and an international “war” over oil prices means the region is now in for a contraction in GDP. The IIF is cheering on unpopular austerity measures as a means to stop deficits from growing as cuts in public spending “could more than offset losses stemming from reduced oil exports.” Even with unpopular and painful spending cuts, the Gulf Council’s aggregate deficits are expected to increase to 10.3% of GDP.

Oman, which the World Bank touted as the GCC country most likely to grow significantly in 2020, is now considered “an increasingly vulnerable spot in the region in light of its mounting debt.” The country could face an economic contraction of 5.3% while its deficit is likely to widen to 16.1%, according to the IIF.

Opportunity to reform?

The crisis also poses an opportunity to build up resilience according to Alain Bejjani, CEO of Emirati retail operator Majid al Futtaim. “In the coming two to three years, we’re going to see, certainly, a very, very large impact that’s going to be asymmetric, depending on the readiness of countries,” Bejjani told CNBC on May 5.

“I think this is a golden opportunity to really change, to reform and to transform our economies into more resilient economies that have (the) ability to bounce back faster,” Bejjani stated. The current crisis could easily accelate reforms and diversification that have resulted in broader opportunities and even improved conditions for women in GCC countries.