June 2024 Al-Monitor Trend Report
2,332 words
As the calendar turned to June 2024, the story of the month for economies in the conflict-rocked Middle East and North Africa (MENA) region appeared to be trending back towards familiar territory: Oil and Saudi Arabia. That began with OPEC+ revealing a complex deal extending oil production cuts into 2025 after key oil ministers convened in Riyadh on June 2, the same day that Saudi Aramco kicked off a massive $11.2 billion share sale that generated needed funds for the kingdom’s ambitious economic diversification projects.
Yet, weeks later Aramco’s mega-offering has receded into memory and new headlines have coalesced around a topic that won’t fade away for MENA economies: that would be the mounting impact (and costs) of the climate crisis. Consider Egypt, where daily power cuts reached three hours a day in June amid scorching heat as the Arab world’s most populous country faces a new energy crisis, while even much wealthier Kuwait this month also announced power cuts as it struggles to meet increased demand spurred by hot weather.
Extreme heat also delivered tragedy in Saudi Arabia, where over 1,000 deaths were reported among Hajj pilgrims this month — laying bare the perils of climate threats in the kingdom at a moment when Riyadh is investing billions to attract more visitors. Meanwhile, on June 24, Dubai approved an $8 billion project aimed at developing its rainwater drainage network after a historic downpour and widespread flooding paralyzed the emirate in April.
Such topics will only loom larger going forward, but June also delivered examples of other trends shaping MENA’s economic future as regional power players seek to solidify relevance in a fast-changing world. Case in point: news surfaced on June 23 that Nvidia signed a deal to deploy its AI technology in data centers owned by Qatari telecoms group Ooredoo. That marked the US chip giant’s first large-scale Mideast foray and emerges after the Biden administration recently moved to halt export of some advanced AI chips to the region amid increasing security concerns around China.
Simultaneously, June saw Sheikh Tahnoon bin Zayed Al Nahyan — the UAE’s national security adviser and one of the world’s most influential dealmakers — visit the United States for high-profile meetings, including one with Microsoft’s CEO Satya Nadella, which only underlines growing US-UAE tech ties. That comes as other advanced tech connections in the region could be fraying, with a report surfacing on June 10 that Intel was delaying a $25 billion chip plant in Israel.
Ultimately, June 2024 was another study in contrasts for Mideast economies, with old engines of growth sharing the spotlight with the challenges and opportunities that will define a post-oil future. Below, Al-Monitor's monthly trend report digs into these storylines and other key topics on our radar.
Are GCC states prepared for net zero in aviation?
• As outlined in a memo by Kate Dourian, Gulf airlines have an important role to play in the development of sustainable aviation fuel, or SAF, at a time when the industry is under pressure to decarbonize. Regional players are pushing to expand their aviation sectors, which will lead to much higher demand for jet fuel as new mandates come into effect targeting sector emissions.
• For example: On April 28, Dubai’s government announced revived plans to expand Al Maktoum International Airport, which will have capacity to handle 260 million passengers annually upon completion. Meanwhile, Saudi Arabia is launching two new airlines and Riyadh is planning a new airport capable of handling 120 million passengers a year.
• According to the International Aviation Transport Association (IATA), SAF could reduce lifecycle carbon emissions by up to 80% compared with conventional jet kerosene, but volumes today represent a tiny percentage of global jet fuel supply and new technologies are still in the testing phase.
• IATA says SAF production tripled in 2023 to 600 million liters from 300 million liters in 2022, representing 0.2% of global jet fuel use. It sees SAF production hitting 449 billion liters by 2050.
• This growth is producing SAF targets and deals among Gulf players. For instance, Qatar Airways has committed to using 10% SAF in its aircraft by 2030 and signed a deal in 2023 with Shell to source 3,000 metric tons of SAF at Amsterdam's Schiphol airport. Meanwhile, the UAE is targeting provision of 1% of SAF fuel requirements of national airlines by 2031 by developing local capacity to produce 700 million liters of SAF annually.
The takeaway: Gulf states will need to act fast to secure SAF in order to remain competitive in a carbon constrained world, but regional players are also well positioned to make a significant contribution to the decarbonization of aviation because the sector is too vital for their economies to be ignored.
Looking ahead: Despite competition between regional airlines, collaboration on SAF technologies among GCC states (and with international energy companies) is likely to continue because it would benefit all states to pool resources to bring down costs. This will require a measure of trust and collaboration that’s sometimes absent on the diplomatic front, but tackling aviation emissions is an area with scope for successful cooperation.
Another factor to watch: Aviation fuel accounts for 40% of an airline’s operating costs and today SAF is four or five times more expensive than fossil-fuel based jet kerosene. Passing on the cost to passengers will be unpopular and likely erode competitiveness.
Egypt needs clean energy to shine after $50B bailout, but will it?
• News surfaced June 7 that Egypt was seeking up to 20 cargoes of liquefied natural gas (LNG) to cover demand amid rolling blackouts. That presages another hot summer full of crippling electricity cuts, a continuation of a crisis that’s undercutting the country’s energy ambitions.
• Egypt has pushed for years to leverage its strategic location, resources and infrastructure to become a regional energy hub in the Eastern Mediterranean. That emerged as President Abdel Fattah al-Sisi sought to address the country’s chronic energy shortages after rising to power in 2014.
• Those ambitions got a huge boost in 2017, when Egypt’s giant Zohr gas field began production, helping it become a net exporter again. Egypt also began receiving pipeline gas from Israel in 2020, allowing it to re-export LNG to Europe. Russia’s invasion of Ukraine then fueled European demand, with Egypt’s LNG exports rising 7% year on year to 7.14 million tons in 2022, the highest since 2010.
• Gas ambitions have run in parallel with sizable green energy goals, with Egypt possessing abundant land, sunlight and high wind speeds. In 2021, Egypt moved up a target to increase the share of renewables in its electricity mix to 42% by 2030, a goal originally set for 2035. This year, it boosted that target to 60% by 2030.
• The summer of 2023 saw the return of power cuts, exposing enduring fragilities in Egypt’s energy systems. Crucially, this came as Egypt’s gas output slumped to a six-year low of 5.82 billion cubic feet per day in 2023 and LNG exports halved, reported MEES. This decline is underlined by falling output at Zohr due to water infiltration, making Egypt’s gas export dreams increasingly dependent on Israel.
• Energy issues are linked to Egypt’s broader economic woes, with falling exports squeezing revenues as power cuts amplify pressure on the country’s populace. February 2024 delivered a huge breakthrough when the UAE agreed to invest $35 billion into Egypt, which helped it secure additional IMF funds alongside other international support.
• Despite this rescue, Egypt’s energy crisis has continued, and renewables targets are behind schedule: in 2023 it relied on fossil fuels for 88% of electricity, while hydro accounted for 7% and wind and solar comprised 5%. That means total renewables in the electricity mix stood at 12%, well below a 20% target it had originally set for 2022. The country’s clean energy development has struggled for reasons including a lack of funds, rising consumption and other barriers.
The takeaway: Egypt’s ongoing power crunch has delivered a major reality check for its goal of becoming an energy exporting hub. A financial bailout has given Egypt breathing room, but the government still needs to tackle this energy crisis and renewables development may hold the key.
Looking ahead: With help from international players, more Egyptian renewables projects are poised to advance to the investment stage following this bailout. That should see clean energy make more impact in coming years and help diversify its energy mix, but hitting 60% by 2030 will be difficult.
Another factor to watch: Egypt has been encouraging more gas exploration. Potential in Egypt’s western offshore Mediterranean area is favorable, but there will be maximum interest in importing Cyprus, Iraqi or other sources of natural gas before 2030. Simultaneously, Israel is determined to increase gas exports to Egypt.
Why Turkey won’t be able to walk back from ban on Israel trade
• As outlined in a memo by David Rosenberg, fallout from the Gaza war has led to an abrupt break in Israel-Turkey trade ties, which had grown quickly over the past 15 years despite often fraught diplomatic relations.
• Ankara announced on May 3 that it was suspending all trade with Israel until a “permanent cease-fire” was called in Israel’s war with Hamas. Israel responded angrily, calling the ban a violation of the countries’ bilateral free trade agreement and raising the specter of retaliation.
• Two-way trade reached a record $8 billion in 2022, and although it slumped more than 23% last year, it still represented a nearly threefold increase from 2009. Turkey in 2023 was Israel’s fifth-largest source for imported goods and 10th-largest export market. But even before the formal suspension, their two-way trade was down over 15% this year.
• Israel is a less important trade partner for Turkey than Turkey is for Israel. According to Turkish statistics, Israel accounted for 2.8% of total merchandise exports in 2022 and 2.1% in 2023. However, because bilateral trade has been heavily in Turkey’s favor, with its surplus reaching $3.4 billion in 2022, trade with Israel has been an important source of badly needed foreign currency earnings for Turkey.
• The economic impact on Israel is yet to be felt because Turkey is allowing existing sales contracts to be wound down over the next three months. The biggest category of Turkish imports to Israel is building materials, but fallout for the medium term is likely to be minimal because Israeli construction activity has slowed due to the war.
• Consumer prices for other major Turkish imports (food, apparel and vehicles) will rise as they are replaced by costlier alternatives with higher shipping costs (Turkey is geographically the closest of Israel’s top trade partners). Many Turkish goods will likely skirt the ban by being transshipped through Greece and Egypt, but that will also entail higher costs.
The takeaway: After significant growth in recent years, Israeli-Turkish trade relations have suffered what is likely to be an irreversible setback. However, the impacts of this fracture won’t be evenly felt due to a surplus running in Turkey’s favor.
Looking ahead: It is unlikely that trade ties will return to previous levels for the foreseeable future. Diplomatic relations are destined to remain tense and Israel now regards Turkey as an unreliable commercial partner.
Another factor to watch: Ankara has reportedly exempted oil imported by Israel from Azerbaijan, which is delivered to the Turkish port of Ceyhan via pipeline and then sent by tanker to Haifa. Israel has long-term energy contracts with Azerbaijan and in January alone imported 523,500 tons of its oil, worth $297 million. Observers say Turkey is unlikely to block these flows as it would upset its ties with Azerbaijan.
Turkey chases Chinese EV factory investments as trade wars intensify
• Starting in July 2024, the European Union (EU) is set to impose provisional tariffs of up to nearly 40% on electric vehicles (EVs) from China. That move that could facilitate opportunities for Turkey, which is chasing Chinese help in the race to become a leading EV production hub by dangling coveted market access to Europe.
• News surfaced May 17 that Turkey was in advanced negotiations to secure factory investments from Chinese EV manufacturers BYD and Chery. Such deals could help these players boost sales into Europe (via Turkey’s EU customs union) amid fears that China’s cheaper EVs will dominate.
• Turkey is already an automotive industry hub, with vehicle production surpassing 1 million in 2023. Turkish automotive exports overall rose 13% compared to 2022 to reach a record $35 billion, with Germany its top customer at $4.8 billion.
• Demand for EVs is expanding in Turkey, where domestic EV brand Togg began production in 2022. According to an Anadolu Agency report, Turkey recorded domestic sales of 65,562 fully electric vehicles in 2023, an 844% rise over 2022. That came alongside hybrid sales reaching 104,804 (+62.8%) and 646,385 for gas powered cars (+58.1%).
• Turkey has been courting global EV makers amid broader efforts to attract foreign investment to help revive its battered economy. In July 2023, Reuters reported that Turkey’s industry minister was expecting at least one global EV producer to invest in the country that year, while citing Chinese interest.
• Notably, Ankara is also imposing protectionist measures: On June 8, Turkey announced it will impose a 40% additional tariff on imports of vehicles from China. That came after it had already imposed a 40% additional tariff on Chinese EVs in March 2023, a move seen as helping insulate Togg from competition.
The takeaway: Turkey is courting Chinese automative players as part of ambitions to become an EV production hub, with escalating trade wars positioning Ankara to potentially capitalize and attract foreign investment.
Looking ahead: Interest in Turkey-China EV collaborations should continue, but plenty of speedbumps could undercut Ankara’s aspirations. For instance, Turkey’s own protectionist measures may hurt domestic EV adoption, while Togg itself could struggle to compete with Chinese EVs in European export markets.
Another factor to watch: It’s possible that Europe could de-escalate this trade war, with news surfacing in late June that the EU and China had agreed to start new talks on EV tariffs ahead of their looming implementation.
AL-MONITOR All-Access gives you unlimited access to all our journalism, the full Daily Briefing, exclusive interviews, premium newsletters, and live events — for less than $2/week.
