Middle East crisis must inform our future economic decisions

__________________

OPINION

By Uzeiye Namyalo

Since February 28, a military conflict continues to escalate in the Middle East, sending global oil, gas and food prices soaring. The surging prices of the aforesaid commodities are largely because of the continued closure of the 31miles key global waterway, Strait of Hormuz, where about 300 ships used to sail through each day. The strait has been the route for about 20% of the world’s oil and liquefied natural gas.

To further appreciate the strategic importance of this strait, about 20m million barrels of oil and oil products passed through it per day last year, which translates to about $600b worth of energy trade per year, according to the US Energy Information Administration (EIA). The oil that passes through the strait originates from Iran and Gulf states like Saudi Arabia, United Arab Emirates, Iraq, Kuwait and Qatar.

The Strait of Hormuz is also a vital route for the export of fertiliser from the Middle East. Close to one-third of the global fertiliser trade usually passes through this strait.

The route was closed by Iran, which claims its ownership because the United Nations permits countries to exercise control of territorial seas up to 12 nautical miles (13.8m) from the coastline.

The narrowest point of this strait and its shipping lanes lies squarely within Iran and Oman’s territorial waters.

The energy sector has also been hit hard because oil and natural gas facilities across nine countries in the Middle East and the Gulf region have been damaged by military strikes.

The Ras Laffan Industrial City facility in Qatar was partly hit, yet it is the world’s largest liquefied natural gas processing facility. The South Pars field in Iran was also hit, yet it supplies 70% of Iran’s gas. In the United Arab Emirates, the Fujairah Oil Industry was partly hit, yet it is the Middle East’s largest storage facility for refined oil products.

The Aramco Ras Tanura was also damaged, yet it is Saudi Arabia’s largest refinery, with capacity to refine 550m barrels per day.

The head of the International Energy Agency, Faith Birol, has since told the media in Australia that at least 40 energy assets across nine countries in the Middle East have been ‘severely or very severely’ damaged since the war started.

In the case of Africa, where Uganda belongs, a joint report released early this month in Tangier in Morocco by the African Union and African Development Bank expresses concern that African economies face the risk of a sharper growth slowdown this year if the war in the Middle East drags on, with prolonged disruption to trade, energy and fertiliser supplies threatening to ripple across the continent.

The fears raised by the report are in light of the fact that Middle East accounts for 15.8% of Africa’s imports and 10.9% of its exports.

The report, therefore, urges African governments to strengthen domestic revenue collection, co-ordinate fuel procurement and establish emergency food corridors, while saving windfall oil revenues and deploying targeted social protection measures.

In the case of Uganda, we are on the good side when it comes to food security. We are blessed with fertile soils and generally good climate.

The current crisis should inform our economic policies as far as the energy sector is concerned, since we are soon becoming an oil-producing country.

The writer is a senior presidential adviser, political affairs, Office of the National Chairperson/ national coordinator Bazzukulu