How the Ukrainian crisis has affected inflation rates in the Gulf States

The UAE is seeing inflation rates of about 4.5%. (Photo by Shutterstock)

Ahmad Abdul-Rahman writes why the Gulf countries are experiencing higher inflation as a result of the war in Ukraine.

Although oil, whose prices have witnessed record highs during the past few months, constitutes a main source of income for the economies of the Gulf States, it has not saved them from inflation. Foodstuffs have been at the forefront of the sectors that have witnessed a significant price increase. 

The Ukrainian crisis has led to increased fuel prices and commodities in the Gulf States, as the cost of a litre of petrol rose to USD 1.37 on average, and USD 2.32 in the United Kingdom.

According to World Bank statistics, Kuwait topped the list of Gulf States that recorded an increase in inflation rates exceeding 4.5 per cent, followed by the Sultanate of Oman, the UAE, Bahrain, and Qatar. Saudi Arabia comes last, with an inflation rate of 2.5 per cent.

The Ukrainian-Russian war has affected the Arab, and Gulf economies, along with the European ones. There has been an unprecedented rise in oil prices, as well as basic goods and services. The sectors most affected by high prices are transport and shipping, along with fuel and food commodities. The Inflation rate in the Gulf States has always been affected by the impact of commodity prices, raw materials, and food from abroad, whose prices have risen rapidly due to the high costs of shipping and transportation. 

Saudi Arabia decided to allocate SR 20 billion (USD 5.3 billion ) to counter the effects of rising prices. Inflation has affected all sectors in the country, according to Saudi economists. The Saudi Press Agency has also said that half of this amount, about SR10.4 billion (USD 2.77 billion) will be allocated as direct cash assistance to beneficiaries of Social Security, the Citizen Account Program launched by Saudi Arabia in 2017, and a programme to support small livestock breeders. The rest of this amount will be allocated to increasing strategic stocks of basic materials and ensuring their availability.

UAE

The UAE, whose citizens constitute less than 20 per cent of the country's total population of about 8 million, is considered one of the countries with the highest rises in the cost of living in the world. According to the latest Mercer report and the BBC website, Dubai ranked first in the Arab world, and 31 globally, to rises in its cost of living index. This was followed by Abu Dhabi, which was 61 globally and second in the Arab world.

 The Fuel Price Determination Committee in the UAE  recently announced the new fuel prices for July. The Fuel Price Monitoring Committee approved an increase in petrol and diesel prices of between 48 and 49 fils (USD 0.13) in petrol, and 6 fils in diesel per litre, compared to the June 2022 prices. 

Fuel distribution companies announced new petrol prices, and the new pricing included a value-added tax of 5 per cent.  The standards for fuel prices in the UAE for July were set according to the average price of world oil.

Although the price of a litre of petrol in the UAE is the highest in the region, it is well below the global average of USD1.47 per litre, according to the Global Petroleum Price data. The price of a litre of petrol is currently 4.63 dirhams (USD1.17)

The UAE Ministry of Energy and Infrastructure has clarified its policy of liberalizing fuel prices since August 2015. It adopts a pricing mechanism in accordance with international prices, using a basket of currencies. It also maintains a reasonable profit to raise the efficiency of the oil companies services.

Kuwait

Kuwait's inflation exceeds 4.5 per cent, more than other Gulf countries, according to statistics from the World Bank and the Kuwaiti Central Administration for Statistics. According to the latter, Kuwait recorded an increase in the consumer price index (CPI inflation) of 4.52 per cent last May on an annual basis.

In terms of inflation, after Kuwait comes the Sultanate of Oman, then the UAE, Bahrain and Qatar. Saudi Arabia comes in last place, with an inflation rate of about 2.5 per, cent. Kuwait imports more than 90 per cent of its food from abroad. The high cost of transportation and shipping is inflationary.

Sectors such as food, beverages, cigarettes, clothing, furniture, residential services and communications, were at the forefront of the sectors that recorded record inflation.