Insight by Ole Hansen, Head of Commodity Strategy at Saxo Bank.

The commodity sector remains under pressure from a whole host of negative developments. In early June, the weakness spread from industrial metals – already suffering from China’s zero-Covid policy and continued lockdowns – to all other sectors. The trigger was the stronger than expected inflation print, forcing the FOMC to respond with a 75-basis point rate hike – a move that subsequently led to an increased focus on recession (a word that now features in most market related updates).

In addition, the general reduction in risk appetite amid challenging market conditions have seen the dollar strengthen to levels not realised in decades – most notably against the euro and Japanese yen. A stronger dollar raises the cost of dollar-denominated commodities, thereby adding additional pressures on demand in regions like Europe already struggling with punitive gas and power prices.

China, the world’s biggest consumer of most commodities, continues to struggle with mounting Covid-19 cases, and a challenged property sector. This continues to delay a recovery, especially for industrial metals which have slumped by one-third since hitting a record peak in early March. The challenge to the Chinese economy was highlighted by the 0.4% year-in-year drop in real GDP during the second quarter. While pockets of strength remain due to tight market conditions, the exit from the sector by speculators and the selling from macroeconomic-focused funds may continue to apply downward pressure until the dollar stabilises and inflation begins to retreat, thereby easing the pressure on central banks to maintain their current aggressive monetary tightening stance.

Source: Saxo Group

Inflation being at a multi-decade high, and how central banks try to bring it under control, remains the key focus across markets. While input costs have started to ease through lower commodity prices, the worry persists that central banks’ attempts to force down economic activity by tightening monetary conditions may lead to an economic downturn that could trigger a recession. Currently, the main focus is on Europe, where punitively high gas prices are hurting activity, as well as the U.S., where another shockingly high inflation print at 9.1% for June will likely trigger another 0.75% rate hike when the FOMC meets on July 27.

Since hitting a record high in early June before the US rate hike driving a recession focus and dollar strength, the Bloomberg Commodity Spot Index had suffered five consecutive weeks of losses. This brought the total slump to 17%, with all sectors suffering deep corrections. This was led by industrial metals (-23%), energy (-20%) and grains (-19%). Precious metals have not escaped the rout with silver down 16% and gold 9% during this time.

Crude oil (Brent) continues to trade around $100 per barrel after briefly dipping below key support at $97.5 per barrel – the equivalent in WTI being $93.50. Overall, the market has all but surrendered the gains seen in the wake of Russia’s invasion of Ukraine, with the attention instead turning to the risk of an economic slowdown hurting demand. This would help reduce the tightness that in recent months propelled prices sharply upwards. President Biden’s visit to Saudi Arabia is unlikely to yield much in terms of additional barrels, not least considering the latest price drop. In the short term, the market will continue to focus on the dollar and Covid-19 outbreaks in China, with the latter resulting in Chinese growth slumping to its lowest since the Wuhan outbreak in early 2020.

Source: Saxo Group

Questions are now being raised about the energy sector’s ability to withstand additional recession-focused selling. We still believe – and fear – that worries about demand destruction will be more than offset by supply constraints. Russia’s ability to maintain its current production levels will be increasingly challenged over the coming months. In addition, we are seeing several OPEC+ members close to being maxed out, with only a few oil providers still being able to raise production.

In the short term, we will see a continued battle between macroeconomic-focused traders selling “paper” oil, through futures and other financial products as a hedge against recession, and the physical market where price supportive tightness remains – most notably in Brent where buyers of physical barrels are paying a near record premium for immediate delivery. In addition, the US will eventually have to stop pumping close to a million barrels per day into the market from its strategic reserves. On that basis, we see Brent crude oil trading not far from support. However, in response to the current recession focus, we lower our Q3 target range to $95 to $115.

Industrial metals: Copper was heading for its steepest weekly decline since early 2020 with the combination of an increasingly challenged Chinese property sector and a global economic slowdown forcing a major adjustment to the short-and-medium-term price outlook for the metal. The Rio Tinto Group, a major supplier and the world’s second largest mining company, warned about the prospects for the global economy in a quarterly update, pointing to war, inflation and tighter monetary policy.

From a technical perspective, the price of High-Grade Copper has, during the past three weeks, cratered non-stop since breaking key support around $3.95. In the process, it has corrected by a massive 61.8% of the $3/lb surge from the 2020 pandemic low to the record high on March 11 this year. Responding to these developments, hedge funds now hold a net short of 26k lots – still well above the 68k lots short held in the aftermath of the pandemic-led slump in early 2020.

A break below $3.14/lb may signal a complete reversal of the uptrend and a return to the pre-pandemic trading range between $2.5 and $3.0. In order to avoid a downward extension of this magnitude, the recessionary pressures and the dollars’ advance both need to slow.

Source: Saxo Group

Precious metals: Gold, just like copper, is heading for its fifth weekly loss – the longest streak in almost four years. During this time, it has slumped by 9%. The main drivers for this are the much stronger dollar, a sharp drop in US 10-year inflation expectations driving up real yields and not least a major headwind from silver, which has behaved increasingly like an under-pressure industrial metal.

For gold to find fresh support, some of these recent headwinds – most importantly the dollar – need to reverse. We view gold’s recent weakness as overdone as the threat of stagflation has not gone away. However, we also respect the market’s ability to create pain, not least during the liquidity-thin holiday months where momentum in either direction is often allowed to run with limited appetite to oppose the prevailing trend. As a result, we have seen a sharp reduction in exposure held by investors in ETFs (Exchange Traded Funds) and speculators in futures. The latter group have cut bullish bets to a three-year low.

Having challenged $1700 for the first time since a brief visit last August, a break below will put $1675 within reach – a level that has provided support on several occasions during the past two years. Meanwhile, silver is down 40% to an 18-dollar handle from the 2021 peak around $30 after slicing through several layers of support. In the process, speculators have switch positions back to the largest net short in more than three years. At this stage, a sentiment change will be needed to prevent further losses and for buyers to return to challenge the mentioned short position.

Source: Saxo Group

European gas prices have more than doubled since early June with Dutch TTF (Title Transfer Facility) benchmark gas futures trading around €170/MWh or $50/MMBtu. Russia has increasingly been weaponising its gas supplies to Europe in retaliation against sanctions and the region’s support for Ukraine through military aid. While a short-term disruption from Norway earlier this week drove prices to €187/MWh, the focus remains on the Nord Steam 1 pipeline – currently shut down for maintenance. The pipeline – which is the main supply channel for gas to the European Union, especially Germany – was already operating at 40% capacity before the shutdown. This added to an energy crunch which is hurting industries while raising concerns about winter supplies. The main concern is whether Gazprom will keep the line shut even after maintenance finishes next week. If so, it will seriously challenge Europe’s efforts to rebuild its inventory levels ahead of the peak winter demand season.

Record high gas prices driving up the cost of heating and electricity are one of the reasons why EURUSD has reached parity for the first time in 22 years. As a result, we are currently seeing a high correlation between Russian gas flows to Europe and the euro. In other words, next week's decision by Gazprom/Russia on Nord Stream 1 shipments may trigger additional weakness or potentially, together with an expected ECB (European Central Bank) rate hike, help create a floor under the common currency.

Agriculture: A combination of dollar strength, emerging supply from recently harvested winter crops, a forecast for strong wheat production in Russia and Australia and a plunge in investor sentiment towards commodities in general, have seen the Bloomberg Grains index return to flat on the year – giving back all the post-invasion gains. The bulk of the weakness has been seen during the five-week window since recessionary fears and the stronger dollar emerged following the June US CPI print and subsequent FOMC rate hike.  

Speculators, sensing a market running out of steam, began cutting back exposure across the six major grain and soybeans contracts in late April. This came after the total length exceeded 800k lots – a level that on three previous occasions during the past decade had led to a sharp reversal in prices and positions. As of July 5, that length had been cut to 391k lots. However, with production uncertainties in the US and especially Europe caused by the current heatwave, we doubt that prices have much further to fall until we get more clarity on production levels.  

Talks held this week in Turkey between Russia, Ukraine and the UN over unblocking millions of tons of Ukraine’s grain exports has been described as constructive and, if successful, it would further reduce the risk of a food crisis over the coming months. Ukraine, a major exporter of high-quality wheat, corn and sunflower oil has seen its main export artery through the Black Sea blocked since March. This helped send wheat and edible oils sharply higher before a level of calm was restored in the early weeks of the war.  

The low oil price, lockdowns and weak consumer spending due to the pandemic resulted in a difficult 2020, with infrastructure projects and others related to the kingdom’s Vision 2030 put on hold, and question raised about the future viability of the Vision’s diversification plans, given the relatively bleak economic outlook.

Indeed, Riyadh went to the international markets to borrow its biggest debt package since 2016 as the country burned through its foreign reserves and implemented an economic stimulus package. A Cost of Living Allowance introduced in 2018 to some one million public employees, budgeted at 1,000 Riyals ($267) a month, was also scrapped, and value added tax (VAT) tripled to 15% in 2020. The country also saw a huge decline in tourism, estimated at 35-45% in 2020, equivalent to a drop in revenues of $28 billion.

But by 2021, the economy started to splutter back to life, by year end growing by 3.2%, according to International Monetary Fund (IMF) figures, bolstered by rising oil prices.

Fast forward to 2022, and the economy was growing at a faster pace, forecast at 7.6% GDP growth by the IMF. But following the Russian invasion of Ukraine in March, oil prices soared to $120 a barrel, topping at $125 in June, and have hovered at around $100 a barrel since then, generating Saudi Arabia $1 billion a day from selling crude oil, according to Bloomberg figures.

As a result, Saudi Arabia’s economy grew at its fastest pace since 2011, by 9.9% year on year, according to Capital Economics. “More timely activity data point to a robust performance in the second quarter,” according to the London-based economic research consultancy, which is forecasting growth of 10% for the rest of the year and by 5.3% in 2023, above the estimates of the IMF and others.

While revenues from oil will not be as high going forward, Saudi Arabia still stands to benefit as the OPEC+ Group raises its output quotas by 50% in July and August, and the expected removal of quotas in September. “Saudi is one of the few (OPEC+) members that will be able to capitalise and we think that (oil) output will reach a record high by late-2023,” stated Capital Economics.

Saudi Arabia, along with the United Arab Emirates, are expected to run twin budget and current account surpluses in 2022 and next year. The boosted revenues have enabled Riyadh to implement economic relief packages, raising spending by SAR20bn ($5.33 billion), equivalent to 0.6% of GDP, with half of this figure to be distributed as cash transfers to households, according to the consultancy.

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Peacefulness has declined to its to lowest level in 15 years fuelled by post-COVID-19 economic uncertainty and the Ukraine conflict, according to the the 16th edition of the Global Peace Index from the Institute for Economics & Peace (IEP).

Out of the 163 countries ranked, 48 out of the 57 member countries of the Organisation of Islamic Council (OIC) were included. No OIC countries featured in the top 15 slots, the ‘very high’ state of peace. Eight OIC countries were in the ‘high’ state of peace category, 21 in the ‘medium’ category, 11 in the low category, and eight in the ‘very low’ category.

Iceland remains the most peaceful country worldwide, a position it has held since 2008. New Zealand, Ireland, Denmark and Austria also top the Index. For the fifth consecutive year, Afghanistan is the least peaceful country, followed by Yemen, Syria, Russia and South Sudan. Out of the 14 countries in the very low peace category, eight are in the OIC.

Seven of the 10 countries at the top of the Index are in Europe, with Turkey the only country in the region to be ranked outside the top half of the Index.

Malaysia topped the list for OIC countries in the ‘high’ state of peace category, in 18th place, followed by Qatar in 23rd place (up six places on the previous Index), Kuwait at 39 (down one place), Albania at 41, Indonesia at 47 (down two places), Jordan at 57 (up 15 places), the UAE at 60 (up one place).

Most OIC countries were in the the medium category. Senegal dropped 12 places to 70, Kosovo rose 8 places to 71, Morocco rose 9 places to 74, Gabon was ranked 75, and Tunisia dropped three places to 85. Tanzania was ranked 85, Uzbekistan 86 (up 7 places), Kyrgyzstan 91 (down 21), and Tajikistan to 92 (up six places). Bangladesh was 96 (up 6 places), Kazakhstan was ranked 97 (down 29), and Bahrain came 99th. Turkmenistan was at 104, Guyana at 107, Cote d’Ivoire at 108, Algeria 109, Mauritania at 112, and Djibouti at 113. Saudi Arabia was ranked 119, up 8 places, Uganda 121, and Egypt at 126 (up five places).

In the ‘low’ category, Azerbaijan was ranked 128, Palestine 133, Chad 136, Lebanon 138, Niger 140, Iran 141, Cameroon 142, Nigeria 143, Turkey 145 (up five places), Burkina Faso 146 (down 12 places), and Pakistan at 147 (up one place).

In the ‘very low’ category – the least peaceful - Mali was ranked 150, Libya 151, Sudan 154, Somalia 156, Iraq 157, Syria 161, Yemen 162, and Afghanistan at 163.

Dark green ‘very high’ state of peace, green ‘high’, yellow ‘medium’, orange ‘low’, red ‘very low’ (Global Peace Index 2022).

The Index’s measure of global peacefulness showed a deterioration of 0.3% in 2021, the eleventh deterioration in peacefulness in the last 14 years. Ninety countries improved, and 71 deteriorated, which the reported said highlighted “that countries deteriorate much faster than they improve”.

The global economic impact of violence was $16.5 trillion in 2021, equivalent to 10.9% of global GDP, or $2,117 per person. For the 10 countries most affected by violence, the average economic impact was equivalent to 34% of GDP, compared to 3.6% in the countries least affected.

On the positive side, terrorism attacks declined, with 70 countries recording no attacks in 2021, the best result since 2008. Twenty-eight countries have high levels of instability, and 10 countries recorded the worst possible political terror score.

Nonetheless, the political terror scale, political insecurity, neighbouring country relations, refugees and internally-displaced-persons (IDPs) reached their worst score since the inception of the Index.

However, inflation, which has increased food insecurity, and political instability is having a negative impact, with Africa, South Asia and the Middle East under the greatest threat, the report notes.

The global inequality in peacefulness has continued to increase. Since 2008, the 25 least peaceful countries deteriorated on average by 16%, while the 25 most peaceful countries improved by 5.1%. Since 2008, 116 countries reduced their homicide rate.

“Last year we warned about the economic fallout from COVID-19. We are now experiencing supply chain shortages, rising inflation, and food insecurity that have been compounded by the tragic events in Ukraine. The political and economic consequences of this will reverberate for years to come. When combined with the record poor scores for neighbouring relations, political insecurity and intensity of internal conflict, governments, organisations, and leaders must harness the power of peace,” said Steve Killelea, Founder & Executive Chairman of IEP, to the press.

“The economic value of lost peace reached record levels in 2021. There is a need to reverse this trend, and the Index has shown that those countries that implement the attitudes, institutions and structures that create and sustain peaceful societies, witness an improved economic outcome,” he added.

The intensity of violent demonstrations has increased by 49% since 2008, with 126 of the 163 countries in the Index deteriorating. The report stated that this is a global trend, affecting all regions of the world except the Middle East and North Africa.

South Asia has the highest frequency and intensity of violent demonstrations by region, with India, Sri Lanka, Bangladesh, and Pakistan recording their highest levels since the first index. In Europe, there were widespread anti-lockdown protests, especially in Belgium, France, the Netherlands, Austria, Croatia and the UK, with similar developments in North America, according to the report.

A high-level Gulf country business delegation, including the United Arab Emirates (UAE), said Jammu and Kashmir was a significant investment opportunity and its members would soon finalise their investment plans.

Delegates representing more than 30 companies participated in the Gulf Business Summit at the Srinagar Sher-e-Kashmir International Convention Centre (SKICC) in mid-March to convert about $450 million in memorandums of understanding (MOUs) signed earlier this year into reality. 

Intending to explore massive investment opportunities in the Jammu and Kashmir Indian Union Territory, the delegation expressed its interest in exploring business prospects in education, real estate, food processing, cold storage, cold chains, hospitals and hospitality. Several UAE-based companies have signed MOUs with the region.

The development comes a month after India signed the comprehensive economic partnership agreement (CEPA), an important and liberal free trade agreement, with UAE. India is the UAE’s second-largest trading partner while the UAE is India’s third-largest trading partner.

In 2019/20 foreign trade between the two amounted to $60 billion, while the CEPA is predicted to boost bilateral commerce to $100 billion within five years. This is testimony to the deep ties between the two nations.

According to the Jammu and Kashmir lieutenant governor Manoj Sinha, Kashmir has evolved from a quiescent commercial destination to a place of opportunity and investment. 

“The government is hopeful to bring in an investment of over US$ 9.3 billion in the next six months. In 2021 the Union Territory secured $2.5 billion in investments, demonstrating the region’s business potential and vast opportunities. If and when the investments take place, it will generate a minimum of 600,000 to 700,000 jobs in the region,” he said.

The Gulf countries have evinced interest in investing in Kashmir, although it is a disputed Muslim majority region wracked by an insurgency since 1989 that has claimed 41,000 lives, according to the last available government data released in 2017.

On 5 August 2019 the Indian Parliament revoked the temporary special status or autonomy granted under the Indian Constitution to Jammu and Kashmir. The central government said the special status had hindered the region’s industrial development.

Sinha said now people who were not original Kashmir residents could own land and immoveable property in the state, effectively encouraging investment particularly Muslim countries wanting to exploit the region’s investment potential. 

Abdulla Mohammad Yousuf Abdulla Alshaibani, the CEO of Emirates International Investment Group, asserted, “There was a big opportunity to invest in Kashmir for the visiting delegation that included CEOs of top companies, entrepreneurs, start-up representatives and exporters”.

Sinha added the visit was an expression of confidence by industry leaders in the potential for business cooperation between Jammu and Kashmir and the Gulf countries and to make the “paradise on earth the most beautiful investment destination” in the world. 

Kashmir has been universally acknowledged as heaven on earth.

The Gulf countries are drawn to Kashmir as they seek local support. Government statistics indicate unemployment is one of the region’s biggest problems, estimated at 46.3% among educated youth. The industrial leaders hope job creation opportunities will win local trust.

Ranjan Prakash Thakur, Jamma and Kashmir principal secretary industry and commerce, said initially investors had apprehensions about the strife-torn conflict zone. In that light the visitors had been invited to check independently; it had not been a sponsored visit.

The Kashmir Chamber of Commerce and Industry (KCCI) said the government initiative would open doors for further opportunities in Kashmir. 

Sheikh Ashiq Ahmad, KCCI president, told Salaam Gateway that “before coming to the conclusion about the meeting, I always believed it was a welcome thing that a delegation has come and interacted with officials. My belief is the day when the members of the business community meet each other, the business starts,” he said. 

In facilitating Kashmir-based start-ups in establishing their operations in Gulf countries, the visiting delegation also announced plans to open a Dubai-based Kashmir business centre to support and connect Jamma and Kashmir-based entrepreneurs with relevant people and businesses.

However, there are fears more violence could occur in the region following reports that separatist groups in Kashmir have acquired weapons the Taliban seized from the US army after the latter’s withdrawal from Afghanistan last year.

This has not been officially confirmed by the Indian army or government authorities, but in an unsubstantiated video released by terror group People’s Anti-Fascist Front (PAFF), militants are seen using US-made rifles and pistols. Equally, terrorists killed in Kashmir by security forces in different operations were found carrying US-made M4 carbine rifles.

According to some media reports, the Taliban is selling leftover arms and ammunition that could end up in Kashmir.

© SalaamGateway.com 2022. All Rights Reserved

Released in October 2021, the latest Anholt-Ipsos Nation Brands Index (NBI) (https://www.ipsos.com/) listed Germany, Canada and Japan as the top three nations when considering six dimensions of the country’s national competence.

The global nation brand survey examines the images of nations annually via online interviews with adults aged 18 and older in 20 core panel countries. It takes into account exports, governance, culture, people, tourism, immigration and investment to holistically provide an indication of the country’s reputation.

Launched in 2005 by national image specialist Simon Anholt, this was the first time the NBI published the complete list of countries’ rankings and scores and revealed the OIC nations only feature in the lower third. Anholt has authored six books about countries, cultures and globalisation.

“What people call brand image is nothing more than prejudice. It can be a positive prejudice; it can be a negative prejudice, but it's something we receive from the culture around us,” Anholt told Salaam Gateway.

In 2021 NBI’s global sample size tripled to 60,000 interviews per year. Each panel country, including Turkey and Saudi Arabia, corresponds to a three-fold increase in samples to 3,000 interviews. Another 10 countries were included, bringing the 2021 figure to 60.

Anholt said there was increased interest in the concept from poorer states because an enhanced image might create more favourable conditions for foreign direct investment, tourism, trade and even political relations.

The impact of Saudi Arabia’s Vision 2030

Saudi Arabia’s concerted effort to diversify its economy saw the Kingdom launch Vision 2030 in 2016 and open its doors to international visitors and investors. However, despite hosting international business and sporting events and producing all-female-led tourism campaigns, the Kingdom only ranks five countries from the bottom with a score of 51.74.

Describing Vision 2030 as “one of the most rigidly domestic national strategies I've ever read”, Anholt warns about myopia but believes Saudi Arabia can potentially improve its image.

“If Saudi Arabia chooses collaboration, enlightened self-interest and multi-lateralism, tackling climate change and religious intolerance and misunderstanding, it could become one of the world’s most valued countries, because it straddles the fault lines of these hugely important problems.”

However, change is required for the Kingdom to achieve its pre-pandemic national tourism strategy objectives. This demands boosting annual tourism stays from 41 million (2019) to 100 million by 2030; providing 1 million Saudi jobs and increasing tourism’s gross domestic product (GDP) share from 3% (2019) to 10% by 2030.

According to the World Tourism Organisation, Saudi Arabia’s tourism revenue crashed nearly 70% to $5.96 billion in 2020, or 0.85% of the total $700 billion GDP reported by the World Bank. This makes Saudi’s 2022 milestone of 5.3% GDP via tourism a challenging target.

“Tourism is the quintessential soft power business,” Anholt said. “You will not get mass tourism or even niche tourism to Saudi Arabia unless you do something about the country's image.”

Fair showing from newcomer Morocco, but Palestine finishes the list

After Egypt (position: 36) and Turkey (38), newcomer Morocco (42) slipped in ahead of Indonesia (43) to rank as the third-best OIC nation. Anholt said Morocco was added to the survey since North Africa had generally been inadequately covered.

The World Travel & Tourism Council stated travel and tourism contributed 6.2% to Morocco’s $113.55 billion economy in 2020 – less than half of what the country secured the previous year.

Anholt said Palestine's inclusion in the index was based on establishing solid data on how the country would perform. He was “often asked” about global perceptions of the Israel-Palestine issue and believed it was “fascinating to have proper survey data on that topic”.

“It was about time, even if it's only for one year, to collect some hard data.”

However, he said the image of any country involved in a conflict, whether the nation is perceived as the aggressor or victim, is damaged by association.

“A hypothesis I wanted to test was whether Israel and Palestine suffered equally from being associated with conflict and that public opinion doesn't necessarily blame one significantly more than the other,” Anholt said.

Palestine ranks last with a score of 46.73. Already featured in previous years, Israel (47) scored 54.11.

Changing perceptions

According to Anholt, it’s nearly as difficult to spoil a positive country image as it is to improve a negative one. Germany, ranking in first place for the seventh time overall and fifth consecutive year, teaches the world a lesson on what is required to build a strong nation brand.

Its reputational strengths lie in exports, immigration, investment, governance and culture. Respondents were particularly optimistic about buying German products; the appeal of investing in German businesses; the government’s initiatives to fight poverty and the country’s ability to excel in sports. Collectively, these placed Germany in the top-two in all five categories in 2021.

Anholt believes only internationally prominent leaders and consumer brands have the power to raise a nation’s profile. Propaganda appears to achieve nothing, but nurturing domestic brands to become global and a country’s ambassadors, requires patience.

“You need a lot of them, and it takes a long time,” Anholt said.

Regarding propaganda, Anholt, who has advised the presidents, prime ministers and governments of 63 countries since 1998, has just one recommendation.

“Don't tell people what you've done. Don't tell people what you're going to do. Just make your country useful to the world and keep doing it,” he said.

© SalaamGateway.com 2022. All Rights Reserved

Selangor, Malaysia; Dhaka and Dubai: The Russian invasion of neighbour Ukraine has triggered a political divide on global response with Western nations imposing sanctions while many Muslim countries, governments and businesses adopting a strained neutrality towards the world superpower.

Malaysia is a case in point – its close relations with European, North American and Asian countries, including Japan and South Korea, means it is loathe to breach those trading partners’ sanctions on Russia. However, the south-east Asian country has not imposed its own sanctions.  

Azmi Hassan, Senior Fellow at the Nusantara Academy for Strategic Research (NASR) in Selangor, told Salaam Gateway that should Russian companies be subject to non-Malaysian sanctions, the Malaysian government and businesses have “considerable leeway” in deciding whether or not to impose similar restrictions.  

In March a Russian-registered vessel was declined entry into Malaysian ports with the country’s transport ministry confirming the action was in accordance with international sanctions. Azmi said in that case the country did impose sanctions “if other countries specifically sanction a company or in this case, a vessel”.

Last year Russia celebrated its 30-year tie with the Association of Southeast Asian Nations (ASEAN) nations and has adopted a revised 2021-25 ASEAN-Russia Trade and Investment Cooperation Roadmap. However, Russia’s economic and trade performance with ASEAN has been underwhelming with turnover between the partners peaking at $23 billion in 2014 and falling to $15 billion by 2020.  

Regional economists from the Singapore-based Overseas Chinese Banking Corporation (OCBC) Bank said Malaysia’s exports to Russia were merely 0.33% of the country’s total shipments in 2021, while its imports of Russian goods were under 1% during the same time-period. 

Azmi affirmed Russian’s overall trade with Malaysia was worth less than $1 billion – not enough to shift business sentiment towards resisting (or promoting) sanction compliance. 

“So far, we are not on either side, even though we supported the United Nations General Assembly resolution a few weeks ago (that condemned Russia’s invasion), but we are neutral, so I don't see any dampening of our trade with Russian counterparts,” said Azmi.  

The same applies to all Malaysian companies, whether run by its Muslim Malay majority or (largely) non-Muslim Chinese, Indian and other minorities with Azmi indicating there would be “some impact”, but it would be minimum rather than drastic.

Bangladesh’s position

Bangladesh has shown a similar reluctance to take sides. Despite the unprecedented sanctions against Russia by key Western business partners, Bangladesh is likely to continue doing business with the superpower.

One reason was the Russian support for Bangladesh during the 1971 Liberation War that delivered the country’s independence from Pakistan. Russia is also one of Bangladesh’s major trading partners and its biggest supplier of wheat, oil and fertiliser and the country helped develop Bangladesh’s first nuclear power plant at Rooppur, Pabna. 

Khondaker Golam Moazzem, industrial economist and research director of Centre for Policy Dialogue, added Bangladesh exports ready-made garment products, mainly knitwear, woven, leather, some agro-products and a few light engineering products, to Russia.

As with the rest of the world, Moazzem said the war has impacted Bangladesh in terms of inflation in oil and fertiliser prices as the country now imports these products from alternative sources like Brazil.

This will eventually translate into hiked electricity, gas and food prices with Moazzem stressing the government faced the potential of increasing oil and fertiliser subsidies as a cost-reduction measure given inflation was affecting consumers’ purchasing power. 

“One solution Bangladesh can explore is taking a short-term soft loan from international banks like the Islamic Development Bank or World Bank to (help fund) subsidies,” Moazzem said.  

As for garment exports to Russia, according to the financial newspaper Business Insider Bangladesh, the country exported goods worth $700 million to Russia in the fiscal year 2020-21 of which 90% was ready-made garments.  

The problem now was that international sanctions by the European Union, US, UK, Japan and Australia on Russian banks and major companies, including the exclusion of major state-linked banks from global financial payment network SWIFT, was impeding the receipt of payments for up to 300 Bangladeshi factories, said Mohiuddin Rubel, director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).  

“The government is trying to find an alternative transaction system. They are holding dialogues with Russian counterparts, but when it will see the daylight is a matter of concern,” he added, indicating one solution being explored was for Bangladesh to use other banks not subject to SWIFT’s sanctions.

The country can also explore making transactions via a third country such as China or Iran.

Meanwhile, Russia has expressed interest in importing potatoes from Bangladesh to better secure its food supplies with Rubel saying this could be a potential future market.

However, Moazzem warned that Bangladesh should be careful about building new diplomatic and economic relationship with Russia and advised the government watch the trade policy of its neighbour India among others “to be on the safe side with both Russia and the Western world”. 

The GCC’s stance

With their multifaceted relations with Moscow and ties to the West, the six Gulf Cooperation Council (GCC) states, namely Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates (UAE), have taken a neutral position. The UAE, that the country’s state-news agency WAM credits with being the largest Arab investor in Russia and accounting for more than 80% of Arab investments in the superpower, has particularly high stakes in the crisis and has refrained from sanctions.  

More than 4,000 Russian companies operate in the UAE and several dozens of Emirati companies are registered in Moscow, including Abu Dhabi’s sovereign investor Mubadala, with more than $3 billion in Russian investments.  

The UAE is also Russia’s second-largest Arab trading partner. In 2021 foreign trade between the two countries reached $4 billion, up from $3.3 billion the previous year, states WAM.  

“Many of the Gulf-based sovereign wealth funds have significant exposure to investments in Russia, often in partnership with the Russian Direct Investment Fund and have already suffered significant drops in their value,” said Kristian Ulrichsen, a non-resident senior fellow at the Arab Centre Washington.  

The Russian Direct Investment Fund has been heavily sanctioned by the West.

Russia’s flagship carrier Aeroflot has halted international flights, including to the GCC region, while Dubai’s government-owned low-cost airline flydubai has suspended certain flights to Russia. However, the UAE’s Emirates, AirArabia and Etihad Airways, the UAE’s second flag carrier, continue to operate Russia flights.  

“Travel restrictions and downward pressure on the Russian currency, along with individual sanctions and sanctions on Russian banks and firms, could impact on the (GCC) region’s property and hospitality sector. Conversely, the conflict could encourage some financial transfers and efforts to conceal assets in the Gulf,” said Karen Young, senior fellow and director of Program on Economics and Energy at the Middle East Institute.  

The influx of capital to Dubai through Russians looking for safe financial havens has created lucrative opportunities for the real estate sector. Tabani Real Estate, one of the oldest brokerage firms in Dubai, participated in last year’s Moscow Overseas Property & Investment Show and said it was “overwhelmed” by the response received regarding its properties.  

Emirati business executive Hussain Sajwani, founder of Dubai property developer DAMAC, similarly told CNBC the UAE stood to benefit as Russians seek to protect sanctions-threatened fortunes.  

By contrast, the tourism sector is expected to take a blow as the UAE heavily depends on Russian tourists. In 2021 Russia was the second-largest source market for tourists in Dubai, with nearly 440,000 people visiting the city – a 50% hike on the 2020 figures, according to government statistics.  

“Dubai can discount tourism from Russia for the time being. With the collapse of the Russian ruble, along with the likely increase in travel costs due to oil supply generated inflation, it will be very expensive for Russians to travel and invest overseas,” said Mohanad Alwadiya, CEO at Harbor Real Estate.  

Equally, the invasion has raised GCC food security concerns, said Li-Chen Sim, assistant professor at Khalifa University in Abu Dhabi. 

Among the GCC, the UAE, Oman and Qatar have significant dependence on wheat imports from Russia and Ukraine. Between 2015 and 2019, Russia and Ukraine increased their market share from one-third to almost half of all wheat imported by the UAE, said Sim.  

She said while ample grain storage facilities mean there is no short-term danger of supply shortages in the UAE, in Saudi Arabia – which only opened its market to Russian wheat in 2020 – the disruptive effects on supply reliability may cause it to re-evaluate increasing wheat imports from Russia to offset declining local production.

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Farmers have been hit particularly hard with the cutting off of their main export market of Saudi Arabia after the Kingdom in late October 2021 barred all Lebanese agriculture from entering its borders, citing a series of recent drug smuggling attempts, allegedly hidden in fruit and vegetable shipments. And because Lebanese trucks are not allowed to traverse Saudi Arabia’s territory, their access to other Gulf markets has been severely impacted as shipments must now travel by sea, according to Ibrahim Al Tarshishi, head of the Farmers Association in the Bekaa Valley, Lebanon's main agricultural region. 

According to data from the International Trade Centre, Lebanese exports to Saudi Arabia amounted to $247 million in 2020, with fruits and vegetables topping the list and worth around $36 million. The leading crops are potatoes, followed by tomatoes, cucumbers, gherkins, grapes, apples, cherries, figs, mint, coriander, parsley and radishes.

“Due to the ban, our sale prices are falling down to the ground and there are fewer customers,” said George Hana Fakhry, member of the Social and Economic Council (SEC) at the General Council for Agricultural Trade Unions in Lebanon. “I had to sell my products at very low prices, often less than the cost of production,” he said.

Agriculture is the second biggest employer in Lebanon following the services sector. It represents 4% of total employment in Lebanon, including nearly 64,000 workers, half of whom face dire circumstances as a direct result of the ban.

“Everything is expensive due to the collapse of the currency and now the export ban. I buy all my materials with US dollars and yet I have to sell them in Lebanese Lira,” said Ali Shokor, a farmer from the Bekaa.

Most farmers are employed seasonally, mainly in the summer to cover the high cost of winter heating. “Before the ban, Lebanese merchants who export to the Gulf used to come and buy my products, but this season I have not seen any of them,” Shokor said. “So I sold my products in the local market at low prices, without being able to save any money for winter. I do not know how we will make it.”

Saudi-Lebanese trade iis more than 60 years old, Tarshishi said, adding: “We have inherited these markets from our parents and planned on passing them to our sons because our parents have worked so hard to build trust between us and the Saudi merchants.” He said there were no alternative markets to turn to.

“We hope the Lebanese government takes some steps to solve the ban issue to go back to normal relations and to live in peace,” he said. A food security crisis is looming for the country, and a collapse of the agriculture sector will only hasten its arrival, Tarshishi said.

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