This article by Stephenson Harwood‘s Dubai office analyses the impact of President Trump’s tariff strategy on the MENA region, and specifically the Gulf countries.

Introduction

Just over two weeks have passed since President Trump announced a sweeping set of trade tariffs, targeting America’s trading partners. The introduction of tariffs created turbulence in financial markets, with many leading stock market gains over the last couple of years being wiped in just days.

Facing the prospect of retaliatory tariffs, and the impact on financial markets, the US announced the sudden suspension of most reciprocal tariffs for a 90-day period (applying to all countries except China which remains at 145%), while still maintaining the baseline 10% tariff on all imports to the US as well as 25% tariffs on steel, aluminium and vehicle imports.

Financial markets have recovered somewhat with news of the suspension of most tariffs. However, significant damage has already been done, and the uncertainty surrounding international trade is now more prominent than ever.

In our recent article – titled ‘Trump’s Trade Strategy: Global Trade at a Crossroads‘ – we discussed what tariffs are, why Trump had imposed increased tariffs, his likely goals and actions that you and your business could take to reduce any adverse effects. In this article, we take a closer look at what Trump’s increased tariffs mean for the MENA region, in both the short and the longer term.

‘Liberation Day’ – a recap

Most countries in the MENA region ‘got off lightly’ by comparison to others upon the arrival of ‘Liberation Day’ and the imposition of Trump’s increased trade tariffs.

For example, regional heavyweights such as the United Arab Emirates and the Kingdom of Saudi Arabia are only subject to the standard baseline tariff of 10%, whereas other countries – e.g. Jordan, Morocco, and Israel– were hit with tariffs of up to 20%, somewhat lower than most Asian countries. That said, certain countries in the region were not as fortunate, with Algeria, Syria and Iraq being hit with higher tariffs in the region of 30%–40%.

Following the  initial  shockwaves, the 90-day  suspension  will  certainly  provide  some  respite to those hit with  higher tariffs.  However, the initial expectation that the suspension  will remain permanent has been somewhat dampened by subsequent statements by Trump and his administration.

The oil-rich Gulf States will have also been pleased to hear that US energy imports were (and remain) exempt from Trump’s increased tariffs. Therefore, at first glance, it appears that all those concerned could breathe a sigh of relief. However, if one looks a little deeper, issues start to emerge.

The short-term impact

The most significant short-term impact for the region has been a drop in the price of oil barrels, in excess of 15%. The price of oil has now dropped to levels not seen in years due to the double impact created by: (i) the fear that there will be a global slowdown due to tariffs meaning less demand for energy commodities; and (ii) economic uncertainty  which causes investors to move from commodities such as oil to safe-haven commodities, such as gold.

In an additional blow to oil prices, in what appears to have been an attempt to appease Trump as part of a wider  strategy to try and renegotiate tariffs, the Organisation  of  the  Petroleum Exporting Countries (OPEC+) subsequently announced that production levels would increase.  This has caused the average price of oil to drop even further.

The longer-term impact

While most MENA countries are not the direct targets of the new US protectionist trade policy, as each day passes and no deals are struck to provide any relief., it creates anxiety and nervousness within the financial markets, which will continue to distablise the the global economy and will undoubtedly have consequences for the region.

A longer-term decline in oil prices can create difficulties for oil-dependent economies like the Kingdom of Saudi Araba where price drops translate directly into budget shortfalls, slower economic diversification efforts, and uncertainty in long-term fiscal planning.

The Middle East is also strategically positioned at the crossroads between Europe, Asia, and Africa. Ports, free zones, and logistics hubs depend on the efficiency of global trade. However, US tariffs have prompted many multinationals to reconsider their supply chains, to mitigate their direct exposure to tariffs.

With many currencies in the MENA region pegged to the US dollar, a longer-term devaluation of the US dollar can create inflationary pressure on critical imports.

Those in less-prominent markets such as aluminium and steel production will also see a downturn in demand as the US slowly begins to favour domestic manufacturers (i.e. as the baseline 25% tariff on US steel and aluminium imports begins to take effect).

Is it all bad news?

In short, no. In times of uncertainty there are always opportunities.

If the US maintains its ‘America First’ policy, there will be a need to diversify supply chains and open more alternative markets.  The Middle East’s strategic location creates opportunities for countries in the region to take advantage of any global realignment to position themselves as alternative trade hubs.  Much of the necessary infrastructure is already available in place or in development. The Middle East also offers a stable, neutral ground for business and logistics.

With tariffs making Chinese goods significantly more expensive, there will be a golden opportunity for more manufacturing to be brought into the region, especially if the U.S-China trade war continues to intensify.

What does all this mean for the Middle East?

It will take some  time for the full impact of Trump’s tariffs to take effect.  Even if the 90-day suspension to most tariffs is extended, the trade war with China does not seem likely to be going away any time soon. Considering US-China trade represented almost 2% of world trade, this will certainly have repercussions on shipping markets.

In the short-term, the Middle East could be set to benefit from the upheaval. With oil prices so low, there is likely to be a spike in demand for oil tankers which will be at least in the short-term see a boom for local operators.

As businesses impacted by the tariffs continue to diversify, established trade routes and supply chains will change. As mentioned above, being strategically located, the Middle East can serve as a focal point for new trade routes, making the region an important hub for international trade.

In conclusion

US tariffs are rewriting global trade rules, and while many countries are struggling to adapt, Middle Eastern economies find themselves well positioned to try and grow their influence, boost exports, and reposition their economies for the future. But doing so requires vision, speed, and strategic coordination – particularly around industrial policy, and trade infrastructure – which they have continually demonstrated in recent modern history.

The team at Stephenson Harwood LLP are happy to assist clients with any specific queries relating to tariffs and international trade generally.

Authors

Menelaus Kouzoupis Partner, Dubai, Stephenson Harwood LLP

Alan Scurry Associate, Dubai, Stephenson Harwood LLP