Brussels – With a share of more than 30 percent (regardless of the flow), the EU is the largest trading partner in the MENA region.
The acronym MENA refers to the Middle East and North Africa. It refers to an economically diverse region whose trade dynamics have been influenced by the geopolitical situation and, above all, by the presence of oil reserves.
With a generally estimated 19 countries (variable, since there is no unique classification), the Middle East area usually includes Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Jordan, Iran, Iraq, Israel, Lebanon, Oman, Syria, Palestine, and Yemen. North Africa includes Algeria, Egypt, Libya, Morocco, and Tunisia.
The EU has thriving trade relations with the area, which, because of its proximity, benefits from so-called “European Neighborhood Programs.” One of these is the Southern Neighborhood, which includes Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, and Tunisia. There have been privileged relations among the partners since 1995, with the Euro-Mediterranean collaboration, later included in the broader “Neighborhood Plan” (of which Syria has not been a part since 2004). In addition to economic cooperation, the goal is to ensure that the Southern Neighborhood is an area of peace, stability, economic prosperity, upholding democratic values and human rights.
For the Middle East, there is also the Gulf Cooperation Council (GCC), of which Bahrain, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates are members, along with Qatar, which is not in MENA. The EU has cooperation agreements with the GCC, which has existed as a regional organization since 1981, as well as with Yemen, while it has a partnership and cooperation agreement with Iraq. Iran does not enjoy any formal agreement with the EU, just as there is no delegation in Tehran, so relations are based on maintaining the Comprehensive Joint Plan of Action (JPA, Iran Nuclear Agreement) signed in Vienna in July 2015.
Since there is no formal list, MENA can be expanded to MENAP (MENA + Afghanistan and Pakistan) or MENAT (MENA + Turkey) to include countries not strictly part of the Middle East or North Africa but which have strong economic or strategic ties to these countries.
Trade agreements between the EU and this group of countries aim to facilitate trade and are constantly evolving and significant. Connected to these, the EU has established the European Neighborhood Policy, which focuses on encouraging political and economic reforms in these countries while respecting their specific characteristics and promoting cooperation within the region and with the EU (Union for the Mediterranean). In 2021, as part of the EU’s new trade policy review, the Union announced a new sustainable investment initiative for interested partners in the Southern Neighborhood and Africa.
For countries in the Southern Neighborhood, the EU has strong trade relations
With data updated to May 2024, we see that in 2021, the EU imported goods worth 166.6 billion euros from the Southern Neighborhood countries and exported 186.9 billion euros. Trade increased the following year, with imports of more than 235.9 billion euros and exports of 227 billion, with an 8.9 billion deficit for EU exports. 2023 closed with a surplus of 15.2 billion euros, exports of 234.8 billion, and imports of 219.5 billion euros.
Business relations with the Gulf area
Trade volume here is lower, with a highly variable balance. 2021 was markedly in favor of the EU, with exports of 72.9 billion and imports of 40.6 billion. The year after, the difference narrowed, with imports increasing to 87.6 billion, plus 40 billion from the year before, and sharply lower growth in exports, totaling 87.8 billion. In 2023, the EU returns to exporting more (93.8 billion euros) and importing less (76.3 billion euros).
There are many Intra-regional differences. However, in aggregate, the EU counts the Middle East and North Africa as key trading partners.
Fuel, mining, and chemicals accounted for most of the EU’s 29.6 billion euros of imports, while automotive, transportation, chemical, and agriculture comprised most of the 67.5 billion euros of exports. The EU ranked as the GCC’s second-largest trading partner in 2020, accounting for 12.3 percent of the GCC’s global trade in goods and 17.8 percent of imports. The EU was thus the GCC’s top import partner and the fourth largest export partner, receiving 6.9 percent of GCC exports.
After the outbreak of war in Ukraine
In the last few years, the EU has increased crude oil and natural gas imports; MENA countries accounted for 18 percent of crude oil and 12.4 percent of natural gas imports in 2020. This share increased, especially after the Russia-Ukraine war when the EU increased imports from other countries to offset the reduction in Russian oil imports. More specifically, about 18 percent of the EU’s diesel imports came from Saudi Arabia, while 9.1 percent came from the United Arab Emirates in the third quarter of 2023.
This infographic from ETDP, the External trade data platform of the Arab countries, gives an idea of the economic dollar value of trade in these categories of goods.
As expected, oil and gas products stand out (product code 5), which had a trade value of $187.9 billion in 2022, followed to a lesser extent by industrial products such as machinery and electronic products worth $16 billion. Basic metallurgical products and petrochemicals follow.
At the level of Arab countries’ exports and imports to the EU, we see that the volume is closely dependent on the years, and in the 10-year balance, between 2012 and 2022, there has been an overall increase in exports, with strong growth since before COVID-19.
Outlook
One of the elements that will impact trade relations between the European Union and MENA countries is the introduction of the CBAM (Carbon Border Adjustment Mechanism) regulatory mechanism which currently imposes the only rule for trading partners to report company emissions to the EU. It will become important as of 2026, when it will be mandatory to buy a CBAM certificate, which will attest to the difference between carbon prices in EU and non-EU products, aiming to avoid carbon leakage (which can be priced based on certificate prices in the EU’s emissions trading scheme, ETS).
Hydrogen: The MENA group is a potential source of low-cost renewable hydrogen and ammonia for the EU because of their abundant solar energy and geographical proximity. It is a significant point for the EU in light of the green transition and the studies on the subject already underway.
Green hydrogen is considered crucial to Europe’s efforts to achieve climate neutrality by 2050. It is possible to use this versatile, carbon-free energy source to decarbonize various sectors, such as industry, transportation, and heating, where other alternatives may be impractical or more expensive. The EU is considering importing it from other countries to meet the volumes needed, and the MENA group seems an ideal candidate, but the prospect is still being defined.
English version by the Translation Service of Withub
