Political concerns shape Russia’s economic relations with the GCC amid the Ukraine crisis
The Ukraine crisis has put additional pressure on Russia to strengthen its relations with Gulf Cooperation Council countries by strengthening economic and trade ties as Moscow finds itself increasingly isolated from the West.
Russia counts on the support of its allies and other neutral countries in the ongoing conflict it has faced since the start of the war in Ukraine.
The GCC plays a vital role in Russia’s order of things, especially now that it would like to compensate for the economic damage caused by the escalating sanctions.
Although Russia’s trade value with the GCC may not be significant, it is essential for Russia, especially in this volatile environment.
“Russia’s trade with the GCC was valued at $3 billion a year in 2016 and $5 billion in 2021,” Anna Borshchevskaya, senior researcher at the Washington Institute, said in an interview with Arab News.
She added that her closest relationship in the GCC was with the United Arab Emirates, with which Russia signed a strategic partnership in June 2018.
For the first nine months of 2021, trade turnover between Russia and the United Arab Emirates amounted to 3.769 billion dollars, an increase of 86.03% compared to the same period in 2020, said Maxim Suchkov, director of the Institute of International Studies at Moscow’s MGIMO University, citing the latest publicly available figures.
For Saudi Arabia, he said the latest figure came from the pre-pandemic period of 2019, when trade turnover between Russia and the Kingdom was $1.667 billion, up 58 .05% compared to 2018.
Geopolitical experts argue that Russia’s economic relationship with the GCC must be seen through the lens of its continued competition with the West and, more specifically, with the United States.
From the Kremlin’s point of view, an important aspect of trade relations is, of course, commercial, but it also has a political perspective, Borshchevskaya explained.
“He needs someone to fund Syria’s reconstructions, and it’s been clear to the Kremlin for a long time that the West isn’t going to pay for that. So he turned to the Gulf as the main financier,” she said.
For Suchkov, Russia sees the GCC as a rapidly developing group of nations.
“He knows there is a lot to learn from many of them in terms of trade, technology development and reducing energy dependency,” he said in an interview with Arab News. “They also hold key political capital for stability and prosperity in the Middle East, so Russia values its regional partnerships very much.”
US withdrawal from the MENA region: a boon for Russia?
Russia’s relations with most GCC states have been on a rollercoaster ride, with “ups” and “downs” over the conflict in Syria as well as the regulation of oil trade and markets, Suchkov described.
In March 2020, relations between Saudi Arabia and Russia soured over disagreements over oil production levels. The impasse was resolved in April 2020.
“However, we have seen a positive dynamic on this path — the GCC has become an important region for Russia’s economic interests. The main areas of cooperation are economic, technological and innovative development and financing,” Suchkov added.
Moscow’s relationship with the GCC is often seen as part of Russian diplomacy as it fits into its broader Middle East strategy, said a research paper published last year by think tank SETA.
For Russia, the document describes the GCC as an important source of investment for its economy, more specifically, the infrastructure projects that the country undertakes. Most of these GCC investments are channeled through the country’s sovereign wealth fund, the Russian Direct Investment Fund, RDIF. The RDIF is nevertheless currently sanctioned by the United States, blocking its access to the American financial system.
The RDIF not only acts as a facilitator between Russia and the GCC, but also creates joint funds with other companies and financial entities in the Gulf State to invest in infrastructure projects inside Russia. .
RDIF’s main partners in the GCC include UAE’s Mubadala Investment Co., Qatar Investment Authority, DP World, Saudi Arabia’s Public Investment Fund, Kuwait Investment Authority, Saudi Aramco and Bahrain Mumtalakat Holding Co., according to the SETA document.
Qatar is one of Russia’s largest foreign investors (internationally and regionally), with investments exceeding $13 billion, according to a March 22 article by Doha News.
The fact that Russia cannot deal with the West for a while, Suchkov said, opens up new business opportunities with the rest of the world. “Agricultural exports are a particularly promising area.
The Gulf region, along with China, is one of the main markets in terms of potential for increased agribusiness exports, Russian Agroexport head Dmitry Krasnov said in a recent interview with Interfax.
The main export products are barley, which accounted for 32% of exports in 2021; wheat with 25 percent; sunflower oil with 12 percent; poultry meat with 11 percent; chocolate confectionery products with 7 percent; and beef with 3%, according to the head of Agroexport, which is part of the Russian Ministry of Agriculture.
The biggest buyers of Russian agricultural products are Saudi Arabia, which accounted for 77% of total exports to this region in 2021, and the United Arab Emirates 12%, Suchkov said.
“Both are also promising buyers of Russian weapons, despite their ties to the United States. Clearly, the OPEC+ oil pact is a key part of GCC-Russia relations,” he added.
Most UAE investment in Russia has been directed towards the development of computer software for Russian oncology and maternity centers, according to SETA, with Mubadala contributing to the development of medical clinics in Podolsk and Balashikha.
It also financed the construction of logistics complexes for the districts of Novosibirsk and Moscow, reports the newspaper SETA.
Regarding Saudi Arabia, the Kingdom’s PIF has invested in several reconstruction projects in Russia, including the Karelian District Hydroelectric Power Station, the ZapSibNeftekhim petrochemical plant in Tobolsk and transport infrastructure in St. Petersburg, according to SETA. .
In September 2021, FESCO and DP World Russia signed a cooperation agreement to develop joint projects focusing on the development of the commercial port of Vladivostok, which is part of the FESCO Group, the largest transport operator in Russia.
Wealthy Russians also see the GCC as a safe haven for investment. “Recent reports have noted that many wealthy Russians have fled to the United Arab Emirates. It is also worth noting that the influx of wealthy Russians to the UAE is likely contributing to a stronger cultural bond,” Borshchevskaya said.
Another advantage of the GCC for Russia is that it is strategically positioned to provide access to the Red Sea and Africa, she added.
The policy of tight-rope politics between Russia and the West, especially the United States, will send shockwaves through different fields and industries for some time to come, Suchkov warned.
“International trade, including energy resources, will be affected,” he added.
The Ukraine crisis reveals the divisions between the GCC and the United States
Despite his 2020 standoff with the Organization of the Petroleum Exporting Countries, Russian President Vladimir Putin’s approach to the Middle East has also been about building good relations with everyone in the region, Borshchevskaya stressed.
“The (Ukrainian crisis) exposed the (GCC’s) rift with the United States, as the UAE failed to abide by the UN Security Council resolution condemning Russia for its invasion, while the Saudi Arabia refused to produce more oil,” she explained.
This reflects a long-standing perception in the Gulf that the United States is reducing its engagement in the region, and the region therefore feels that it cannot rely solely on the United States, Borshchevskaya stressed.
“Most GCC states have taken a wise position,” Suchkov said.
The “wait-and-see” approach to American pressure on its allies responds much better to the interests of the Gulf monarchies than a more assertive attitude towards Russia, he underlined.
“Since the Arab Spring, the policies of many Gulf monarchies have matured; many defended their own interests and refused to follow certain Western policies,” he said.
Russia seeks greater “de-Americanization” of the international system, he added.
“The conflict in Ukraine is part of this process, and the unfolding crisis would have huge global implications, so we are living in a historic moment,” he explained.
One that will undoubtedly reflect on GCC-Russia trade relations in the future.