This report is based on the presentations and discussions during the UAE Security Forum 2019, “Reshaping the Future of the Horn of Africa,” held on December 12, 2019 in Abu Dhabi, United Arab Emirates.
On October 14, Russian President Vladimir Putin descended the stairs of an aircraft gangway in Riyadh that was covered with a red carpet and topped with gold railings. In contrast, noted Russian newspaper Vedomosti, Putin’s last state visit to the country in 2007 was a humbler affair with just the carpet. During the next leg of his trip, Putin was hailed by Abu Dhabi Crown Prince Mohammed bin Zayed al-Nahyan as his “dear brother and friend.” The upgraded protocol and bonhomie that accompanied Putin’s visit to the Gulf states of Saudi Arabia and the United Arab Emirates is evocative of the “quantum leap” in relations over the last 12 years. In particular, commercial exchanges have been augmented by deeper strategic cooperation in energy markets, regional security, and mutual investments to facilitate infrastructure modernization and economic diversification. And while the Gulf has not traditionally been a core region in Russian foreign policy, unlike adjacent European or post-Soviet states, these qualitative changes in Russia-Gulf engagement are notable.
Trade and Investment Ties
A series of memorandums of understanding and cooperation agreements valued at $2 billion in Saudi Arabia and $1.3 billion in the UAE were signed during Putin’s visit. In view of the common objective of monetizing hydrocarbon assets, energy-related agreements took center stage. They included the award of a 5% stake in Abu Dhabi’s Ghasha sour gas concession to Lukoil, marking the first upstream participation for a Russian energy company in the UAE. Lukoil will join the Abu Dhabi National Oil Company and three other foreign concession holders to facilitate the emirate’s goal of gas self-sufficiency for power and feedstock requirements. Another significant agreement was the joint acquisition of a 30.76% stake in Russia’s oil field services equipment company, Novomet, by Saudi Arabia’s Public Investment Fund and the Russian Direct Investment Fund. With a 4% share of the global oil field services market, Novomet is an attractive asset that was eyed by the United States’ Haliburton in 2018. However, the sale may be blocked by Russia’s Federal Anti-Monopoly Service because Novomet, which manufactures pumps that produce 20% of Russia’s oil, is classified as a strategic domestic asset.
Expressions of interest in nonhydrocarbon projects, including space, health, small modular nuclear reactors, and infrastructure, were also features of Putin’s visit. Such projects are aligned with economic diversification plans in Saudi Arabia and the UAE, as well as Russia’s own national projects to modernize human and physical infrastructure, which specifically target funding from state actors in the Middle East and China. The potential projects would build upon the success of the past several years: Saudi Arabia’s Public Investment Fund and the Russian Direct Investment Fund invested in the construction of Russia’s Tushino technology park, and Abu Dhabi’s sovereign wealth fund, Mubadala, took a stake with the Russian Direct Investment Fund in Russian Fitness Group. Especially noteworthy is the intention of some Russian partners to localize production or services in Saudi Arabia, in line with the kingdom’s initiative for job creation and knowledge transfer.
However, the extent to which projects announced during the visit will be realized remains to be seen since most of the agreements were nonbinding. During Saudi King Salman bin Abdulaziz’s 2017 visit to Moscow a flurry of deals were concluded but many remain on paper, including Riyadh’s interest in procuring Russia’s S400 anti-missile system.
The momentum from Putin’s recent visit together with cooperation agreements on investments, the relative stability of oil prices and hence spending (as government revenue is subjected to less fluctuation in prices), and growth in tourism and cultural exchanges thanks to a more liberal visa regime are likely to boost trade volumes. As Russia’s largest commercial partner in the Gulf, according to the International Monetary Fund trade with the UAE increased from $600 million to $2.4 billion between 2007 and 2018. Saudi-Russian trade reached a high of $1.9 billion in 2014, during the last peak in oil prices, only to fall back down to $900 million in 2018, on par with the level in 2007. Although Russia maintains a healthy trade surplus, improvements in Gulf-Russia trade are challenged by the similarity of their energy-based economies; in contrast, Russia’s trade with less energy-abundant countries such as Egypt or Turkey is far greater than the combined volume of Russia’s trade with the six Gulf monarchies.
New sources of trade and investment over the next five years are likely to come from food and ports. Russia, the world’s largest exporter of wheat, is expected to make its (re-)entry into the Saudi grain market and grab market share from more pricey European suppliers. Thanks to lobbying efforts by Russia, which leveraged Saudi concerns over food security for its fast-growing population, the kingdom announced in August that it would relax its bug-damage specifications for wheat imports from 0% to 0.5%. This effectively opened the market for imports from Russia. Since 2015, revenue earned by Russia from food exports have exceeded those from arms sales. The Saudi Agricultural and Livestock Investment Company is considering investing in Russian grain producer RZ Agro to secure grain supplies while Mubadala is interested in taking stakes in two Russian agriculture companies.
The other new avenue for Gulf-Russia cooperation may be port management along Russia’s Northern Sea Route in the Arctic, where global warming and Russian nuclear-powered icebreakers are rendering the route a viable and shorter option for east-west freight. Since 2013, for example, maritime traffic has increased five-fold and is expected to quadruple between now and 2024. In addition, China’s endorsement of this “Polar Silk Road” to complement its Belt and Road Initiative has been underlined by the use of this route by Chinese cargo ships. Sensing a commercial opportunity, Dubai’s DP World agreed in June to study the feasibility of building a string of ports along the Arctic with Russian partners. This is not the first time DP World has been interested in Russia. The difference is that this time, the project is in the increasingly busy Arctic and is a joint investment with the participation of the state-backed Russian Direct Investment Fund.
Hydrocarbon-based projects are set to continue to proliferate. Possible ventures include cooperation by Russia’s petrochemical company Sibur and Saudi Aramco to build a synthetic rubber plant in Saudi Arabia and a possible Saudi stake in phase two of Novatek’s liquified natural gas plant in Yamal in the Arctic.
On a strategic level, Putin’s visit will likely strengthen coordination between the alliance of OPEC and non-OPEC oil producers (OPEC+) over global oil supplies. Although a charter of cooperation was initialed by oil ministers over the summer, the formal signing ceremony by King Salman and Putin during the recent visit lent added gravitas to the pact. This led one observer to quip that what began as a fling was now a marriage between oil producers. Although there have been rumblings of discontent within the Russian oil industry about production limits that extend into 2020, the pact has nevertheless held firm. This success in energy market coordination since late 2016 contrasts with failed attempts to prop up oil prices in 1999, 2001, and 2009.
Perhaps the biggest difference in Gulf-Russia relations then and now relates to Russia’s role in the Middle East, where its “near absence” has been replaced by influence in almost every major conflict in the region. Russia has become an interlocutor to parties on all sides of these conflicts. For Russia, its success in the region is a surprising and welcome opportunity because the Middle East has never been and is not a strategic priority like Europe or the post-Soviet region. As noted by a prominent policy advisor, Fyodor Lukyanov, Moscow “will not refuse additional opportunities in important countries and their markets. But the approach that has been advanced in the region since 2011 is primarily dictated by the desire to protect itself from even larger shocks, which as Moscow believes, are the result of foreign interference.” Such shocks include instability as a consequence of the fall of incumbent regimes linked to Moscow and the spread of terrorist activities to Russia and the post-Soviet republics.
Saudi Arabia and the UAE, which have embarked on more interventionist foreign policies, hope to leverage Moscow’s relationship with regimes in Iran, Syria, and Turkey to de-escalate tensions in the Gulf, Syria, Yemen, and Libya. For example, Turkey’s recent incursion into Syria will no doubt make Russia even more indispensable, with The Wall Street Journal claiming Moscow to be the “New King of Syria.” Nevertheless, Russia is aware that for any political settlement in Syria to be credible, the support of key Arab states such as Saudi Arabia and the UAE is essential, hence the value of the 2018 Declaration of Strategic Partnership between Russia and the UAE.
Finally, Putin likely discussed with his hosts Russia’s collective security plan for the Gulf, which was unveiled at the United Nations in July. The plan, which repackaged previous lackluster proposals into a unified security concept, advocates for the creation of international coalitions of Gulf states and external stakeholders including Russia, the United States, the European Union, India, and China. Coming on the back of Iran’s Hormuz Peace Endeavor and the United States’ Middle East Security Alliance (which has no role for Russia), Russia’s proposal enables the country to claim a proactive approach; it reinforces a perception of global influence that is so crucial for Russian foreign policy while constraining U.S. policy.
A New Nonregional Hegemon in the Gulf?
It is highly improbable that Russia will replace the United States and emerge as the security guarantor for the Gulf monarchies in the near future. Russia’s resources are comparatively limited, and it has little desire to squander them in an area of relatively lower priority like the Gulf. It clearly has legitimate interests in the region – and these are growing in scope and depth as Putin’s Gulf visit demonstrates – but these require Russia to be even handed in its interactions with the Gulf and the wider Middle East. In an interview just prior to his trip to the region, Putin acknowledged that Russia has “an unprecedented level of partnership, I would even say friendly relations, with Saudi Arabia and the United Arab Emirates.” But, he added, “Russia will never be friends with one country against another. We build bilateral relations that rely on positive trends generated by our contacts; we do not build alliances against anyone … Russia and Iran are neighbours; this is a factor we always bear in mind.” Putin’s perspective, coupled with President Donald J. Trump’s reluctance to use U.S. power in the Gulf, seems to suggest that former President Barack Obama may have been correct after all: The Gulf states may just have to learn to share the Middle East with Iran, with some help from Russia.
Sultan Haitham will need to balance powerful interests while engaging all parties, especially as he tackles economic policy.
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