Is the booming relationship between Russia and the UAE doomed?

Russia’s invasion of Ukraine and the ensuing Western sanctions fueled Russian interest in the United Arab Emirates (UAE). Bilateral trade is breaking all previous records, Russians are buying real estate and doing business there.

However, despite everyone’s hope that the UAE can become an alternative to the West, the UAE’s attitude towards sanctions is far more serious than Moscow thinks. There is no doubt that the West will put pressure on the UAE to limit its cooperation with Russia. The only question is: how much, and how fast?

above million Russians are visiting the UAE in 2022 – a 60% increase on the previous year – and these visitors are not just tourists: Many Russians have already moved their businesses and assets there.Russians have gone from a niche group to a driving force in the local real estate market, accounting for maximum The number of transactions between foreigners.UAE is now also one of them top five A place where Russian companies open franchises.

The surge in popularity in the UAE is particularly notable because far from everyone who wants to leave Russia can afford to move there. Real estate prices and the cost of living are significantly higher than in Europe, so those who move there tend to be wealthier Russians, such as top managers, while ordinary employees of the same company may go to Georgia, Armenia, Kazakhstan or Turkey. There is also evidence that businessmen with close ties to the Kremlin are moving assets to the UAE.

Russia’s search for alternative trading partners to replace its severed ties with the West is reflected in bilateral trade with the UAE, which growing up A 68% increase to a record $9 billion by 2022, of which Russian exports will be worth $8.5 billion: an increase of 71%. Even before the war, bilateral trade had been growing rapidly in recent years, largely due to the expansion of Russian agricultural exports, which still accounted for a large proportion of Russian goods shipped to the UAE. The main consequence of the sanctions was a sharp increase in the supply of precious metals, which Russia could no longer sell to the West.Nearly 40% of Russian exports to UAE last year were gold and precious stones, according to experts calculate.

In another development, Moscow has started exporting oil and oil products to the UAE at heavily discounted prices.The UAE itself is of course one of the world’s largest oil producers, but in the first ten months of 2022 it has purchase 3.2 million barrels of oil (for re-export) and 1.5 million tons of petroleum products (for the country’s own needs).Russia’s 242 million tons of oil may be just a drop in the bucket exit Total last year, but exports to UAE continue to grow.

Parallel imports through the UAE are also underway.Deliveries of electronics and spare parts from UAE to Russia increase seven times became the country’s largest export category to Russia, while deliveries of microchips soared 15-fold. The UAE also sold 158 civilian drones worth $600,000 to Russia in 2022. Still, despite astronomical growth in several categories, UAE exports to Russia remain negligible, accounting for just over 5% of total trade.

At first glance, relations between the two countries are booming because of the Ukraine war and the sanctions that followed. But it wasn’t all smooth sailing. Last year, many UAE banks stopped allowing Russians to open accounts, despite the country’s efforts to attract foreign investors. UAE financial institutions place stricter requirements on Russian businessmen than many others, and Russians seeking to lease space in commercial real estate also find themselves going through more hardships.

To make matters worse, late last year, Russia’s largest bank, Sberbank, was forced to closure With its representative office in the UAE, it is considered a springboard into the region. Officially, the UAE has not imposed any sanctions on Russia, but U.S. regulators closely monitor much of the country’s banking and consulting industries, meaning local financial institutions still need to exercise caution when dealing with Russian entities.

In addition, the Financial Action Task Force global money laundering and terrorist financing watchdog added the UAE to its “grey list” in March 2022, prompting the country’s authorities to quickly tighten oversight of banking cash flows, making it more difficult to transfer money from Russia to Russia. Transfer assets or bypass sanctions.

This is not the first time the UAE has come under pressure from the United States to crack down on financial transactions with another country. Twenty years ago, the UAE was considered the financial center of Iran, and Iranians accounted for about 30 percent of total real estate investment in Dubai. In 2009, total Iranian investment in the UAE was estimated at $300 billion.bilateral trade growing up Average annual growth of 30%, from $2.2 billion in 2001 to $24 billion in 2010. In contrast, China is Iran’s largest trading partner in 2021, with a turnover of just under $16 billion.

Then, in 2010-2011, as the United States imposed sanctions on Iran over its nuclear program, Washington began to pressure the UAE to limit its financial dealings with the Iranians. Soon, trade plummeted to $15 billion. When then-U.S. President Donald Trump announced his country’s withdrawal from the Iran nuclear deal in 2018, banks in the UAE not only stopped Iranians from opening accounts there; they also closed many existing accounts, citing security concerns. Many Iranians living there found their residence permits not renewed, reduce Their total number fell from 117,000 in 2016 to 73,000 in 2019, while trade fell further, to $12 billion in 2018.

All of this happened even though the UAE has not formally joined Western sanctions against Iran and has never sought to sever ties with Iran. Now Russia may find itself following in Iran’s footsteps.this Financial Times The newspaper reported in March that the U.S., U.K. and the European Union were actively trying to persuade the UAE to reduce its dealings with Russia, amid concerns that the UAE could become a source of parallel Russian imports of sanctioned goods.

The UAE will try to take advantage of the sanctions war between Russia and the West, but in the end it is far more dependent on the US and other Western countries than Moscow’s other major partners, Turkey and China, so compromises to Western sanctions are inevitable. The UAE will remain a major destination for wealthy Russians emigrating abroad, as they have for Iranians, but the process is unlikely to get any easier anytime soon. As for parallel imports, current numbers are relatively modest, and increasing pressure from the West means they are unlikely to grow exponentially.

Ultimately, it will all come down to the stability of Russian exports as they form the backbone of the bilateral relationship, which seems like bad news for Moscow. While food from Russia is unlikely to face any restrictions, other commodities — including oil and precious metals — are likely to find themselves under pressure from the West.

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