Russia-GCC Economic Relations: When Quality Matters more than Quantity.

• Author: Kozhanov, Nikolay
• Position: ARITICLE

Introduction

Russia's growing involvement in the Middle East has created a colorful profusion of authors studying the different aspects of its regional presence. (1) Their research offers interesting and deep insights into the Russian dialogue with the region, allowing readers to look at these ties from different angles. (2) Amongst other topics, their studies inevitably address the issue of Moscow's relations with the Gulf Cooperation Council (GCC), as this vector of Russia's diplomacy possesses substantial importance within Moscow's bigger strategy in the Middle East and clearly affects the overall situation in the region. (3) Within this, the focus is mainly on the political aspects of Russia's interaction with the GCC member states.

For instance, the analysis of these ties through the prism of Russia's relations with the West and Moscow's ambitions to play the role of a global player in the international arena has become a very popular way to approach the issue. (4) When explaining the motives behind the Russian moves the majority of authors refer to the impact that the dynamics of Russia's confrontation with the West has on Moscow's dialogue with the GCC member states. (5) In his study Mark Katz also argues that while Moscow's decisions obviously play a role in whether its Middle Eastern policies have been successful or not, sometimes Moscow's successes or failures are affected by policies pursued by the U.S. and other non-regional actors. (6) This idea is further developed in the publications by Samuel Ramani who pays a lot of attention to the geopolitical factors affecting Russian-GCC relations. (7)

Yet, not all researchers share these views. Some of them argue that while the Kremlin's geostrategic games in the region definitely play a very important role in Moscow's decision-making with regards to the Gulf, the authors are often carried away by this explanation and fail to discuss other important drivers of Russian diplomacy in the region, such as domestic or economic factors. However, Moscow-based scholar Leonid Issaev, on the contrary, pays more attention to the role of Russia's domestic policies in shaping Moscow's approaches towards the region. He believes that Russian foreign policy towards the Gulf cannot be considered in isolation from the political processes going on inside Russia. Issaev insists that, on many occasions, it is not foreign policy priorities but domestic security concerns, disagreements inside the Russian political elite, and Kremlin's propaganda needs, which play the role of key factors determining Russia's decision-making process on the Middle East and the Gulf. (8)

Unfortunately, the economic dimension of Russia's cooperation with the GCC has traditionally been overshadowed by the ongoing discussion on what political factors play the leading role in shaping Russia's approaches to the region. Of course, there were attempts to analyze the impact of economic factors on Moscow's cooperation with the region. Yet, the majority of studies either just touch upon the economic factors within the broader discussion of Moscow's regional approaches or, on the contrary, concentrate attention on a narrow aspect of the economic cooperation (such as trade, investments, or coordination of efforts in the oil market). (9) Even Russia's dialogue with Saudi Arabia in the OPEC+ is often considered within the framework of Moscow's vision of the global energy markets, rather than from the point of its significance for the Russian dialogue with the region itself. (10) Under these circumstances, studies by the UAE-based scholar Li-Chen Sim represent a positive exception as she actively positions Russia's priorities in the oil and gas sphere as one of the pillars of Moscow's diplomacy in the Gulf. (11)

Theodore Karasik's chapter "Russia's Financial Tactics in the Middle East" published in 2018 in the collective monograph Russia in the Middle East is, probably, another outstanding study of Russia's economic ties with the GCC that allows readers to look at this issue from another angle. (12) In his paper, Karasik not only analyses the intricate structure of Russia's financial and investment relations with the Gulf monarchies, but also shows how these economic ties relate to Moscow's political goals. However, in both Karasik and Sim's studies, their publications are focused on certain aspects of the Russian economic relations with the region. This article will try to adopt a more comprehensive approach. Instead of diving into the deep study of one of the aspects of these ties, it will offer a broader picture of the complex of economic interactions between the GCC countries and Russia by not only analyzing the current state of trade and investment relations between them but also through the discussion of the origins of Russia's interest in cooperation with Saudi Arabia, the UAE and Kuwait within the framework of the OPEC+ and potential reasons for future divergence between Russia and the GCC member states in the hydrocarbon markets. Finally, special attention will be paid to the question of prospects for the further development of Russian economic relations with the Arab states of the Gulf.

Russian Trade with the GCC: Small but Important

Moscow's involvement in the conflicts in Syria and Libya, its close contacts with the Palestinian authorities and Israel, as well as attempts to maintain good ties with the warring sides in Yemen, help to demonstrate to the United States and the EU Russia's importance as a global player, thus compelling them to at least take its opinions into account and to keep communication channels with Moscow open. In other words, Russia's presence in the Middle East advertises its capacity to project power and helps Moscow avoid international isolation. Russia can play troublemaker when necessary to show that ignoring its interests might be dangerous. In this respect, it considers its relations with the region as another (although very important) bargaining chip in its relations with the United States and the EU. However, Russia's decision-makers do not see the region solely through the prism of relations with the West. The region is important to them in and of itself due to economic reasons. Russia's economic goals in the region are twofold: Moscow considers the Middle East as an important source of investments and a market for some of its industries (above all arms manufacturing, agriculture, the nuclear sector, as well as oil, gas, and petrochemicals). Russia's state budget depends on hydrocarbon exports. The Kremlin is concerned about a potential fall of the oil price to below $40 per barrel (as it would mean Moscow would be unable to both meet all budget needs and put money into its reserve funds), which compels Russia to cooperate actively with the Organization of the Petroleum Exporting Countries (OPEC), and its informal leader, Saudi Arabia. Russia's hydrocarbon producers and service companies have also intensified their attempts to acquire stakes in energy projects in the region.

At first glance, the volume of Russia's trade with the GCC might create the wrong perception of the minimal role of economic drivers in the development of the dialogue between Moscow and the region. Indeed, the GCC share in Russian foreign trade is less than 1 percent. In terms of sheer numbers, Russia's trade with the Gulf might also seem unimpressive: for instance, for the last ten years, its aggregated volume only once managed to surpass that of Russian trade with Egypt, one of Russia's main trade partners in the Arab world (Table 1).

Moreover, there is a serious difference between the GCC member countries in terms of the volume of their trade turnover with Russia. While in the U.S. dollar terms it remains insignificant in the case of Bahrain, Qatar, and, to a lesser degree, Oman, Russian trade with Saudi Arabia, the UAE, and Kuwait has substantially grown since 2010, thus, reaching relatively good levels for the MENA countries.

Yet, it is not the quantity, but the quality that matters. The fact that the trade balance is in favor of Russia makes Moscow see it as a small but reliable source of income that has been almost steadily growing for the last ten years (Graph 1). What is more important, the range of items exported by Russian companies is quite diversified (with the exception of Kuwait), thus offering a niche for different producers and goods--arms and military equipment, machinery, oil and gas, petrochemical, metallurgical and agricultural products.

Graph 1: Export-Import Ratio of Russian Trade with the GCC by Country (2019, %) Import from Russia Export to Russia Saudi Arabia 83 17 UAE 87 13 Qatar 55 45 Bahrain 27 73 Oman 98 2 Kuwait 99 1 Source: The statistics of the Russian Federal Customs Service (14) Note: Table made from bar graph. The region still holds great interest and, in some cases, even key importance for certain sectors, including the agricultural and military-industrial complexes, and the petrochemical, space, and oil and gas industries. As such, the UAE is an important buyer of Russia's precious stones and metals whereas Saudi Arabia is one of the main consumers of Russian grain, sales of which are playing a significant role in Russia's doctrine of export diversification. The region is also an important market for some small and medium-sized enterprises, for which trade with the Middle East often represents the main export market for their products.

During the last decade, items exported by Russian corporations to the region have also diversified, with the share of machinery sold to the GCC gradually rising. As such trade with the Gulf countries is helpful for the implementation of the government's economic diversification strategy.

Finally, after 2015, Russia's increased arms sales to the Middle East became a separate driver of its regional engagement. Russia's military assistance to Iraq in its struggle against ISIS in 2014 and subsequent support of the Assad...