A DIFFICULT CHOICE

The Russian-Ukrainian crisis has put the Gulf states in a very unpleasant position, when they have to choose between a historically close partnership with the US and growing economic and political relations with Russia.

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE), the six member states of the Gulf Cooperation Council (GCC), are trying their best to distance themselves from these events, arguing that the crisis primarily affects the interests of the US, EU and NATO.

Keeping calm

In March, the UAE took over the presidency of the UN Security Council (UNSC), as one of the ten non-permanent members of the organisation. On February 25, at a UNSC meeting the day after Russian offensive operation, the UAE together with China and India refrained from voting on a resolution demanding that Russia immediately, fully and unconditionally withdraw all of its troops from the internationally recognised territories of Ukraine, despite Washington’s persuasive requests to support the initiative.

In fact, the resolution would not have passed anyway, as it was clear that Russia would veto it. Perhaps the UAE did so in order not to provoke Moscow’s ire. In three days' time, the UN Security Council was to vote on a resolution drafted by the UAE to have the Yemeni Houthi insurgents recognised as a terrorist organisation. And Russia might well veto it.

Yet on March 2, the UAE backed a resolution at an emergency session of the UN General Assembly (GA) condemning Russia's operation in Ukraine and demanding Moscow withdraw its troops immediately.

Note that the UNGA decisions may not impose coercive measures on any member state, as this is a prerogative of the UNSC. So the UAE might not worry about provoking Russia's anger.

They can, but they won't

Russia is the world's second largest producer of crude oil. It provided about 14% of total global production in 2021. Sixty percent of Russian oil is exported to Europe and about 10% to the US.

The rise of tension due to the Ukrainian crisis increases the number of calls to boycott Russian oil and gas. The US has already decided to abandon them altogether. Britain promises to do so by the end of the year. Europe suffers the most in this case, but it hopes to cut the Russian supplies by at least two-thirds over the year.

But abandoning Russian energy resources requires ensuring equivalent supplies from other sources. This is where the Middle Eastern countries could come in handy. In particular, the US was counting on Saudi Arabia and the UAE, which can collectively increase production relatively easily.

In fact, they can but apparently don't want to. The last OPEC+ meeting on March 2 lasted only 13 minutes. All 23 OPEC+ member states simply said they would only increase production by 400,000bpd in April, as agreed last year. This is clearly not enough to stabilise current prices. And the final document does not even mention the war in Ukraine as a trigger for the rapid rise in oil prices.

Priority shift

For more than seven decades, the US has played a key role in the conflict-torn Middle East, mainly acting as a protector of the oil-rich Gulf monarchies from potential threats, most notably from Iran.

But in recent years Washington has tried to limit its military presence in this and other regions. The UAE and Saudi Arabia began to express their discontent with the American policy much earlier—since President Barack Obama, as they believe, ignored the interests of Washington’s longstanding Arab partners during the Arab Spring in 2011, as well as when the American president signed the nuclear deal with Iran in 2015.

Donald Trump restored these relations when he made his first foreign trip as president to Riyadh. He pulled the US out of the nuclear deal with Iran and sided with Saudi Arabia and the UAE in their dispute with Qatar. Following the murder of the Washington Post journalist Jamal Khashoggi, which the US intelligence agencies reported as approved by Saudi Crown Prince Mohammed bin Salman, Trump called the prince ‘my friend’, even though the US officially imposed sanctions against him. In the last days of his presidency, Trump made a gift to the Gulf countries by recognising the Yemeni Houthi associations as terrorists.

With the arrival of Joe Biden, relations have deteriorated again. Even during his presidential campaign Biden vowed to treat Saudi Arabia as a rogue state for killing the American journalist. When Biden took the office, he publicly criticised Saudi Arabia for its prolonged war in Yemen and cut off exports of some weapons that Riyadh could use against the Houthis.

The US president also reversed his predecessor's decision to include the Houthis on the list of terrorist groups. Apparently, the Biden administration has done so because of the indirect talks with Iran on the renewal of the nuclear deal.

Moreover, according to Washington, recognising the Houthis as terrorists can hinder humanitarian aid to the Yemeni people. And Washington’s view is supported by some other countries, the UN and non-governmental humanitarian organisations who believe this move can hasten the collapse of the Yemeni economy. In fact, companies supplying food to the country would then stop doing business in Yemen, as they are afraid that they can be held liable for violating US sanctions.

Meanwhile, the Houthi attacks on various targets in Saudi Arabia and other Gulf countries have increased since then. After the January 17 attack on Abu Dhabi, which blew up three oil tankers and killed people, the UAE demanded that the UN General Assembly finally recognise the Houthis as terrorists.

The US and Russia supported the resolution after having the text of the document revised substantially. The final version of the resolution excludes, among other things, a clause on imposing financial sanctions on the Houthis and includes a statement emphasising the need to facilitate commercial imports into Yemen. In addition, the resolution affirms the right of the Houthis to take part in peace talks, hence invalidating the clause on their recognition as terrorists.

In fact, the demands of the UAE and Saudi Arabia have been met, albeit partially. Yet the authorities in these countries noted their discontent with the US response to the Russian offensive in Ukraine, which was much tougher than to their long-standing problem with Iranian proxies in Yemen.

Thus, analysing the GCC's stance on the ongoing military, political and economic crisis in Europe, as well as the gradual withdrawal of the US from the region, many experts notice a shift in priorities. The Gulf states are attempting to balance their relations in what they see as a new world order, where Moscow and Beijing are equally important to them.

Mutual penetration

As major players in the energy markets, most of the Gulf states maintain relations with Russia, trying to maintain its participation in OPEC+. Riyadh and Moscow lead the OPEC+ alliance and strictly control the oil production to maintain prices. If Russia pulls out of the alliance, all agreements are likely to collapse.

While the direct share of Gulf countries in Russia's foreign trade turnover is less than one per cent, it is not quantity but quality that matters.

As of 2018, the share of GCC countries in investment projects in Russia was estimated at 52%. Having been restricted from importing advanced Western oil, gas and petrochemical technologies since the annexation of Crimea, Russia has been actively exploiting opportunities in the Persian Gulf. For example, Saudi Aramco has established cooperation with a research centre of the Moscow State University to develop exploration and production technologies.

There is also an active mutual penetration in the oil and gas businesses through acquisitions of stakes in each other's companies. Qatar Investment Authority (QIA) has an 18.93% stake in Rosneft. While Abu Dhabi National Oil Company (ADNOC) has given Russian company LUKOil a 5% stake in the Ghasha concession, which consists of nine oil and gas fields. Saudi Aramco is in talks with Rosneft and LUKOil to establish joint ventures in the petrochemical sector. And this list can be extended further.

The UAE is an important buyer of Russian precious gems and metals, and Saudi Arabia is a major consumer of Russian grain.

Thanks to the demonstration of its military potential in Syria, Moscow has managed to strengthen its presence in the region's arms markets. In 2017, Russia and the UAE signed an agreement on military-industrial cooperation. Dubai is also a major financial and commercial hub for Russian business.

Participation in all these projects also creates strong political ties between the Gulf countries and Russia, which both sides are reluctant to break.

Vigilance

The importance of Russian oil is one of the reasons why it has not yet been subject to general sanctions. Even if governments wanted to ban Russian oil, it would be difficult to replace it and, most importantly, it would be difficult to avoid an even greater, if not already uncontrollable, rise in oil prices.

Apart from the Gulf countries, only Venezuela and Iran can save the situation. But both have been under sanctions for a long time. It would take time and, most importantly, money to restore production.

So the Gulf countries are probably the only ones who can really make a difference. They realise this too. And they closely monitor the situation so that they are not losers.