How Can the UAE Eliminate Threats from Iran through Trade and Investment in Russia? Proposal

The ongoing conflict in some GCC is unsettling. It calls for the UAE to take a defensive position and at the same time seek to provide alternatives that help to bring and sustain peace in the region. A close relationship will Russia is critical to diffusing threats from Iran for the UAE and the region.

Russia is the biggest notable player in the Middle East, regarding its involvement in direct economic activity alongside political power in the region. It is keen on other countries reciprocating its stance. Russia can negotiate with parties involved in the Syrian conflict and provide a channel for reaching to Iran. Another conflict hotbed is Iraq, where both Russia and the UAE are undertaking efforts to boost the governance capacity of the officially recognized government as they help to fight terrorism.1

Reasons for the suggestion as the best option

First, the UAE must continue to invest in Russia then allow Russia to invest in the UAE economic and social projects. The continuing bilateral relations will be strengthened where there is continued mutual interest with economic gains. Both countries are looking for outlets of their financial resources and capital.

The UAE continues to expand its investment opportunities, and it should continue asking Russia to assist. It should invest in the Russian industries, and projects around the world. The recent established of the Russian Direct Investment Fund by Abu Dhabi and the plan for Russia to build an air hub in the UAE to deliver aid and knowledge to Africa is a great example of the potentials that lie ahead.2

Not only does this position the UAE as an ally of Russia, but it also shows that the country is willing to access win-win relationships as part of its foreign policy.

How can this be done and what is needed?

Investing in Russia provides an alternative to Western reliance for economic growth and development. It presents an alternative financial market that helps to strengthen the economy of Russia. The current pledges and actual investments are about 6 billion dollars and an increase of the funds to about 10 billion dollars should help cement the trade and investment relationship and intentions of the UAE.3

In addition to general infrastructure investments, the two countries should cooperate on energy-related investments because of their capacities as suppliers and consumers of nuclear technology and natural gas. Besides, a bilateral tax treaty also makes it easy for investors from both countries to work together in either country. Dubai offers room for growth in its real estate and tourism as well as sports industry while Russia has excellent opportunities for infrastructure development in global projects for energy, transport and tourism.

Would Russia accept this approach?

Both the UAE and Russia see the Gulf region as a viable outlet for their excess capital gained from trade in natural resources. They are geared towards protecting this investment opportunity and will be willing to fight off any negative power. However, the UAE needs Russia because the latter has military might and economic power.4

The U.S. has been less elaborate in its participation in trade and investment in the region and has concentrated much on political power expressions. The use of direct military action has only been successful in isolated incidences, and there is an increased need to focus on economic development to counter the social pressures that lead to armed conflicts. Thus, investment and trade are the right opportunities for the UAE-Russia relations to follow.

The UAE continues to expand its investment opportunities, and it should continue asking Russia to assist. It should invest in the Russian industries, and projects around the world. The recent established of the Russian Direct Investment Fund by Abu Dhabi and the plan for Russia to build an air hub in the UAE to deliver aid and knowledge to Africa is a great example of the potentials that lie ahead.2

Not only does this position the UAE as an ally of Russia, but it also shows that the country is willing to access win-win relationships as part of its foreign policy.

How can this be done and what is needed?

Investing in Russia provides an alternative to Western reliance for economic growth and development. It presents an alternative financial market that helps to strengthen the economy of Russia. The current pledges and actual investments are about 6 billion dollars and an increase of the funds to about 10 billion dollars should help cement the trade and investment relationship and intentions of the UAE.3

In addition to general infrastructure investments, the two countries should cooperate on energy-related investments because of their capacities as suppliers and consumers of nuclear technology and natural gas. Besides, a bilateral tax treaty also makes it easy for investors from both countries to work together in either country. Dubai offers room for growth in its real estate and tourism as well as sports industry while Russia has excellent opportunities for infrastructure development in global projects for energy, transport and tourism.

Would Russia accept this approach?

Both the UAE and Russia see the Gulf region as a viable outlet for their excess capital gained from trade in natural resources. They are geared towards protecting this investment opportunity and will be willing to fight off any negative power. However, the UAE needs Russia because the latter has military might and economic power.4

The U.S. has been less elaborate in its participation in trade and investment in the region and has concentrated much on political power expressions. The use of direct military action has only been successful in isolated incidences, and there is an increased need to focus on economic development to counter the social pressures that lead to armed conflicts. Thus, investment and trade are the right opportunities for the UAE-Russia relations to follow.

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After Russia annexed Crimea, the EU and the U.S. put sanctions on it and this have affected economic prosperity in the country. Russia was predicted to go into a recession as early as 2014 but it has somehow managed to avoid the threat of economic stagnation. Nevertheless, the threat looms. The major banks in Russia are operating under difficult circumstances because they have been blacklisted and cannot get credit from EU and U.S banks and other financial institutions.

On the other hand, small and medium sized enterprises in Russia have started to fill the heat of a tightening credit market and the number of loan defaults is increasing. Russian state banks have to look elsewhere other than the EU for raising long-term loans. Russian cannot also export dual-use equipment for military use to the EU.5 Notably, Russia is one of the largest weapon manufacturers in the world.

Reports show that sanctions could cause the Russian economy to shrink by as much as 9%.6 Other factors contributing to the shrinkage include the collapsing oil prices. This trend began in 2014 and seems not to have reached an end. Thus, the incentives for Russia agreeing to increased economic cooperation with the UAE are massive.

The country is desperate for alternative sources of capital. The response by Russia to the economic crisis caused by sanctions has been to increase interest rates and to sell dollars and euros to improve the value of the rouble. It has also cut government spending, but this move can only work in the short-run. Eventually, there will be need for infusing more capital and that is where the increased investments from the UAE will be critical.

The Tehran issue arises because Russia and Iran have an alliance of convenience. Iran is interested in getting technologies for building its military facilities and equipment. It has even procured several ships from Russia. In addition, many Russian firms are invested in Iran’s technology sectors given that Iran too is a recipient of Western sanctions because of its nuclear programs.

Meanwhile, on the Syrian conflict, both Iran and Russia are interested in protecting President Assad’s rule.7 Russian influence led to the inclusion of Iran in the talks to end the Syrian war.8 However, their long-term interests are divergent. Russian military power and support of Syrian president as well as its investments in Iran give it power over Iran.

Possible trade-offs

One complexity of the UAE-Russia relationships will be the trade-offs in the current US-UAE relationships. The U.S. has been making inroads into Iran, seeking to lift restrictions on its nuclear program. This was in exchange for cooperation for its interests in the region. It will be upset by UAE for going against its interests to support Russia, which is under sanctions from the U.S. There is no likelihood of U.S. sanctions against UAE but deteriorating diplomatic conditions may reduce the incentives of U.S.-backed investments in the UAE.

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The lack of U.S. backed investment in the interest areas of both Russia and the UAE will ensure that trade and investment relations are not affected and that the UAE does not have to make any trade-offs. However, given the position of the U.S. as the world’s superpower, the political hegemony in the region will be threatened and this will lead to political foreign policy conflicts between the U.S. and the UAE.

Currently, the U.S. considers the UAE as an ally in its fight against global terrorism. However, the moves by the UAE to go on an express its voice against the manner that the U.S. is handling the terror threat will create additional political tension. Therefore, the UAE needs to be ready to bear the political heat. However, the non-membership status of the UAE in NATO will help to cushion it against adverse effects of its siding with Russia when stating its support for peace and reconstruction in Gulf countries like Syria that are affected by war.9

Bibliography

BBC. “How Far do EU-US Sanctions on Russia Go?” BBC News, September 15, 2014. Accessed January 13, 2016. http://www.bbc.com/news/world-europe-28400218

Issa, Antoun. “Russia-Iran Ties Warm Over Syria: Marriage of Convenience or Lasting Alliance?” The National UAE, October 20, 2015. Accessed January 12, 2016. http://www.thenational.ae/world/europe/russia-iran-ties-warm-over-syria-marriage-of-convenience-or-lasting-alliance

Karasik, Theodore. “People and Politics: UAE and Russia have a Bond that will Only Grow Stronger.” The National UAE, June 4, 2015. Accessed January 12, 2016. http://www.thenational.ae/uae/government/people–politics-uae-and-russia-have-a-bond-that-will-only-grow-stronger

Pizzi, Michael. “Iran Involvement in Syria Talks Reflects Russia’s Growing Influence.” Aljazeera America, October 29, 2015. Accessed January 12, 2016. http://america.aljazeera.com/articles/2015/10/29/russia-gets-its-way-in-syria-as-iran-takes-seat-at-vienna-talks.html

Smyth, Phillip. “Tehran, Washington and the UAE’s New Terror List.” The National Interest, November 26, 2014. Accessed January 2016. http://nationalinterest.org/feature/tehran-washington-the-uae%E2%80%99s-new-terror-list-11740?page=2

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Thompson, Mark. “How Badly have Sanctions Hit Russia?” CNN, August 4, 2015. Accessed January 12, 2016. http://money.cnn.com/2015/08/04/news/economy/russia-sanctions-impact-imf/

Timmons, Heather. “Russia has a Deep-pocketed Economic Supporter that is also a Staunch US Ally.” Quartz, September 3, 2014. Accessed January 12, 2016. http://qz.com/258660/258660/

Footnotes

1. Theodore Karasik, “People and Politics: UAE and Russia have a Bond that will only Grow Stronger”, The National UAE, June 4, 2015, accessed January 10, 2016. http://www.thenational.ae/uae/government/people–politics-uae-and-russia-have-a-bond-that-will-only-grow-stronger.

2. Heather Timmons, “Russia has a Deep-pocketed Economic Supporter that is also a Staunch US Ally”, Quartz, September 3, 2014, accessed 11 January, 2010. http://qz.com/258660/258660/.

3. Ibid.

4 Phillip Smyth, “Tehran, Washington and the UAE’s New Terror List”, The National Interest, November 26, 2014, accessed 11 January, 2016. http://nationalinterest.org/feature/tehran-washington-the-uae%E2%80%99s-new-terror-list-11740?page=2.

5. BBC, “How Far Do EU-US Sanctions on Russia Go?” BBC News, September 15, 2014, accessed January 12, 2016. http://www.bbc.com/news/world-europe-28400218.

6. Mark Thompson, “How Badly have Sanctions Hit Russia?” CNN, August 4, 2015. Accessed January 12, 2016. http://money.cnn.com/2015/08/04/news/economy/russia-sanctions-impact-imf/.

7. Antoun Issa, “Russia-Iran Ties Warm Over Syria: Marriage of Convenience or Lasting Alliance?” The National UAE, October 20, 2015. Accessed 12 January 2015. http://www.thenational.ae/world/europe/russia-iran-ties-warm-over-syria-marriage-of-convenience-or-lasting-alliance.

8. Michael Pizzi, “Iran Involvement in Syria Talks Reflects Russia’s Growing Influence,” Aljazeera America, October 29, 2015. Accessed January 12, 2016. http://america.aljazeera.com/articles/2015/10/29/russia-gets-its-way-in-syria-as-iran-takes-seat-at-vienna-talks.html.

9. Heather Timmons, “Russia has a Deep-pocketed Economic Supporter that is also a Staunch US Ally.” Quartz, September 3, 2014. Accessed January 12, 2016. http://qz.com/258660/258660/

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