MIDDLE EAST

Russia’s economic rumble and the GCC: What’s next may surprise you

As the Russian economy goes through convulsions related to last week’s ruble plunge, there are some key patterns that are emerging. Some are plainly obvious: the devaluation of the ruble is tied to the drop in oil prices combined somewhat slightly with the Western sanctions on the Kremlin.

The other pattern emerging, which is perhaps a medium term plan, is to move Russia towards more self-sufficiency in key industries with Middle East allies and away from the West. Both of these notions have implications for Moscow’s view of the GCC region and vice-versa.

The two patterns

There are two patterns worth noting. The first pattern is on how the Kremlin views its economic crisis and the impact on Europe. The devaluation of the ruble is of course squeezing the Russian economy and the middle and lower classes after a decade of solid growth. The causes are well known and bailouts are required as seen with Trust Bank last week. It is important to remember that Russia still has ample tools to deal with the crisis: cash reserves, gold, and no government debt.

For the Kremlin, the GCC states represent an attractive business hub for adjacent regions

Dr. Theodore Karasik

The Kremlin is also beginning to deal with the crisis by telling citizens that conditions may be tough for up to two years: this comment, made by Russian President Vladimir Putin at his annual press conference, is accurate. The Russian people are tough and know from birth how to survive; a trait handed down through generations. There are also other factors at play in the Russian economy including the stop of capital flight, more transparency, and the help of key oligarchs. These actions are now being implemented.

At this time, the measures required suggest that the main objective of the Central Bank of Russia is to stabilize the ruble. What is clear is that the Kremlin is playing a game to force recession in Europe: It is as if Putin is seeing who can go into recession first and drag the EU into economic decline. The numbers and indicators coming from European states especially Germany are telling. Also, the imminent bankruptcy of Ukraine is a key Russian goal. As such, the way Moscow is playing the economic game means that Russia may be moving to a new system of finance and economics that focuses on expanding links to the MENA region and away from Europe.

The other pattern emerging is an old one in a new context known as the “Russian Doctrine”. I have mentioned this fact in many opinion pieces before and will do so again and again until readers understand the Russian world view. Basically, the “Russian Doctrine” seeks to illuminate Russia’s role in the world and represents a swing back to pan-Slav nationals who see Russia as “The Third Rome” in the name of Russian Orthodox Christianity. They regard the West as immoral, corrupt and dismiss Western styles of democracy. Russia’s moral vision involving “spiritual sovereignty,” great national wealth in strategic minerals and energy, plus its swing to China and the rest of the Far East, plays well with GCC authorities and businessmen.

Russia and GCC in 2015

The Russian Federation continues to build robust transport and logistical chains with the Gulf Cooperation Council states. These networks were developed in the waning days of the Soviet Union and only are growing stronger as time has passed. Russia today is continuing to build on the goodwill of the Gulf States in various business sectors. The development of this “north-south corridor” plays an important part in linking the two regions together in a robust supply chain network.

Today, the Russia enjoys a multitude of transport and logistic capabilities mostly centered in the United Arab Emirates. With trade between the two countries growing to over 2 billion dollars in 2014, there is amble room for more growth. The two countries, with the mid-October visit of His Highness General Sheikh Mohammed bin Zayed Al Nahyan to Sochi to meet with Russian President Vladimir Putin illustrates the warm and friendly relations between the two countries. Deals with Rosneft seem to be imminent. It is important to mention that also in mid-October, Bahrain’s King Hamad also visited the Russian leader. Manama, it should be noted, is and will be a vital link in Russia’s business interests in the Gulf States.

Russian exports to the GCC are dominated by commodities such as precious metals and stones, steel and ferrous metal products, machinery, equipment, vehicles, chemicals, food, wood, paper and cardboard. In turn, specifically, the UAE is taking the lead in investing in various sectors of the Russian economy and is planning on boosting its presence in Russia’s food production sector; other GCC are likely to follow suit. This development is a positive indicator of robust bi-lateral ties that will only expand throughout the coming years as the Kremlin decouples itself from the West.

The GCC market shows good potential for Russian business due to its large capacity and a wide range of possibilities. The most promising areas for cooperation are energy, the electric power industry, atomic energy and alternative energy, metals, civil aviation, construction, space exploration and agriculture. With the expansion of both ports and airports throughout the GCC, Russia, with its strong capacity in air cargo, can deliver and receive goods and services.

The GCC states is an attractive market for Russian state-owned and private companies, such as Stroitransgaz, Rosneft, LUKOIL Overseas Holding Ltd., Russian Railways, Magnitogorsk Metallurgical Factory, Hydromashservice, Technopromexport, KAMAZ, and Russian Helicopters. Russian small and medium enterprises, too, contribute to trade and economic cooperation with the GCC. Russia’s industrial giants are able to compete for project tenders at reasonable prices against other competitors still despite the current Russian economic time of troubles and Western sanctions. Ask yourself: How many times have you heard the GCC states discuss the Ukraine issue?

For the Kremlin, the GCC states represent an attractive business hub for adjacent regions. With the growing capacity of sea and air ports across the GCC, Russia is able to capitalize on doing new business in both North Africa and South Asia. This ability compliments Russia’s sea-based and air cargo capabilities to enter new markets in a robust manner.

Overall, Russia’s position seems to be quite good with a host of opportunities despite the Kremlin’s economic problems. Not only is there the growing potential of the “North-South Corridor” but also of the development of further branches to the west and east of the GCC to Africa and South Asia. Despite economic woes, the Kremlin appears to have a solid plan.

__________
Dr. Theodore Karasik is a Senior Advisor to Risk Insurance Management in Dubai, UAE. He received his Ph.D in History from UCLA in Los Angeles, California in four fields: Middle East, Russia, Caucasus, and a specialized sub-field in Cultural Anthropology focusing on tribes and clans. He tweets: @tkarasik
 

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Last Update: Sunday, 28 December 2014 KSA 17:18 - GMT 14:18
Disclaimer: Views expressed by writers in this section are their own and do not reflect Al Arabiya English's point-of-view.
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Russia’s economic rumble and the GCC: What’s next may surprise you
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