Russia’s invasion of Ukraine and the ensuing raft of Western sanctions have prompted an explosion of interest in the United Arab Emirates (UAE) among Russians. Bilateral trade is breaking all previous records, and Russians are buying up real estate and opening businesses there.
Yet for all the hope that the UAE could become an alternative to the West, the Emirates take sanctions far more seriously than Moscow would like to think. 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 soon?
Over a million Russians visited the Emirates in 2022—a 60 percent increase from the previous year—and those visitors are not just tourists: many Russians have relocated there together with their businesses and assets. Russians have gone from being a niche group to the driving force behind the local real estate market, accounting for the biggest number of transactions among foreigners. The UAE is also now one of the top five places for Russian companies to open a franchise.
The surge in the popularity of the UAE is especially striking given that far from everyone wishing to leave Russia can afford to move there. Real estate prices and the cost of living are significantly higher than in Europe, so it tends to be the wealthier Russians who are moving there, such as senior managers, while rank and file employees from the same companies might instead go to Georgia, Armenia, Kazakhstan, or Turkey. There is also evidence that businessmen close to the Kremlin are moving their 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 grew by 68 percent in 2022 to a record $9 billion, of which Russian exports made up $8.5 billion: a 71 percent increase. Even before the war, bilateral trade had been growing fast in recent years, mainly due to the expansion of Russian agricultural exports, which still account for a significant proportion of Russian goods headed for the UAE. The main consequence of sanctions is a drastic increase in the supply of precious metals, which Russia can no longer sell in the West. Gold and precious stones made up almost 40 percent of Russian exports to the UAE last year, according to expert calculations.
Another development is that Moscow has started exporting oil and oil products to the Emirates at a heavily discounted price. The UAE is of course itself one of the world’s biggest oil producers, but in the first ten months of 2022 it bought 3.2 million barrels of oil (for reexport) and 1.5 million tons of oil products (for the country’s own needs). It may be a drop in the ocean of the 242 million tons of oil that Russia exported in total last year, but export volumes to the UAE continue to grow.
Parallel imports via the UAE are also now under way. Deliveries of electronic items and spare parts for them from the Emirates to Russia have grown sevenfold to become the country’s biggest category of exports to Russia, while deliveries of microchips soared 15 times. The UAE also sold Russia 158 civilian drones worth $600,000 in 2022. Still, despite astronomical growth in a few categories, UAE exports to Russia remain negligible, accounting for just over 5 percent of the total trade turnover.
At first glance, relations between the two countries have flourished as a result of the war in Ukraine and ensuing sanctions. But it’s not all plain sailing. Last year, many UAE banks stopped allowing Russians to open accounts, despite the country’s drive to attract foreign investors. UAE financial institutions have more stringent requirements for Russian businesspeople than for many others, while Russians seeking to rent commercial real estate space also find themselves jumping through more hoops.
To add to these obstacles, at the end of last year, Russia’s biggest lender Sberbank was forced by sanctions to close its representative office in the UAE, which had been conceived as a springboard to the region. Officially, the Emirates have not introduced any sanctions against Russia, but much of the country’s banking and consultancy sectors is closely followed by U.S. regulators, meaning local financial institutions still have to exercise caution in their dealings with Russian entities.
In addition, the Financial Action Task Force global money laundering and terrorist financing watchdog added the UAE to its “gray list” in March 2022, prompting the country’s authorities to swiftly ramp up oversight of cash flows within the banking sector, making it even more difficult to transfer assets there from Russia or to bypass sanctions.
This isn’t the first time the UAE has come under pressure from the United States to crack down on its financial dealings with another country. Twenty years ago, the Emirates were considered Iran’s financial hub, with Iranians accounting for about 30 percent of all investment in Dubai real estate. In 2009, the total volume of Iranian investment in the Emirates was estimated at $300 billion. Bilateral trade grew by an average of 30 percent every year, from $2.2 billion in 2001 to $24 billion in 2010. For comparison, in 2021 China was Iran’s biggest trading partner with turnover of less than $16 billion.
Then, in 2010–2011, the United States sanctioned Iran over its nuclear program, and Washington began to put pressure on the UAE to limit its financial contact with the Iranians. Soon trade plummeted to $15 billion. In 2018, when then U.S. president Donald Trump announced that his country was withdrawing from the Iran nuclear deal, UAE banks didn’t just put a stop to Iranians opening accounts there; they also closed many existing accounts, citing security concerns. Many Iranians living there found that their residency permits were not renewed, reducing their total number from 117,000 in 2016 to 73,000 in 2019, while the trade turnover decreased even further, to $12 billion in 2018.
All of this happened despite the fact that the UAE had not formally joined Western sanctions against Iran, and has never sought to break off relations with it. Now Russia may find itself following in Iran’s footsteps. The Financial Times newspaper reported in March that the United States, UK, and EU were actively trying to convince the UAE to reduce its dealings with Russia over concerns that the Emirates may become a source of parallel imports into Russia of sanctioned goods.
The UAE will try to take advantage of the sanctions war between Russia and the West, but ultimately it is far more dependent on the United States and other Western countries than Turkey and China, Moscow’s other key partners, making compromise with the Western sanctions inevitable. The Emirates will remain a key destination for wealthy Russians relocating abroad, just as they are for Iranians, but the process is unlikely to get easier anytime soon. As for parallel imports, right now the figures 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, since they make up the backbone of bilateral relations, and here it looks like bad news for Moscow. While it’s unlikely that food items from Russia will be put under any restrictions, other goods—including oil and precious metals—could well find themselves subject to pressure from the West.
