Dubai-grad: The Emerging "Russian" Financial Center
Dubai's Growing Importance to the Russian Economy
Dear Subscribers,
“Barbershop Whispers….Russia” begins with “My Takeaways” on the main topic, followed by the main topic discussion. The last two sections of “Barbershop Whispers…Russia” will be follow-ups from previous publications and emerging events.
In last week’s BWR issue, I discussed the upcoming Russian presidential election landscape. Putin’s likely campaign agenda, the risks to his election victory, and the goal of the election.
In this week’s issue, I discuss the growing importance of the United Arab Emirates (U.A.E.) to Russia’s economy and Putin’s effort to achieve economic independence from the West. Putin’s high-profile visit highlights the role of the U.A.E., particularly in Russia’s crude oil export market and revenues funding the war.
My Takeaways:
ADAPTION: Russians continue to adapt to Western sanctions and an uncertain business environment in Russia. A significant number of Russians are relocating to the U.A.E., becoming key property buyers and establishing businesses as insurance against Russian economic uncertainty and Western sanctions.
JURISDICTION: A flexible jurisdiction such as Dubai vs. Genève is preferable for Russian oil trading and facilitating shipments to India, China, and Turkey.
ECONOMIC SOVERIGNTY: Putin is building and formalizing an ecosystem of service providers and jurisdictions that are independent of Western financial service providers, e.g., banks, insurance, etc.
Skilled Labor Migration:
Since Russia’s second invasion of Ukraine in February 2022, it is estimated that between 50,000 - 100,000 Russians have migrated to the United Arab Emirates (U.A.E), mainly in Dubai. According to TASS, over one million Russians visited the U.A.E. in 2022, a 60% increase over 2021. In 2023, Russians became the third-largest property buyers in Dubai, compared with the ninth in 2021.
The influx of Russians has not been lost on the U.A.E.’s biggest banks, Emirates NBD and First Abu Dhabi Bank, which have set up departments catering to the banking needs of the new wealthy Russian diaspora and businesses. The Russians in the U.A.E. are a mixed bag of those escaping Western sanctions, those opposed to the war and seeking safe harbor, and opportunistic entrepreneurs exploiting the market arbitrage opportunities created by the sanctions. For example, EuroChem’s Andrei Melnichenko, a Russian billionaire and former resident of St. Moritz, has made Dubai his new residential base, where he can partly shield himself from Western sanctions. Melnichenko still maintains ownership of one of his two yachts, the $300M Motor Yacht A, currently docked in the U.A.E. The other one was seized by Italian authorities. Attending a February roundtable event with Russian business figures hosted by President Vladimir Putin is thought to be the final straw contributing to the US Treasury’s action to add him to the Specially Designated National (SDN) list.
High-tech entrepreneurs such as Pavel Durov, the billionaire founder of the global chat platform Telegram, now reside in the U.A.E., and some have received citizenship.
Service Providers:
In the entrepreneurial and opportunistic world of commodities trading, new traders have filled the vacuum left by Trafigura Group, Vitol, and Glencore, which exited the Russian trading business after the second invasion in February 2022. Companies like U.A.E.-registered Tejarinaft and others with Swiss roots have set up shop in Dubai to trade Russian crude. These newly established traders work closely with other new U.A.E. and Indian companies that have acquired aging oil tankers – the “shadow fleet” – to facilitate the delivery of Russian oil to new markets.
Igor Sechin, Rosneft CEO and one-time Putin confidant, demonstrated the importance of the U.A.E. as part of the emerging ecosystem supporting the Russian economy by visiting the Dubai-based traders facilitating the export of Russian oil to China, India, and Turkey. He made this visit while celebrating the New Year with his family in Dubai on Palm Jumeirah. As one trader described, Russian oil trades in Dubai vs Switzerland:
“Trading Russian oil in compliance with the price cap is not a problem….the benefit is you can make payments to Russia from Dubai, whereas, in Switzerland, even when everything is perfectly legal, the institutions refuse to do so.”
The U.A.E. also benefits from the market distortions by acquiring Russian oil at a discount, blending it with other crude imports for their refinery, and exporting refined petroleum products to the new markets of China, Turkey, and India.
In addition to emerging as a hub for Russian oil trading, it is also a significant hub for Russian gold. According to customs data collected by U.S. trade data aggregator ImportGenius, the U.A.E. imported $4B worth of Russian gold between 24 February 2022 and March 2023, up from only $61M in 2021. This represents an increase of 66 times.
Russian Geopolitics:
This past week, Putin traveled to the U.A.E. and Saudi Arabia, the rare trip abroad since the issuance of the International Criminal Court (ICC) arrest warrant against him. Neither the UAE nor Saudi Arabia are party to the ICC and, therefore, under no obligation to arrest Putin. As a demonstration of power rather than actual need, Putin’s presidential jet was escorted by four SU-35 fighter jets from Moscow to Dubai, where he was warmly received by Sheikh Mohammed Bin Zayed Al Nahyan, who referred to Putin as his “dear friend.”
As well as a flyby performance by the Fursan Al Emarat (Knights of the Emirates) military aerobatics team.
Trade, oil, and foreign direct investment in Russia were on Putin’s agenda in the U.A.E., as evidenced by his speech and the presence of Ukrainian-born and Harvard-educated Kirill Dmitriev, CEO of the $10B Russian Direct Investment Fund. Also included in the Russian delegation was Chechen president Ramzan Kadyrov, Central Bank governor Elvira Nabiullina, and others from industry and finance.
As reported by Interfax, Putin stated:
"Indeed, the United Arab Emirates is the leading trade partner of Russia in the Arab world….
Bilateral trade grew almost 68% in 2022, and I think it will grow more this year.”
Russia’s search for alternative trading partners to replace the West is reflected in bilateral trade with the U.A.E., which grew to a record $9B in 2022, of which Russian exports made up $8.5 billion. Even before the war, bilateral trade had been growing, mainly due to Russian agricultural exports, which still account for a significant proportion of Russian goods headed for the U.A.E. Another consequence of Western sanctions is the increase in the supply of gold and precious stones, representing almost 40% of Russian exports to the U.A.E. last year. As discussed in BWR’s “The Sanctions-Immune, Teflon-Coated Russian Economy,” the EU will pass a 12th package of sanctions, scheduled to come into force on 1 January 2024, that will include restrictions on Russian precious metals and stones.
It should be noted that the U.A.E., the Gulf States, and Saudi Arabia are historically strong US allies. The U.A.E has publically condemned Putin’s war on Ukraine but has not signed onto the Western sanctions.
Following these talks, Putin traveled to Saudi Arabia to meet with the Saudi Arabian crown prince, Mohammed bin Salman, their first in-person encounter since October 2019. Upon returning to Moscow, Putin hosted the Iranian president Ebrahim Raisi in the Kremlin for talks and tea.
Follow-ups & Quick Bites:
Follow-Ups:
Russian Oil Revenues Surpass Pre-Second War Revenues
In BWR issue, “Russian Oil Price Cap & New Ecosystem”, I discuss Russia’s sanctions evasion adaptation to the oil price cap sanction.
According to Bloomberg, Russian oil revenue reached $11.3B in October 2023, accounting for 31 percent of its overall net budget revenue in October and surpassing any month in 2021 before the invasion.
As per the report, 70% of Russian oil was shipped by domestic and shadow fleets, allowing Russia to circumvent the $60/bbl. According to the estimations from Bloomberg, Russia has exported nearly 3.5M barrels of oil a day this year, and China and India are the major buyers. The oil has reached $72/bbl upon reaching Indian shores, according to Indian customs.
Quick Bites:
Russia Calling! Investment Forum
The central theme for this year's Russia Calling! forum was “Making Deglobalisation: Uniting Sovereign Economies”. Putin had two basic messages to deliver at the 14th annual Russia Calling! (link includes English translation).
Russian Economy – resilient and adapting to Western economic aggression against Russia;
Economic Dominance – The global US-led Western economic system is being replaced by a new multi-polar economic order;
In contrast to the previous Russia Calling! events over the years. This is the first with a background that includes Chinese, English, and Russian script.
As discussed in BWR issue “The Sanctions-Immune, Teflon-Coated Russian Economy”, the Russian economy is strong but fragile and vulnerable. When the oil money stops flowing, the Kremlin will be forced to pull back spending and the economy will deteriorate quickly.
Putin Hosts Iranian President Ebrahim Raisi in the Kremlin
Last year, trade with Iran grew by 20% to approximately $5B. Russia has become more and more dependent on Iran for drones and other weapons for the war in Ukraine.
Russia is constructing a plant in the Tartarstan Republic for the purpose of manufacturing Iranian Shahed-136 drones.
Vol 1, No 23 - BWR 10.12.2023
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