Russia looks to translate Gulf’s warm welcome to cold cash
Vladimir Putin wants to capitalise on country’s increasing clout in region
As Russian president Vladimir Putin’s official jumbo jet flew over the Syrian desert last week, he could afford himself a satisfied smile that the dynamics of the country’s eight-year war — and the wider geopolitics of the Middle East — were shifting in Moscow’s favour.
When he landed in Riyadh a short while later, he was on the hunt for signals that the region’s business climate was doing likewise.
Armed with a delegation of business leaders and executives, Mr Putin’s first state visit to Saudi Arabia for a dozen years was noteworthy for its focus on trade and investment, amid a concerted push by the Kremlin to translate its rising regional clout into bankable cheques.
“All of you, of course, are united by an interest in further strengthening business ties and implementing new joint mutually beneficial projects,” Mr Putin said at the inaugural meeting of the Russian-Saudi Economic Council, co-chaired by the powerful Saudi heir apparent Mohammed bin Salman.
“I want to emphasise that this co-operation is mutually beneficial for both parties: attracting investment in Russia while at the same time creating a significantly high percentage of transactions in favour of our investor,” Mr Putin added.
Souring ties with the west since sanctions were imposed after Russia’s 2014 invasion of Crimea have crimped inflows of European and US capital, and spooked many would-be investors. That has seen Moscow turn east and south for fresh sources of finance, with Mr Putin spearheading deeper ties with Beijing and targeting the wealthy investment funds controlled by Riyadh, Dubai and others.
While Middle Eastern partners have no need for its primary exports — oil and gas — Russia has many attractive wares. There is scope for Moscow to sell arms, metals and grain to the region, while it has also pitched its nuclear reactors and space technologies to the Gulf’s rising economies.
The Riyadh visit, and a subsequent trip to Dubai a day later, brought in $3.4bn worth of agreements, Moscow said — valuable deals if they come to fruition.
While some involve petrochemical production or hospitals, the biggest prize for Moscow were promises from the countries’ huge sovereign wealth funds — Saudi Arabia’s $320bn Public Investment Fund (PIF) and the UAE’s $100bn Mubadala — to invest in Russian infrastructure projects.
The PIF agreed to form a joint Saudi-Russian aircraft leasing company while both funds agreed to invest up to $300m in Russia’s railway rolling stock. Almost all of the deals are being at least part brokered by Kirill Dmitriev, head of the Russia Direct Investment Fund, the Kremlin’s sovereign wealth fund, who days before Mr Putin’s visit was awarded the King Abdulaziz second-class order of merit, the kingdom’s highest honour.
But Moscow prefers big-ticket deals to medals. Aside from a deal last year that saw the Qatar Investment Authority pay $9bn for a 19 per cent stake in Rosneft, the Russian state-owned oil producer, Middle East investments have been dwarfed by those made by Chinese companies or state entities.
A mooted deal for Saudi Aramco, the kingdom’s oil company, to buy a stake in a new liquid natural gas project in Russia’s Arctic has failed to materialise. A two-year-old agreement between Russia and Saudi Arabia’s largest petrochemical companies, Sibur and Sabic, to build joint facilities, is still being developed.
China’s demand for energy and raw material supplies has driven multibillion-dollar deals with Russian producers. However, Gulf investors have shown more appetite for US tech start-ups than the less advanced industries that dominate Russia’s economy.
And while Mr Putin’s high geopolitical clout, in part thanks to Moscow’s military dominance in Syria, means the red carpet is waiting for him in the region’s palaces, political friendship does not always lead to cold, hard cash.
During Mr Putin’s visit, Mr Dmitriev hinted at the potential flipside of Moscow’s push into the Gulf: expectations of mutual support.
“I would say that some Russian investors are interested [in the IPO of Aramco],” he told reporters. “For the sovereign wealth fund to invest in the Aramco IPO, this is still under discussion.”
With Riyadh keen to drum up maximum interest in the potential listing, Moscow’s new-found interest in economic partnership may prove timely.
But with Prince Mohammed keen to extract as high a price as possible for the offering, Mr Putin and the executives that followed him to the Gulf may be forced to dig deep. Money moving from Moscow to Riyadh was not the direction the Kremlin had in mind.