Russian companies have recently reinforced their presence in the Middle East market to coincide with the strengthened military ties between Russia and some regional powers. This comes at a time where the Russian presence in the Middle East has increased, especially since its intervention in the Syrian crisis from September 2015.
Prior to the Arab Spring, Russian economic presence in the region was diminished, as compared to the EU and the US’ broad economic influence in the region. Now, all eyes have turned towards the Russian government, not just as an influential player on the regional level, but also seeing it as an economic partner that could compensate the absence of economic partners in the traditional sense from the region.
In that respect, some Russian companies have been able to establish a serious presence in most of the regional states in various sectors, such as nuclear power, oil, mining and others. This presence has given a number of solutions to the economic woes of the region such as the shortage in power, which in turn can be used to build upon economic and trading gains for Russian companies. This would go a long way in helping out the fledgling Russian economy as a result of the retreat in oil prices as well as sanctions by the west. It seems that the ambitions of the Russian companies in the region will not stop just at the need for Russian capital, but will also be extended to the amount of acceptance that these states will have for Russian interventions in crises in the region.
A Transitional Phase:
In the last period prior to the outbreak of the Arab Spring, the US and EU dominated the economic scene in the region as opposed to the Russian presence. Trade and Investment between Russia and the Middle East was very limited with the exception of economic cooperation between Russia Turkey and Iran. Till the year 2015 the trade volume between the Middle East and Russia did not exceed 27.2 billion dollars, which is almost 1/10 of the total volume of trade between the Middle East and China in the same year. The investment activity of Russia in the region is considered to be limited, and in limited areas mostly related to primary goods.
However, Russia has become a primary actor in the engagements in the region and Russian companies have an investment presence in the region and are growing as per the directions of the Russian government. This is giving way for increased economic exchanges between both sides whether on the investment or trade levels. This could also give a motive to Russia influence to increase in the region as a result of the chaotic nature at the moment that is being witnessed in US foreign policy towards the crises in the region after the presidential win by Donald Trump in November 2016. Added to this is the reinforced presence by Russia of its diplomatic and military missions and also included is the fact that Russia has become one of the principle suppliers of arms to the region.
A Noticeable Rise:
Russia has become one of the main economic partners that are looking to cooperate with the countries in the region as well as increase the number of areas that they are working in, including oil and gas. The following are some of the most important developments in Russia’s presence in the region:
1. Nuclear Power: in light of the interest by some countries in the region to become nuclear powers a number of them have resorted to a renewed focus on Nuclear power to create electricity. In the last couple of months, the governments of Egypt, Turkey and Jordan have sought out the expertise of Russian companies in this undertaking, as well as Sudan, which declared that it is working the peaceful application of nuclear power with Russia. In that respect, Russian company Rosatom declared that it is on the verge of signing a cooperation agreement in the field of nuclear energy with the Ministry of Water, Irrigation and Power in Sudan by the year 2017.
2. Oil Sector: despite the negative outlook for the oil sector across the globe, Russian companies have shown their readiness to enter into the region’s oil and gas sectors that has a great abundance of reserves. Over the last couple of years, a number of Russian oil companies have increased their activities in the region such as Lukoil in Iraq and Egypt, and Gazprom in Turkey.
The aforementioned company has recently signed a preliminary agreement with Iran to develop the fields of Changouleh and Cheshmekosh, near the Iraqi border, after the lifting of sanctions on Iran at the onset of January 2016. This was after reaching a deal with the G5+1 in July 2015. Russian investments previously were considered a part of a package that was between 35 – 40 billion dollars that would be pumped into Iran by Russia as per the statements of the Russian president Vladimir Putin.
It seems Russian companies are, in turn, seeking to exploit sea resources in the Mediterranean, with Russian company Rosneft getting a 30% stake from ENI from Italy in the Sherouk fields in the Egyptian seas. This was in exchange for 1.125 billion dollars as well as an option to buy 5% more in the future.
The Turkish gas pipeline project is considered to be one of the most strategic projects that the Russian government has taken an interest in in the region and it is a project that was approved by the Russian Ministerial Council in December 2016. The project aims to create two pipelines across the black sea from Russia to Turkey with a total output of 30 billion cubic meters of gas per year. Without a doubt, the implementation of this project would give Russia a strategic edge in reaching European markets far from the geopolitical complexities in regards to the gas pipelines in Europe.
As opposed to the traditional markets that are the main exports for Russia, it has moved to seek out new markets such as Algeria. In that regard, Chairman of the Russian Federation Council, Valentina Matviyenko, noted in December 2016 that Russia will seek to increase its interest in the gas and oil sectors in Algeria as it is seeking to building new energy producing facilities as well as the mining for gold and other metals. Morocco has also welcomed Russian cooperation in the field of mining as well as gas and oil, on the eve of the Russian – Moroccan conferences in July 2016.
3. Financial Sector: added to both the nuclear and oil sectors, which are considered to be the main sectors of great importance for Russia in the region, it is also seeking to merge its financial sector to that of the regional market, this would in turn ease the movement of trade and investment in the whole of the region. To that end, the Russian Minister of Energy Alexandar Novak recently stated that both Iran and Russia will work to create an Islamic Finance Bank to increase the economic cooperation between both states.
4. Mining Sector: one of the most prominent sectors that have garnered Russian interest is that of mining, specifically in Sudan that is seeking to compensate the loss of oil resources with that of metal such as gold. In October 2016, the Ministry of Mineral Resources signed an MOU with the Russian mining company of Rosgeo to complete the geological survey and build up the mining sector in the country, alongside the Chinese and Egyptian companies, a number of Russian companies are mining for gold in Sudanese lands, most notably Siberia for Mining that is expected to have an annual extraction rate of 53 tons from the provinces of the Red Sea and the River Nile.
Beneficial Gains:
Without a doubt the returns from Russia becoming more involved politically and military in the region is paving the way for Russian companies to penetrate the region further. It is expected that the investments will be increased as a result from the financial and trading gains on both the long and short terms. This comes at a time that the Russian leadership is trying to overcome the obstacles that it faces as a result of the sanctions that are in place from western governments due to its annexation of the Crimean Peninsula in 2014. It is also expected that the economic returns for Russia will extend to other regions that it is not used to, such as the Middle East, with the retreating role of the US, especially now that Trump has won the US elections.
As for the gains for the countries in the region, it is assured that with the presence of Russian companies they will represent needed additional resources to help develop the main sectors such as energy and mining, especially now that capital is not as readily available from the west due to the increasing risks emanating from the region.
Despite this, there are a number of obstacles that could prevent Russia’s attempt to penetrate the Middle East fully, first and foremost of these is that hesitation and caution that some governments in the region have expressed towards partnering with Russia fearing their collapse of their cooperation with the US and the EU. Among other obstacles that are being faced by Russian companies is the weak investment environment as well as the lack of available local capital that is necessary to fund some of the large projects such as those being carried out by Russian companies in the nuclear field. This would hinder the implementation of these projects in all likelihood or even stop them all together. Adding to this is that fact that Russian companies enjoy certain competitive advantages in certain fields such as oil and gas as well as some of the heavy industries, these industries may not be the necessary catalyst needed to boost the development requirements of most countries in the region.
To conclude, Russian companies are slowly but surely integrating into the markets in the region. This could in all likelihood increase their potential gains in the future, yet in all cases they will not be an alternative to either European, American or Chinese companies that have the high capability to develop strong industrial bases and support diverse economies. This would eventually lead to putting a limit on the cooperation between both sides.
