Russians look to UAE to escape economic turmoil as sanctions bite
Growing numbers of wealthy Russians are heading for the UAE after invasion of Ukraine leaves Moscow's financial system teetering on the brink of collapse
Middle East Eye, 4 March 2022
by Sean Mathews / Photo credits: AFP/File photo
"The first question I have when Russian clients call me is 'where is the money?'" Almas, a real estate broker in Dubai, told Middle East Eye.
The 55-year-old Russian speaker, who hails from a country in the former Soviet Union, says he has been inundated with calls from Russians desperately looking to buy property in the UAE as Western sanctions start to bite and the rouble plummets.
"If they tell me the funds are still in Russia I usually say it's too late. Now it's practically impossible to get money out," added Almas, who asked MEE to withhold his last name out of security concerns.
The US and its European allies have imposed unprecedented sanctions on Russia in response to the invasion of Ukraine.
Russia's Central Bank is blocked from accessing its $630bn war chest in foreign reserves and some of the country’s banks have been removed from the SWIFT financial messaging system.
The measures have effectively cut Moscow off from the global economy, leaving ordinary Russians scrambling to pull their savings from banks and convert their roubles into foreign currency.
To protect its reserves, Russia has enacted capital controls and banned citizens from leaving the country with more than $10,000 in foreign currency.
'Airports catering to Russians'
Elena Tselischeva, who emigrated from Russia to Dubai 17 years ago, where she now runs a consultancy firm, says her phone has been ringing non-stop since last week with both Russians and Ukrainians asking for help on relocating their businesses and families to the oil-rich Gulf state.
Tselischeva has fielded enquiries from restaurateurs to factory owners, all unsure what to do with the assets and businesses they have in countries either at war or in economic turmoil.
Some of their main concerns are how to incorporate in the UAE, obtain business licenses and open bank accounts. Many are also scrambling to get their children into schools and find a place to live.
"These people are looking to escape. To save their investments," she said. "These are normal people, successful, who have built up a company and don't know what to do now."
'There has been a dramatic increase in demand from Russians in the last week,"
- Almas, Dubai-based real estate broker
Almas said he is getting calls from many young people about short term apartment rentals. "The rental demand is mainly for one to three months. They hope to wait it out and see what happens."
The deteriorating economy and swirling rumours that Moscow may impose martial law have already led many Russians to flee to neighbouring countries such as Finland, Georgia and Armenia.
Dubai has long styled itself as a haven in times of instability, and 90 percent of its population is made up of foreign nationals. In the past it has attracted wealthy families and business owners fleeing regional conflicts in Syria, Iraq, and Lebanon.
Russian speakers have always been a small but notable fixture of the glitzy oil-rich state. Today, they number roughly 100,000, of which 40,000 are Russian nationals and 15,000 are Ukrainian.
There are service sector workers and IT professionals, but also those of more dubious character. Already the yachts of three Russian billionares have docked in the UAE, and prostitutes from the former Soviet Union are infamous for plying their trade at Dubai's nightclubs.
"The airports here are literally swamped catering to Russians," said one Russian expat living in the Gulf who asked to remain anonymous. He said his travel plans had already been delayed because so many flights are rerouting through the region's hubs, after Europe closed its airspace to Russian carriers.
Revenge of the Gulf
Events of the past week appear to be turbocharging a trend that had been building for some time; the Kremlin's deepening ties with the UAE as part of its growing clout in the Middle East.
The strength of those relations has manifested itself in the number of Russian visitors showing up in Dubai, where in 2021 they made up the second-largest source market for tourists. Analysts say the bonds have become even stronger in the political sphere.
"The Gulf states have all been trying to diversify their geopolitical partners for a decade and Russia has been making inroads. Of all those the UAE is by far Russia's closest partner in the region," Anna Borshchevskaya, a senior fellow at the Washington Institute for Near East Policy, told MEE.
In 2018, the two countries signed a strategic partnership agreement, and while the US is still the UAE's top arms supplier, Russia has gradually made its way to third place, just behind France. The UAE has even flirted with the idea of buying Russia's Su-75 Checkmate stealth fighter jet, currently in development as a potential rival to the F-35.
Last week the UAE snubbed Washington by refusing to join in a vote at the UN Security Council condemning Russia.
And in a statement on Sunday, Anwar Gargash, a UAE presidential adviser, didn't even mention the words invasion or war, instead saying the Gulf state "believes that taking sides would only lead to more violence" as he emphasised that Abu Dhabi's priority was to encourage both sides to "negotiate to find a political solution".
The UAE is not alone in Gulf monarchies staking out a neutral position on Ukraine as its Washington ally tries to put together a united front against Russia.
Despite pleas from the Biden administration, Saudi Arabia has refused to pump more oil, instead saying it is committed to an Opec+ pact it reached with Moscow last year, allowing for modest supply increases that analysts and industry leaders say will do little to stem rising crude prices.
Just as Riyadh felt abandoned when the Trump administration ruled out retaliating against a devastating Iranian missile and drone attack on its Aramco oil facilities in 2019, analysts say the UAE viewed the Biden administration's response to the Houthi attacks on Abu Dhabi and Dubai as meek and noncommittal.
"The Gulf has watched all of this. And the neutrality on Ukraine really shows how far America has lost the region due to its policies," Borshchevskaya said.
'Dramatic increase in demand'
And at a time when Western companies from BP to Ikea are leaving Russia, the Gulf states have so far maintained their economic links with Moscow. Despite recently being named a major non-Nato ally, Qatar is holding on to its 19 percent stake in Russia's behemoth energy company Rosneft.
Meanwhile, Abu Dhabi's Mubadala investment fund is sticking with its roughly $3bn-worth of investments in the county, and has shown little indication of breaking off ties with Russia's Direct Investment Fund, which the US has labeled "a slush fund" for Putin.
The UAE is Russia's largest economic partner in the Gulf Cooperation Council. Last year, total trade between the two countries hit $4bn. Still, analysts say economic ties are likely not the main reason for Abu Dhabi's position on the war in Ukraine.
'What the UAE wants is the image of itself as a great player on the international stage that can work with all sides,'
- Mark N Katz, George Mason University
The UAE's economic relations with Russia pale in comparison to that which it has with the EU as a bloc. And bilateral trade between the US and UAE stood at $24bn in 2019.
Almas, the real estate broker who has many clients from the former Soviet Union, downplayed the effects of Russian buyers interests on Dubai's market, saying they make up only five percent of his business:
"Of course there has been a dramatic increase in demand from Russians in the last week, but the supply is also huge. It won't move prices in a meaningful way."
He added that the decline in the rouble means most ordinary Russians already find themselves priced out of the country and are more likely to look to Turkey if they decide to relocate.
"The UAE’s economic relations with Russia aren't nearly at the level of those with the West," said Mark N Katz, professor at George Mason University and an expert in Russian relations in the Middle East. "What the UAE wants is the image of itself as a great player on the international stage that can work with all sides.
"They simply think they can offend the US by dealing with Russia and that the US will forgive them," he added.
Russia banks on the Gulf
But that strategy could also hold risks for the UAE's status as a business hub. The Financial Action Task Force, an intergovernmental organisation dedicated to fighting money laundering and illicit cash flows, announced on Friday that it was to place the country on its "gray list" for not doing enough to combat illegal financial activities.
"The UAE is no stranger to sanctions on third countries, especially Iran, now we are seeing indications of potential Russian holdings there. This will not help in efforts to address illicit financial flows," Alex Zerden, a former Treasury Department official in the Obama and Trump administrations, told MEE.
Tselischeva, who is married to a Ukrainian and lives in the UAE with her two children, said she believed the UAE had been wise to establish itself as a neutral party to the conflict: "I think it is good that we are for business and outside of the politics. This is a tolerant country based on new opportunities."
"I'm very much worried, as a Russian businesswoman, what will happen with the sanctions. I'm just a normal person. How will my clients pay me if the banks close all their accounts?"
"The UAE is no stranger to sanctions on third countries,"
- Alex Zerden, former US Treasury Department official
Russia's biggest lender, Sberbank, has an outpost in the UAE servicing the wider region. It has already been forced to withdraw from Europe due to Western sanctions.
But in an early sign that economic considerations may slowly be factoring into Emirati boardrooms, Dubai's Mashreqbank said this week that it would stop lending to Russian banks and review its exposure to the country, Reuters reported.
The UAE will still have to be attune to overwhelming Western support for Ukraine. This week it backtracked after it faced criticism for suspending visa-free travel to the country for Ukrainians at a time when hundreds of thousands are fleeing war.
It also joined with 140 other countries in a UN General Assembly vote on Wednesday condemning Russia’s invasion of Ukraine, though the action was relatively symbolic.
Katz said that the longer the war goes on the more pressure will build on the UAE. "Their actions right now are in a way a vote of confidence that Russia can weather all of this," he said.
"When it comes to sanctions, the big question is: Will the the UAE go out of their way to evade them and risk really annoying Washington?"
The original article is available here: https://www.middleeasteye.net/news/russia-ukraine-war-uae-escape-sanctions-collapsing-currency