The United Arab Emirates’ Mubadala holding company made its single largest investment in Russia on December 8th, acquiring 1.9 percent of Sibur, Russia’s largest integrated petrochemical company. Leonid Mikhelson, chairman of Sibur’s board of directors and CEO of Russia’s largest LNG exporter Novatek, owns 36 percent of the company.
Moscow envisions Sibur as a key player in the fast-growing petrochemical market. In July 2021, Sibur completed its merger with Russian petrochemical services company TAIF; making it one of the world’s five largest polymer and rubber producers. Sibur has hundreds of assets spread across Russia and is increasingly growing its reach abroad; on December 8th, former French prime minister Francois Fillon joined Sibur’s board as an independent director to promote the project globally and to prepare it for its long-awaited initial public offering (IPO).
Deepening Economic, Political Ties
Mubadala’s purchase of a stake in Sibur is a small piece of the $262 billion investment fund’s bet on the emerging energy sector, despite the fund’s announcement of a strategic shift away from investments in energy and other commodity-related assets. The petrochemical industry currently accounts for 12 percent of global oil demand, and in spite of many countries’ commitments to carbon neutrality, the need for petrochemicals is expected to continue growing because of the increasing demand for plastics and other chemicals in developing economies. Addressing the demand for petrochemicals is set to account for over a third of oil consumption by 2030, and nearly half by 2050. The Sibur investment also demonstrates Mubadala’s increased interest in China’s demand for petrochemicals. Partnered with China’s Sinopec, Sibur is building the Amur Gas Chemical Complex, the world’s largest gas-based petrochemical complex, in the Russian Far East. The $10 billion chemical complex is Russia’s response to the rapidly growing demand for gas-based petrochemicals, particularly in China, the world’s largest importer. China is projected to account for 28 percent of new global petrochemical demand by 2030.
With almost $1 billion in investments in 2021 alone, Mubadala’s total investment portfolio in Russia has now reached $3 billion. Mubadala was one of the first Gulf investment companies to set foot on Russian soil and has operated an office in Moscow since 2010. In 2013, the firm partnered with the Russian Direct Investment Fund (RDIF) to pursue joint investment opportunities, both in Russia and abroad. The parties renewed their cooperation agreement in 2019 during Russian President Vladimir Putin’s visit to the UAE in October of the same year, expanding the sphere of their cooperation to artificial intelligence, healthcare, railways, agriculture, and logistics. Mubadala’s other significant investments in 2021 include a $150 million in the Telegram social media platform and a 2.9 percent stake in Russia’s En+ Group, which owns a majority stake in Rusal, Russia’s largest aluminum producer.
Mubadala is not the only Emirati entity engaged in Russian investments. In 2019, ADNOC, the UAE’s state-owned oil company, signed cooperation agreements with Russian energy companies such as Gazpromneft and Lukoil to explore opportunities in Russia, the UAE, and elsewhere. In July 2021, UAE-based Dubai Ports World signed an agreement with Russia’s state-owned Rosatom to develop the Northern Transit Corridor. According to the terms of the agreement, DP World and Rosatom will establish a joint venture to invest in the logistics capacity of shipping through the Northern Sea Route, north of Russia in the Arctic Sea.
The UAE’s investments in Russia also coincide with the Gulf country’s increasing political engagement with Moscow. In the mid-2010s, the Emirates became the first Gulf country to develop strategic defense cooperation with Russia. Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed’s (MBZ) 2018 visit to Russia, and Putin’s reciprocal visit to the UAE in 2019, kicked off a new phase in relations between the two countries. The UAE’s trade turnover with Russia reached $4 billion in 2021, a 21 percent increase from the previous year.
The Emirati Balancing Act
The UAE’s investments in the Russian economy are a conveniently-timed link to Moscow as well. Bereft of mid- to long-term loan opportunities from the West due to U.S. and European sanctions and hurt with plummeting oil prices in 2016 and again during the COVID-19 pandemic, Russia intensified its outreach to the cash-rich Gulf states, particularly Saudi Arabia and the UAE. Despite their differences in geopolitical interests and increasing rivalry in the oil market, Russia managed to separately build bridges with both Riyadh and Abu Dhabi. As a result of its effective diplomacy, Russia, together with Saudi Arabia and with the help of the UAE, established a new oil cartel – OPEC+ – which has since become one of the key decision-makers in setting the global price of oil.
So far, Abu Dhabi has demonstrated skillful political maneuvering; it has managed to build an effective relationship with Moscow, including through increasing trade ties, without causing anger in Washington despite tensions between the two superpowers. The swiftly changing geopolitical environment in the Middle East has facilitated successful UAE diplomacy. With the U.S. retreat from the Middle East underway and the subsequent reconfiguration of the power balance in the region, the UAE has set a more pragmatic yet assertive foreign policy agenda by posturing as a major player in regional dynamics.
Abu Dhabi’s relationship with Moscow is undoubtedly an integral element of its new foreign policy. However, although Washington appears unconcerned at the current investment activity of the Emirates in Russia, Abu Dhabi’s growing investment appetite in Russia may raise eyebrows among U.S. security officials in the future. In particular, the Emirates’ investment in strategic projects such as the Northern Sea Route and its contribution to Russia’s competitive edge in various markets could undermine the effectiveness of Washington’s sanctions towards Russia, in turn raising concerns among U.S. policymakers. More such investment could aggravate concerns at times of increasing political escalation. The U.S. has threatened additional sanctions should Russia invade Ukraine and would not look kindly at UAE investments that help Russia deal with them. Emirati officials should take note.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.