How Does the Ukraine Crisis Affect the Gulf?

GCC

U.S. – Gulf Policy

Commentary

Dr. Diana Galeeva

As tensions continue to rise between Russia and Ukraine, and the U.S. and NATO have increased their political and military support for Kiev, the world wonders whether Moscow is preparing for war. The conflict brewing on the Russo-Ukrainian border, however, has consequences far beyond Eastern Europe. In November 2021, tense relations between Russia and the West provoked a surge in gas prices in Europe as Russia tightened  supplies. In December, Russia declared that its future actions would depend on security guarantees, and although a dialogue on European security issues took place between the United States and Russia in Geneva, they seem to have ended in failure; according to Dmitri Trenin at the Carnegie Moscow Center, the “extremely tough talks … didn’t end in a public scandal or definite rupture, but nor did they inspire confidence that the ongoing European security crisis can be resolved any time soon.” All these tensions put the Gulf Cooperation Council (GCC) states in a dilemma; they must delicately and strategically balance their relations with Russia, with which they have gradually built up relations since 2015, and with the West, the traditional historical ally and security guarantor of the GCC states.

The Russia-GCC Connection

Directly or indirectly, the GCC states – as the world’s largest supplier of energy – have frequently been snared in tensions between Russia and the West in recent years. In April 2017, the “Nord Stream 2” gas pipeline was announced, creating a direct link between Russia’s Gazprom energy giant and European consumers. The pipeline was intended to be a highly reliable supply of Russian gas to Europe across the Baltic Sea. North Stream 2 AG signed financing agreements for 50 per cent of the total cost of the pipeline project with ENGIE, Royal Dutch Shell, Uniper, Wintershal and OMV. The OMV Group Shareholder structure is 24.9% owned by Mubadala Petroleum and Petrochemicals Holding Company, Abu Dhabi. Both Emirati and Russian energy giants also have other direct collaborations. In 2020, Gazprom Neft and Mubadala Petroleum signed a memorandum of cooperation to jointly develop new technologies focused on oil production and the digitalization of production processes.

In May 2021, the Biden administration announced its decision to waive sanctions on the Nord Stream 2 gas pipeline. The news while welcomed by the Kremlin, stoked frustration in Kiev, Central Europe, and the United States, exacerbating divisions within NATO and the EU. Following escalating tensions, Germany’s new chancellor, Olaf Scholz, commented in a meeting with NATO Secretary General Jens Stoltenberg that his government stood by all aspects of the German-American pipeline deal signed by the previous Merkel government in July 2021 – a deal that included provisions to introduce sanctions if Russia were to ‘use energy as a weapon or commit further aggressive acts against Ukraine.’ In such a case, the government of the United Arab Emirates would find itself caught indirectly between such tensions, so could react by attempting to leverage this position to diversifying relations with both Russia and the West. In 2020 alone, the UAE had managed to increase its trade with Russia by 78 per cent in comparison to 2019, and both signed a Declaration of Strategic Partnership to strengthen in various other aspects of the relationship such as oil market stability and combating terrorism – a first for Russia in the Gulf. However, balancing this developing relationship and established ties with the West may prove quite challenging to the UAE, which avoid becoming entangled in the tensions.

As Russian troops mass on the Ukrainian border, the United States invited Qatar’s Emir Sheikh Tamim bin Hamid Al Thani, ruler of the world’s largest producer of liquefied natural gas (LNG) to the White House reportedly to ask it to supply Europe in the event of a trade disruption between Russia and the European Union. Qatar, which has long balanced its interests between the West and the East and remains the largest supplier of LNG to East Asia, could find itself a bind by this request. On the one hand, the small GCC state would clearly benefit financially from such a proposition. On the other hand, Moscow’s strategic policies have moved towards transforming its energy competitors – namely the Gulf states – into its partners, thus encouraging economic interdependence. Russian academics Leonid Issaev and Nikolay Kozhanov appropriately characterize Russia’s balancing policies with the Gulf states as ‘a bargaining strategy.’ They explain that Russia uses its indirect and direct presence in the major regional conflicts and political issues (in Libya, Syria, Yemen, Israel-Palestine, and Iran) to highlight its significance to the Gulf states.

At the same time, Russia has sought to build stronger economic collaborations with the GCC states by attracting large-scale investment from the GCC – meaning that economic losses within Russia would negatively affect the GCC states as well. In 2019, Qatar’s sovereign wealth fund, the Qatar Investment Authority (QIA), became a shareholder in Rosneft following the Russian state-controlled oil giant’s privatization in late 2016. QIA now holds a 19 percent stake in that company. This, in addition to Qatar’s other Russian  investments – including its 2013 purchase of a $500 million stake in VTB bank, and a 25 per cent stake in St. Petersburg’s Pulkovo airport – puts Qatar in an odd position over which side to back in the current face-off. Finally, through its participation in OPEC+, Russia remains an important player in the energy market for the GCC states. By mutual agreement, members of OPEC+ will continue their program of gradual monthly output increases in February 2022, a decision reached jointly between Moscow and the Gulf.

The Washington Breakup

While ‘money talks’, geopolitical changes can also carry significant weight. Possible geopolitical shifts in the balance of power, the aftermath of any scenarios that either Moscow or the West follow, — whether diplomatic solutions or military confrontations – will directly affect the ties built by GCC states with external powers, and the balance of power in the region. Arguably, the outcomes of the Arab Spring have enhanced the growing importance of Moscow in the region, while the Washington factor has also remained central. The traditional close alignment between the GCC and Washington has seen transformation over recent years. Every new administration’s policies scaling back its involvement in the region tend to prompt further Moscow-GCC collaborations. For example, after the 9/11 terror attacks, many commentators within the United States argued that Saudi Arabia was morally (and perhaps literally) culpable. Consequently, Saudi capital began to flow out of the United States, and the Saudi leadership showed increasing interest in buying Russian weapons. During the Obama administration, the U.S. angered the Gulf monarchs by tacitly supporting the Arab Spring uprisings, leading to complaints that Washington had abandoned two of its long-time allies, Egypt’s Hosni Mubarak and Tunisia’s Zine el-Abidine Ben Ali, the moment they became political liabilities. By contrast, Moscow’s strong and consistent backing for Bashar al-Assad in Syria, despite running contrary to the Gulf states’ interests, showcased the Kremlin’s reliability in its support of its traditional allies. Moreover, in 2015, the majority of the GCC states viewed the U.S.’s lead role in nuclear negotiations with Iran negatively.

However, it was arguably the Gulf Crisis of 2017-2021 that brought the importance of diversifying external relations firmly into view for the GCC states. For example, President Donald Trump openly tweeted his support for the blockading “Quartet” nations at the beginning of the crisis, before Secretary of State Rex Tillerson and Secretary of Defense Jim Mattis called for dialogue between the GCC states and stressed the U.S. close relations with Qatar. Eventually, the U.S. reaped considerable gains in investment and arms sales from both sides. Saudi Arabia’s sovereign wealth fund holds about $10 billion in the U.S., adding $ 2 billion through its investment at the start of 2020 alone. On the other hand, Trump gushed in 2019 that Qatar had agreed to buy “tremendous amounts of military equipment.” Despite building an anti-Iran ‘axis’ consisting of Israel and the two largest GCC states (Saudi Arabia and the United Arab Emirates), the U.S. arguably lost its leverage as the sole great power in the region after it withdrew from the Iran nuclear deal in 2018, opening opportunities to other major powers (chiefly Russia and China) to cement their presence in the Gulf. As Martin Indyk argues, the Trump administration’s decision to abandon diplomacy – which Indyk characterized as a strategic calculation to curry political favor among American conservatives rather than an honest effort to advance the national interest – led to the destruction of half a century of American policy in the Middle East and a “fiasco” for the United States.

The current U.S. leadership is also viewed as risking driving Russia-GCC relations closer. Biden has voiced his belief that the main strategic challenge of the twenty-first century would be the fight of democracy against autocracy – a cleavage theoretically dividing the United States from its Middle Eastern allies. Naturally, however suitable this message is for Biden’s domestic audience, such posturing also works in favor of Russia-Gulf partnerships. How this rhetoric plays out in practice remains to be seen, both in terms of politics and economics. With so much at stake, however, careful consideration and calibration may be required from the GCC states to navigate the opportunities and risks of current tensions between Russia and the West, and the changes in power balance that may emerge from this latest chapter.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.