Why is the UAE ignoring anti-Russia sanctions?

The UAE’s avoidance of sanctions against Russia

Ship tracking data and trading sources indicate that the United Arab Emirates (UAE) is receiving more cargoes of Russian crude oil. This is a result of Western sanctions imposed on Russia, which have disrupted traditional energy trade flows. Russia has been offering both crude and refined products at discounted prices after the sanctions left it with fewer buyers following its invasion of Ukraine. Despite U.S. pressure to isolate Russia and increase oil production to replace Russian supply, Gulf Arab states such as the UAE have resisted these calls.

Although it is unclear when the UAE began importing Russian crude, data from tanker tracking indicates that volumes have increased since Russia’s invasion of Ukraine in February 2022 and the subsequent Western sanctions. Since November 2022, around 1.5 million barrels of Russian crude have been delivered to the UAE, with volumes either starting or increasing since early 2022.

According to energy analytics firm Kpler, the first shipment of Russian crude to the UAE was in 2019, but shipments increased after April 2022, with a break between July and October 2022. The UAE and Russian energy ministries did not immediately comment on the data.

The UAE has continued to collaborate with Russia in the OPEC+ alliance, which comprises the Organization of the Petroleum Exporting Countries and other allies. According to ship tracking data viewed by Reuters on Eikon, a delivery of Russian crude reached the UAE’s Ruwais refinery in November 2022. Another cargo of Russian Urals crude arrived at the oil center of Fujairah earlier this month, as reported in Kpler data.

A Russian crude trading source noted that shipments to the UAE are infrequent. The aforementioned evidence however hints otherwise.

The UAE’s neutral stance on the Russia-Ukraine war

The UAE, like many other countries in Asia, the Gulf and Africa, as well as Turkiye, has taken a neutral or some would even say slightly pro-Russian approach to the Russia-Ukraine conflict which was triggered by Russia’s invasion of Ukraine last year. The UAE has maintained and even strengthened its ties with Russia while also providing significant aid to Ukraine.

As recently as December, the UAE was still exporting drones to Russia, according to Russian government data analysed by the Washington DC-based Free Russia Foundation. The group lists the UAE, along with Turkey, Cyprus and China, as countries that have “dramatically expanded” exports to Russia.

US-export controlled goods, including “semiconductor devices, some of which can be used on the battlefield,” accounted for $5m worth of exports from the UAE to Russia between June and November 2022, Rosenberg said.

The UAE has granted a license to MTS Bank of Russia, a move that may fuel concerns among western countries regarding the Gulf nation’s potential emergence as a financial haven for Moscow. Officials and executives familiar with the matter stated that the central bank’s decision to grant a banking license to the non-sanctioned lender will satisfy the rising demand for financial services among Russian expats. One source familiar with the matter stated that the decision was primarily based on the business case and the increasing number of Russians residing in the UAE.

Since the Ukraine conflict, tens of thousands of Russians have migrated to the UAE, particularly Dubai, to evade financial restrictions in Europe or avoid military service at home. Many of them have reported difficulties in opening bank accounts, particularly corporate accounts, with the lenders already present in the country. The Russian bank is the first foreign bank to receive a license in the UAE in several years.

In addition to this, non-oil trade between Russia and the UAE grew by 57 percent in the first nine months of 2022, breaking all records. In December, Emirati Trade Minister Thani bin Ahmed al-Zeyoudi pledged to “push trade to even greater heights”.

Implications on UAE-US ties

The UAE is trying to balance its competing positions as a long-term US partner in the Middle East and a neutral business hub.

The intensified sanctions imposed by the US and European countries following the invasion have caused them to worry about the UAE’s financial dealings with Russia. During his visit to Abu Dhabi last week, Brian Nelson, the US Treasury’s under-secretary for terrorism and financial intelligence, expressed concerns about the Russian bank’s license, according to a source familiar with the talks. The discussions centred on the issue of financial connectivity with Russia, even through non-sanctioned banks.

Nelson held meetings with government officials and financial institutions to communicate the US’s resolve to enforce its sanctions vigorously, as stated in a Treasury statement issued prior to his visit. The statement cautioned that “permissive jurisdictions” that engage in business with sanctioned entities or fail to conduct effective due diligence could lose access to developed markets.

The UAE’s business model is frustrating Washington, as evidence suggests. According to Rosenberg, countries will have to choose between western nations, which have supported Ukraine, and the rest of the world. She suggested that countries can do business with those who facilitate Russia’s war or countries that make up more than 50% of the world’s GDP, along with its most convertible and stable currencies. US sanctions hold weight because the US dollar dominates global trade, and the Swift financial messaging system also relies on banks in the US.

Some analysts and sanctions experts are predicting that the war in Ukraine will expedite a push by countries like the UAE to insulate themselves from the knock-on effects of western sanctions. Gulf states such as the UAE view the war in Ukraine as a testing ground for the impending showdown between China and the US, according to Cinzia Bianco, a visiting fellow at the European Council on Foreign Relations. She believes that the war has given Gulf states an opportunity to consider how to sanctions-proof their systems.

The US has been cracking down on the UAE’s trade with Russia, following recent disputes over Abu Dhabi’s independent foreign policy approach. For example, Emirati companies have been sanctioned by the US for helping Iran evade sanctions, and the UAE has drawn closer to China militarily. Talks between Abu Dhabi and Washington to purchase F-35 fighter jets fell apart due to concerns that Beijing would gain access to sensitive US technologies. However, the UAE’s continued interest in the F35 program could be used as leverage by the US to press for a downgrading of ties between the UAE and Russia. Negotiations for the potential sale of F-35 stealth fighters and MQ-9 Reaper drones between the US and the UAE are still ongoing, according to a senior US State Department official. Stanley Brown, the principal deputy assistant secretary for the bureau of political-military affairs, stated that the deal is not dead and that the US remains committed to the sale while engaging in consultations to ensure a clear mutual understanding of Emirati obligations and actions.

It is evident that as the UAE intensifies its diplomatic, economic, and financial engagement with Russia at an exponential rate, the United States will correspondingly escalate its efforts to exert pressure on the Gulf nation. In the event that such measures fail to achieve the desired results, the US may resort to the significant downgrading of its relations with one of its most vital strategic allies in the Middle East.