Oil Trade and Evolving Russia-Middle East Ties during the War in Ukraine

It has been nearly two and a half years since the Russia-Ukraine war started. Swiftly following the invasion in February 2022, European countries, the United States and their allies introduced sweeping sanctions on Moscow to impose severe consequences and limit its ability to continue its aggression. Russian oil and gas and profits from their sale have been at the centre of sanctions. Complemented by the European Commission’s REPowerEU scheme[i]?that envisages the permanent reduction of the continent’s reliance on Russian fossil fuels, imports of Russian gas dropped from 45% to 15% as a share of overall EU imports by 2023.[ii]?Combined with the EU-wide ban on the import of seaborne Russian oil and the G7-devised oil price cap[iii]—which denies port and transportation services to Russian tankers selling oil above $60 per barrel—the direct sale of Russian oil and gas to Europe plummeted.

However, Russians appeared to be far less stricken by bearing the consequences of the war than what Europeans believed, enjoying solid profits from oil sales[iv], as well as improving bilateral and multilateral relations across the world. The Middle East has, for one, been one of the most significant regions for Russia during the war in Ukraine. Beside the rising trend of exports of Russian crude to Asian markets, substantial oil trade exists and continues to increase with Middle Eastern countries.

A pragmatic Middle Eastern approach during the war and beyond

Middle Eastern countries—even prominent US and European allies among them—collectively opted for a position of strategic neutrality as the West unrolled its sanctions package on Russia, highlighting the latter’s influence. Iran, Türkiye and Arab states all refused to impose sanctions.[v]?This was, in large part, due to Moscow’s outsized influence on the global supply of grains by virtue of its own production capacity and its blockading of ports in Ukraine[vi], the world’s seventh largest wheat producer. Policymakers in Ankara, Riyadh, and Abu Dhabi were anxious to resolve the impasse due to the region’s reliance on food imports. The Grain Deal Initiative was eventually signed in Istanbul with Türkiye’s key role as a reliable partner to negotiate with Russia.[vii] In addition to exercising its leverage, however, Moscow has also been pursuing a longer-term grand strategic game in the Middle East. The MENA region plays a role in both Russia’s “Maritime Doctrine” (July 2022) and its “Foreign Policy Concept” (March 2023).[viii]?Illustrating the significance of the region for strategic calculations is the fact that since the outbreak of the war, President Vladimir Putin has only visited Middle Eastern countries outside of the former Soviet area: Tehran in July 2022, and Abu Dhabi and Riyadh in December 2023.[ix]?As there is no overtly anti-Russian government present in the Middle East, Russia has looked towards solidifying its partnerships with the region. A strong element of this approach is an outspoken anti-West stance, which at the same time keeps reminding regional leaders to avoid becoming entangled in the West’s sanctions quagmire. On the flip side, Middle Eastern capitals’ relations with Russia can potentially strengthen their bargaining ability vis-à-vis Western partners in the future.[x]?Multiple regional powers are likely to join BRICS and the Shanghai Cooperation Organisation (SCO) in the coming years. Iran, Egypt, and the UAE are already members of BRICS since January 2024, whilst Saudi Arabia, Bahrain, Qatar, the UAE, Kuwait, and Türkiye are dialogue partners of the SCO.[xi]?Turkish President Recep Tayyip Erdo?an stated at a NATO summit that Türkiye aimed to join the Shanghai Five,[xii]?and become a permanent member of the grouping.

Russia’s strategic desire to improve relations with the Middle East dates back to the collapse of the Soviet Union in 1989-91.[xiii]?While the Cold War ended, Russia’s anti-Western approach did not, and the Middle East turned out to be a region potent with opportunities to build influence. All tumultuous events in the region since 2000, including the Iraq war, the Arab Spring, the civil war in Syria, Libya and Yemen, and the most recent war between Israel and Hamas were utilised by Russia to foster public opinion against the US and its allies, painting a picture that the Atlantic alliance only brings catastrophe to the region. Western countries’ own strategic miscalculations and their detrimental effects meant that Putin’s anti-Western rhetoric to found fertile ground.

Apart from diplomatic initiatives, Russia also emerged as a significant arms supplier for Iran, Syria, Iraq, Egypt, and Algeria.[xiv]?To reciprocate, Tehran provided Moscow with drones and arms since 2022 for the latter’s war in Ukraine.[xv]?Apart from bilateral talks and official state visits, Russia held a Joint Ministerial Meeting for Strategic Dialogue with GCC member states in Moscow in July 2023 to deepen existing energy, trade, and investment relations with the group.[xvi]

In individual cases, fostering good relations with Russia proved important for multiple countries in the region. Moscow also recognises the opportunities these instances of tit-for-tat provide in the context of its long-term strategy. For example, despite being close allies of both countries, Russia sided with the UAE over the islands it disputed with Iran in the Persian Gulf[xvii]?[xviii]?In another example, Türkiye’s balancing policy condemned Russia’s invasion of Ukraine but refused to introduce sanctions. Ankara sent Bayraktar TB2 drones to Ukraine but at the same time bought cheaper Russian oil and gas. Erdogan negotiated with Putin as part of the grain deal but he closed the Turkish straits to Russian warships as per Article 19 of the Montreux Convention.[xix]

After the US’ carte blanche approach to Israel in its war with Hamas, Russia tried to focalise public opinion against it in the hope that that global support to Ukraine would also be diverted to an extent as a result. Moscow did not classify Hamas as a terrorist group but restricted its linkage with the organisation’s political branch.[xx]?In its relations with Israel, Russia has portrayed itself as a great power against Israel’s military operations, whilst it neglected Israel’s hitting of Iranian targets in Syria as part of an ongoing agreement between Netanyahu and Putin.

Oil Comes First

Beyond the most immediate concerns of food security in the context of the war, an ‘impartial’ policy approach gave way to notable benefits in oil trading and investment relationships with Russia.[xxi]

While European states, the US, Japan, and South Korea cut down Russian oil imports, Türkiye, India, and China were amongst the top countries that bought discounted Russian crude.[xxii]?As CREA reports, Russian crude oil exports to Europe, as of July 10, 2024, decreased to 146.17 thousand tonnes per day (ktpd) from 944,75 ktpd, on the day of the invasion.[xxiii]?Türkiye doubled its oil import from Russia, increasing the share of its monthly crude imports from Russia to 11.65%[xxiv]?compared to a mere 1.89% before the war.[xxv]?One other aspect of the oil war between the West and Russia is the oil price cap since December 2022, restricting G7 member states and their allies to provide service to maritime firms that carry Russian crude if the oil is priced above $60/b.[xxvi] According to the S&P Global Commodities at Sea report, tankers that are not flagged, owned, operated, or insured by the companies of the countries imposing price cap (G7, the EU, Australia, Switzerland, and Norway) facilitated 82.5% of Russian crude exports in June 2024.[xxvii]?UAE-owned tankers filled the gap of Greek ships, and have supported Russian seaborne crude exports. Russian crude that arrived to the UAE’s port of Fujairah has been re-exported to different regions of the world.[xxviii]?[xxix]

Saudi Arabia and the UAE have also imported Russian crude and refined petroleum products to supply their domestic consumption, which allowed them to export their own crude oil at relatively high prices in turn.[xxx]?This opportunity emerged from the fact that the Russian Urals medium sour grade with 1.7% sulfur content has a similar quality as Middle Eastern grades, including Saudi Arabia’s oil (Arab Light, Arab Medium, and Arab Heavy), Iraq’s Basrah Medium, and Iran’s Heavy.[xxxi]

Following US President Joe Biden’s visit to Saudi Arabia in July 2022, and the ‘Strategic partnership with the Gulf’ deal between the EU and Gulf states, it was expected that Saudi Arabia and the UAE would curb hiking oil prices by increasing production quotas so that Russian oil export revenues would be damaged further, avoiding their use for the purposes of the war. However, OPEC+ rebuffed.[xxxii]?Despite the Biden’s Administration’s policy to “not leave a vacuum to be filled by China, Russia, or Iran”[xxxiii], Russia’s influence in the Middle East and close cooperation with regional powers seems to have achieved just that. Furthermore, despite the slump of oil prices in 2023, Russian profits and the country’s economic stability appear to hold.[xxxiv]

What Next?

While the US has a strict security partnership with its allies in the region—which perceived Russian encroachments do not and cannot threaten—Russia’s proliferating ties might still cause headache to policymakers in Washington. Rapprochement talks between Damascus and Ankara, for instance, reveal the strong motives of Russian officials to de-escalate tensions between its respective allies. In addition to ongoing diplomatic talks, Russia is also constructing nuclear power plants in Iran, Türkiye and Egypt.[xxxv]?Russian Lukoil has a contract in the West Qurna-2 oilfield of Iraq’s state-owned Basrah Oil Company.[xxxvi]?Egyptian waters are also rumoured to serve as a hub for tanker-to-tanker transfers of Russian crude.[xxxvii]?Regional states tend to trade with Russia in local currencies, providing further incentives to them.[xxxviii]?According to a polling survey, people in Egypt (57%), Bahrain (68%), Qatar (63%), and Lebanon (72%) believe that Russia and China could be viable alternative partners to the US.[xxxix]

It is clear that President Biden could not address the concerns of multiple regional allies adequately during his tenure. With the US elections approaching, a second Trump presidency—with Trump known for his more pro-active but, on certain points, highly controversial approach to regional issues, as well as vis-à-vis Putin and Russia—could bring about a more stern US stance that demands loyalty from Middle Eastern countries. Such loyalty would, however, be directed against China primarily and not Russia. On the other hand, the complex policy interactions between the Ukraine war and regional alliances could further solidify Russia’s foothold in the region.Such foothold is not without its own challenges, however. Iran’s belligerent regional foreign policy is something that continues to concern Gulf states and Israel, which Russia is unlikely to be able to meaningfully iron out, even in spite of the recent rapprochement between Saudi Arabia and Iran. The stabilization of Syria, where Russian ties with President Bashar al-Assad run deep, presents another conundrum for both Gulf States and Turkey, in addition to continued US support for a semi-autonomous Kurdish region in northeast Syria. Moscow has also had a diplomatic and military stake in Libya in support of east-based General Khalifa Haftar. Russia also plans to build a naval base in Tobruk to enhance its military capacity in the Mediterranean.[xl] Support for Haftar aligns with Saudi, Emirati and Egyptian policy preferences, but goes against those of Türkiye and Qatar, who have been leaning towards Libya’s UN-recognised west-based government.

Russian influence can reasonably be expected to be maintained in the Middle East over the coming years, even beyond the timeline of the war in Ukraine. With growing influence come growing responsibilities and entanglements, however, even for a regime that proclaims to take a fundamentally different approach from the West, as Russia will undoubtedly learn.

[i]?REPowerEU, 2022.

[ii]?European Commission (2024). “REPowerEU – 2 years on”, retrieved from:?https://energy.ec.europa.eu/topics/markets-and-consumers/actions-and-measures-energy-prices/repowereu-2-years_en#:~:text=Fossil%20fuel%20imports,-From%20left%20to&text=EU%20sanctions%20have%20banned%20seaborne,to%20only%2015%25%20in%202023.

[iii]?European Council (2024). “EU sanctions against Russia explained”, retrieved from:?https://www.consilium.europa.eu/en/policies/sanctions-against-russia/sanctions-against-russia-explained/.

[iv]?Nightingale, A., Lee, J and Longley, Al. (2023). “How Russia Punched an $11 Billion hole in the West’s Oil Sanctions”,?Bloomberg, 6 December 2023, retrieved from:?https://www.bloomberg.com/news/features/2023-12-06/oil-prices-how-russia-punched-an-11-billion-hole-in-west-s-sanctions-regime.

[v]?Liu and Shu (2023). “The Russia–Ukraine Conflict and the Changing Geopolitical Landscape in the Middle East” p.101.

[vi]?Mankoff, J. (2024). “The Middle East and the Ukraine War: Between Fear and Opportunity,” p.58, retrieved from:?https://onlinelibrary.wiley.com/doi/epdf/10.1111/mepo.12738.

[vii]?Liu, Z. and Shu, M. (2023). “The Russia–Ukraine Conflict and the Changing Geopolitical Landscape in the Middle East”, p.102, retrieved from:?https://link.springer.com/article/10.1007/s42533-023-00134-5.[viii]?Rakov, D. (2023). “Russia In the Middle East: National Security Challenges for the United States and Israel In the Biden Era”,?Kennan Institute, p.94, retrieved from:?https://www.wilsoncenter.org/publication/report-russia-middle-east-national-security-challenges-united-states-and-israel-biden.

[ix]?Ibid, p.95.[x]?Ibid, p.95.[xi]?Ibid, p.96.

[xii]?Hacaoglu, S. and Kozok, D. (2024). “NATO Ally Turkey Seeks Membership in China-Led SCO, Erdogan Says”,?Bloomberg, 5 July 2024, retrieved from:?https://www.bloomberg.com/news/articles/2024-07-05/nato-ally-turkey-seeks-membership-in-china-led-sco-says-erdogan.

[xiii]?Rakov, D. (2023). “Russia In the Middle East: National Security Challenges for the United States and Israel In the Biden Era”, p.93.

[xiv]?Ibid. pp.97-98.[xv]?Ibid, 98.

[xvi]?The Ministry of Foreign Affairs of the Russian Federation (2023). “Joint Statement of the 6th Russia – GCC Joint Ministerial Meeting for Strategic Dialogue”, 12 July 2023, retrieved from:?https://mid.ru/en/foreign_policy/rso/1896567/.

[xvii]?Reuters (2023). “Iran Summons Russian Envoy Over Statement With GCC on Islands”, 12 July 2023, retrieved from:?https://www.reuters.com/world/iran-summons-russian-ambassador-over-statement-three-islands-state-media-2023-07-12/.[xviii]?Ibid.

[xix]?Reuters (2024). “Turkey to Block Minehunter Ships Intended for Ukraine”, 2 January 2024, retrieved from:?https://www.reuters.com/world/middle-east/turkey-block-uk-minehunter-ships-intended-ukraine-2024-01-02/.

[xx]?Rakov, D. (2023). “Russia In the Middle East: National Security Challenges for the United States and Israel In the Biden Era”, p.100.

[xxi]?Mankoff, J. (2024). “The Middle East and the Ukraine War: Between Fear and Opportunity,” p.49.

[xxii]?Kilian, L., Rapson, D. and Schipper, B. (2024). “The Impact of the 2022 Oil Embargo and Price Cap on Russian Oil Prices”,?Federal Reserve Bank of Dallas,?retrieved from:?https://www.dallasfed.org/~/media/documents/research/papers/2024/wp2401.pdf..[xxiii]?CREA (2024).

[xxiv]?As of Janurary 2024.

[xxv]?Buregel (2024). “Russian Crude Oil Tracker”, retrieved from:?https://www.bruegel.org/dataset/russian-crude-oil-tracker.

[xxvi]?S&P Global (2024).[xxvii]?Ibid.

[xxviii]?Ardemagni, E. (2023). “Oil, Gold and ‘Dual-Use’: Why the Russian Elite Relocates in Dubai ”,?ISPI, retrieved from:?https://www.ispionline.it/en/publication/oil-gold-and-dual-use-why-the-russian-elite-relocates-in-dubai-151380.

[xxix]?S&P Global (2024).[xxx]?Takahashi, M. (2024). “The Future of Russian Energy Exports Under Sanctions”,?Sasakawa Peace Foundation, retrieved from:?https://www.spf.org/iina/en/articles/takahashi_01.html.

[xxxi]?S&P Global, (2022).

[xxxii]?Al-Saidi, M. (2023). “White Knight or Partner of Choice? The Ukraine War and the Role of the Middle East in the Energy Security of Europe.”,?Energy Strategy Reviews, 49, retrieved from:?https://www.sciencedirect.com/science/article/pii/S2211467X23000664.[xxxiii]?The White House (2022). “Remarks by President Biden at the GCC + 3 Summit Meeting”, retrieved from:?https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/07/16/remarks-by-president-biden-at-the-gcc-3-summit-meeting/.

[xxxiv]?Russian Urals is traded at $80.72/b, $0.9/b and $3.62/b less than WTI and Brent crude, respectively (dated July 17, 2024).

[xxxv]?Rakov, D. (2023). “Russia In the Middle East: National Security Challenges for the United States and Israel In the Biden Era”, p.97.

[xxxvi]?Hamm, A.E., Redlich, R. and McDonough, F. (2024). “With Attention on Gaza, Russia and China Continue Economic and Military Inroads in Arab States”,?WINEP, retrieved from:?https://www.washingtoninstitute.org/policy-analysis/attention-gaza-russia-and-china-continue-economic-and-military-inroads-arab-states.

[xxxvii]?Chambers, S. (2023). “Egypt Emerges as New Hub for Russian Oil Transfers”,?Splash, retrieved from:?https://splash247.com/egypt-emerges-as-new-hub-for-russian-oil-transfers/.

[xxxviii]?Rakov, D. (2023). “Russia In the Middle East: National Security Challenges for the United States and Israel In the Biden Era”, p.97.

[xxxix]?Hamm, A.E., Redlich, R. and McDonough, F. (2024). “With Attention on Gaza, Russia and China Continue Economic and Military Inroads in Arab States”.

[xl]?Chatham House (2024). “Assessing Russian plans for military regeneration”, 9 July 2024, retrieved from:?https://www.chathamhouse.org/2024/07/assessing-russian-plans-military-regeneration/05-russias-navy-and-naval-platforms.