Roubles, risks and rewards

Reuters/Alexander Zemlianichenko

Economic ties between Russia and the Mena countries are flourishing – particularly since Western governments imposed sanctions on Moscow over the invasion of Ukraine.

Trade turnover between Russia and Mena countries has now reached $95 billion, according to economic development minister Maksim Reshetnikov. 

Reshetnikov told the Annual Investment Meeting in Abu Dhabi in May: “Over the past five years Russia’s trade with the Mena countries has grown by 83 percent.

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“Our partners understand that the vacated niches in the Russian market are new opportunities for their business.”

The minister has also indicated that the Russian stock exchange is ready to exchange currencies such as the Egyptian pound, according to state-owned press agency Tass.

This would encourage transactions with his country as Moscow seeks to develop trade payment systems that bypass the US dollar.

Since July 2022 Russia and Iran have reduced the use of dollars in bilateral trade. Russia’s deputy prime minister Alexander Novak said in May that the two countries were now conducting 80 percent of their bilateral settlements in their national currencies.

At the start of this year, Moscow revealed that it was working on a mechanism to settle payments for grain exports to Egypt in roubles – similar to the deal it has with Turkey. 

Around the same time, Russia’s central bank announced that it had set an official exchange rate for the rouble against nine currencies. These include the UAE dirham and the Qatari riyal, as well as the Egyptian pound.

Some Egyptian commentators have welcomed the developments, suggesting payments in roubles could reduce the price fluctuations for essential imports, which are caused by the dollar shortage.

Economist Tarek Metwally has pointed to another potential upside: “The mechanism, if implemented, will increase the amount of Egyptian pounds in the Russian economy, which they would use to import more Egyptian goods.”

He told news presenter Lamis El Hadidi in January: “That, coupled with the fact that a lot of countries are not dealing with Russia right now because of sanctions, constitutes an opportunity for Egyptian exporters.”

Tourism could benefit too, Metwally added. With Russian travellers finding it difficult to obtain dollars, fewer of them have been visiting Egyptian resorts – where fees are traditionally collected in the US currency.

Creative Commons/US Treasury

How will Washington react?

These moves to sidestep the dollar and euro have not gone unnoticed in Washington and Brussels. 

Mena countries will need to assess the potential impact of foreign exchange transactions in the context of the West’s sanctions and their relations with those governments.

The US, UK and EU have far-reaching export controls, sanctions and anti-corruption initiatives, and collectively have called on their Middle Eastern allies to support their efforts to put pressure on the Kremlin.

For Western countries, Russia circumventing sanctions by moving trade through the Middle East – and trading directly with the region – is a diplomatic problem.

In February a senior US Treasury official visited the UAE to warn that helping Moscow evade sanctions would not be without consequences.

Brian Nelson, under-secretary of the treasury for terrorism and financial intelligence, met senior officials from several UAE ministries to discuss “rooting out evasion of US sanctions, particularly on Russia and Iran”.

He underlined Washington’s “commitment to take additional actions against those evading or facilitating the evasion of sanctions”.

The US Treasury has previously warned that “individuals and institutions operating in permissive jurisdictions,” including the UAE and Turkey, risk losing access to G7 markets (Canada, France, Germany, Italy, Japan, the UK and US) for doing business with sanctioned entities or not conducting appropriate due diligence against illicit finance.

In a sign perhaps of growing concern, in late March the UAE cancelled the licence of Russia’s MTS Bank and ordered it to wind down its operations, citing the “sanctions risks”.

“This decision comes after considering the available options regarding the new status of the MTS Bank, and taking into account the sanctions risks associated with the bank after the designation,” the central bank said.

“During the winding down, the branch will be prohibited from opening new accounts and conducting transactions, except for clearing prior obligations,” it added.

“The bank’s use of the central bank’s payment systems will be restricted to this purpose only.”

It is clear that the authorities in Mena countries must tread a cautious line between the risks and rewards of maintaining economic links with Russia.

Vivien Davies heads the Mena desk at law firm Fieldfisher