Russia looks to strengthen its links with the Gulf

Earlier this week the Russian Roadshow, a first-rate business conference and networking opportunity, took place at the Atlantis Hotel in Dubai.

Attending were a wide range of decision makers from the UAE, the Gulf and Russia. Almost simultaneously, the International Property Show Moscow occurred, with more than 50 UAE-based developers going to Russia to attract wealthy investors. The move comes as Russian investors are expected to pump $1.5 billion into the Dubai property market in 2008. The two events symbolise the growing links between Russia and the Gulf, with two important trends emerging.

The first is the North-South corridor between the Gulf and Russia. This is historical in nature - going back through the Soviet era to Imperial Russia - and has implications for the current and future relations between the regions. The second is in the political and economic sphere. When Vladimir Putin visited Saudi Arabia, Qatar and Jordan in early 2007, it was the first visit of a Russian president to these countries.

The payback can be seen in the fact that Russian Railways is now involved in building part of Saudi Arabia's "land-bridge" project, that Russia is selling weapons systems to the Kingdom, and that a Lukoil subsidiary is operating in the eastern province. There is now also talk of a gas suppliers' equivalent of Opec - "Gaspec" - between Qatar, Russia and Iran.

And Russia is also active in Iraq's oil sector through the training Iraqi technicians. In a second trip to the region in September 2007, then-President Putin visited the UAE, where economic, cultural, and military deals were signed - including access to Russia's space launch facilities in Kazakhstan - and a foundation stone was laid for the Arabian Peninsula's first Russian Orthodox church in Sharjah.

Putin's visits were a masterstroke for Russia. His trip to the UAE accelerated Moscow's interest in bidding for - and winning - energy projects. For example, in July this year, Stroytransgaz won a $418 million contract to build a gas pipeline from Abu Dhabi to Fujairah. But the traffic is far from one-way. Currently, UAE investments in Russia total about US$3.5 billion (Dh12.85bn), mostly equity in state and private companies, but several businesses here are investigating further ventures in Russia. Dubai World, for instance, is looking at ports, logistics, and infrastructure investments, while Limitless, its real estate arm, is building more than 150,000 homes in Russia.

And anyone who takes a look at the plans for Russia's first winter Olympics at Sochi in 2014 will be forgiven for an uneasy feeling that they have seen them before: they have. The model for Sochi is actually based on Dubai. The rapid advance in the confidence and technical proficiency of businesses in the GCC region - combined with the support of the public sector - makes the region a highly attractive partner for Russia.

Russian businesses are eager to benefit from the still-booming development opportunities available in the Gulf - where infrastructure and industrial projects are estimated to be worth more than $2 trillion between now and 2015. Yet there have been occasional backward steps, too. A preliminary deal to have Dubai's sovereign wealth fund invest up to $5 billion in the Russian energy concern OGK-1 broke down last month due to poor market conditions. Russia, like nearly everywhere else, is suffering from the current economic downturn. Four banks have already been bailed out by the Kremlin. Foreign investment has dropped by roughly 90 per cent since the Georgia war in the summer. The Russian stock exchange has fallen 80 per cent since May. The multinational banks that were willing to tolerate state intervention and lack of corporate transparency when credit was loose and commodity prices were rising, have all but closed. All the major sectors that have been driving Russian growth - energy, metals and mining, finance, construction and retail - are starting to suffer. Russia's foreign currency reserves, the third largest in the world till recently, have plunged more than 20 per cent to less than $500 billion. The ruble has fallen 15 per cent against the dollar from its peak in July, pushing up the cost to Russian companies of servicing their dollar-denominated debts.

All of which adds impetus to Russia's desire to have a greater presence in the Gulf. The Kremlin wants to play a more pro-active role in the region, while the oligarchs and business leaders are more receptive to new models of development and are keen on establishing good relations with the outside world. For once, there is truth in that old saw: The Russians are coming.

Dr Theodore Karasik is Director, Research and Development, at the Institute for Near East & Gulf Military Analysis Mishaal al Gergawi returns next week