Better relations between US and Russia may leave Erdogan with 'limited room for manoeuvre'


Thomas Harding
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Détente between Russia and the US would curb Turkey’s overseas adventures, leaving its president with “limited room for manoeuvre”, leading analysts say.

If President Joe Biden’s meeting with Russian President Vladimir Putin on Wednesday goes well it could also have significant implications for countries across the Middle East.

A new understanding between the US and Russia, where Moscow pays the penalty for crossing red lines, could also help resolve the Syria conflict and stabilise Libya.

But in particular, it could put a halt to President Recep Tayyip Erdogan’s adventurism that has inflamed tensions around the Eastern Mediterranean.

“The really critical issue will be relations with Ankara because both America and Russia have this peculiar relationship with Turkey,” said leading defence analyst Prof Michael Clarke. “I think Biden will say to Putin, ‘don't let Erdogan just play us off against each other’ and hopefully Putin will understand. This will then make things difficult for Erdogan because he knows that previously he's bounced between the two countries but now his room for manoeuvre is narrowing.”

Senior Conservative Party politician Tobias Ellwood agreed that an “entente cordiale” between the powers could help resolve some of the Middle East’s issues. “If Russia and America are better aligned then there's a whole world of engagement and productivity that could come from that,” said the chairman of the Commons defence committee. “Because if you leave vacuums and you don’t set red lines or don't bother to enforce then Russia will exploit that weakness.”

The people of Syria would have the greatest to gain from a reset with Russia, with Moscow potentially more agreeable to a permanent settlement.

“Biden’s initiation of the summit is a nod to Russia’s ego, which can pave the way for future US-Russian engagement on Syria beyond the ministerial-level talks that have been taking place behind closed doors,” said Dr Lina Khantib of the London-based Chatham House think tank. “Only Washington can steer the Syrian conflict towards resolution – if it steps up bilateral talks with Moscow.”

Despite being on opposite sides in Syria, she said that both countries could compromise, with the US pursuing “a carrot-and-stick approach capitalizing on Russia’s weaknesses”, as well as “Russian wants”.

President Biden’s decision to initiate the summit itself is arguably a demonstration of his statesmanship. Despite Russia’s interference in the last two US general elections, the egregious Ransomware and Solar Winds cyber attacks, alongside the seizure of Crimea and eastern Ukraine, Mr Biden understands communication is the only way ahead. Or, as Prof Clarke puts it, “a summit is better than the alternative”.

In the eyes of the Russian people the meeting elevates their president to an equal of the US and provides a significant boost for Mr Putin’s flagging popularity. It is possibly also the reason he withdrew 100,000 Russian troops massed on Ukraine’s border in April after Mr Biden proffered the "carrot" of a summit.

“Putin’s now being treated as the superpower which he believes he still is and Russia is taken seriously after a decade,” said Mr Ellwood, a former foreign minister. “This is also better for the West as previously we were inadvertently pushing him into the arms of China and most Russians are keener to align themselves with Western democracies than the Far East.”

Russia became emboldened during Donald Trump’s presidency, particularly as Mr Putin was virtually the only world leader he did not criticise.

“President Trump responded to Russian provocations essentially with a posture of supplication and a reluctance to impose meaningful costs for Russia,” said Benjamin Rhode, of the IISS think-tank.

Mr Biden is also making a smart move in suggesting the meeting by resurrecting the “containment” idea of the Cold War, said Prof Clarke of the Rusi think tank. Behind the closed doors of the 18th Century villa overlooking Lake Geneva he will also listen to Mr Putin’s denials on Russian transgressions, but both will know the truth.

It will be at this point that he then lays down “what the rules of the road are going to be for the next eight years,” said Prof Clarke. “In a sense, Biden is trying to get Putin into an agreement as to what is acceptable for the West, because that's what he never got from Trump.”

If President Biden does effectively communicate US dissatisfaction with Moscow, “the real question is will this produce an improvement in Russian behaviour?” said Mr Rhode.

The answer to that could provide a defining foreign policy legacy for Mr Biden’s presidency. It is too early to equate it to President Nixon’s breakthrough China policy in 1972, but if it works, several conflicts - particularly in the Middle East - will benefit.

Mr Biden is certainly surrounded by expert and experienced advisors who understand what they have to achieve. Dealing with Russia could be the first step in a bigger plan.

“It’s a big question as to where this goes next,” said Tobias Ellwood. “Is it simply limited in trying to contain Russia's aggression or is it one they can finesse into something clever?”

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”