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UAE is 'country of focus' as US looks to target Russia's economic partners

US official says semiconductor devices that could be used in Ukraine's battlefield coming from UAE
Russian salespeople stand by a tent for Russian weapons manufacturers at the International Defence Exhibition and Conference in Abu Dhabi, on 20 February 2023 (AFP)

The UAE is a "country of focus" as the US looks to choke Russia's ties to the global economy, a senior US official said on Thursday, in some of the strongest comments yet that suggest Washington is ramping up pressure on its Gulf ally over ties to Moscow.

"We are specifically concerned about increases in trade with Russia in the kind of goods that can be used on the battlefield and those who are aiding designated Russian entities," Elizabeth Rosenberg, the assistant Treasury secretary for terrorist financing and financial crimes, said at an event on Thursday.

The comments come amid growing concern in the West that the UAE, along with countries like Turkey, is providing a critical economic lifeline to the Kremlin, which could help its war effort. Many of the missiles and drones deployed by Russia rely on western component parts.

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

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".

Dubai put itself on the map as an international business hub where "deals trump ideals" and has benefited from the tumult of the Ukraine war.

The city became the world's fourth most active luxury property market behind New York, Los Angeles, and London this year - thanks to a surge in interest from Russians who have become Dubai's biggest real estate buyers.

Besides welcoming Kremlin-linked oligarchs, Dubai is also benefiting from an influx of Russian tech workers, many of whom are looking to avoid the repercussions of Vladimir Putin’s war.

The UAE is also capitalising on western sanctions designed to cut Russia's access to its oil revenue. The UAE port of Fujairah has become a transshipment hub for Russian crude and petroleum products.

Last year, Russia’s state-owned energy giant Lukoil moved its trading operations to Dubai.

Washington's growing frustration

There is evidence that Washington is growing increasingly frustrated with the UAE's business model. Rosenberg said that countries will have to choose between western states that have rallied to Ukraine's side amid the invasion, and the rest of the world. 

"You can do business with the countries that constitute more than 50 percent of the world’s GDP, and its most convertible and stable currencies, or do business with those who facilitate Russia's war," she said. 

US sanctions carry heft because the US dollar dominates global trade. The Swift financial messaging system that facilitates money transfers also relies on banks in the US.

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Some analysts and sanctions experts are predicting that the war in Ukraine will accelerate a push by countries like the UAE to insulate themselves from the knock-on effects of western sanctions. 

Cinzia Bianco, a visiting fellow at the European Council on Foreign Relations, told MEE that the Ukraine war is already being seen by Gulf states like the UAE as "a testing ground" for the bigger showdown expected to come between China and the US.

"The war has given the Gulf states a chance to think about sanctions-proofing their systems," she said.

Last week, the US slapped sanctions on a Russian bank operating in the UAE. The move by the UAE Central Bank to grant it a licence was seen as a sign of Russia's growing clout. The Central Bank said MTS "contributed to supporting legitimate trade between the two countries and servicing the Russian community in the UAE”.

Washington's clampdown on the UAE's trade with Russia follows recent spats over Abu Dhabi's independent foreign policy streak.

Emirati companies have been sanctioned by Washington for helping Iran evade sanctions. The UAE has also moved closer, militarily, to China.

Abu Dhabi's talks with Washington to acquire the F-35 fighter jet broke down out of concerns Bejing would gain access to sensitive US technologies.

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