In Geopolitics Today - Friday, March 11th

The Wide-Ranging Repercussions of Russia Sanctions, China Set to Deepen Involvement in Russian Energy, UAE to Increase Oil Production

The Wide-Ranging Repercussions of Russia Sanctions

The drastic sanctions applied on Russia will severely hurt the country’s economy, with restrictions on Russia’s energy industry playing the most significant role in hurting economic activity in the country. But outside of Russia’s role in energy exports, sanctions are set to reverberate across a whole range of industries. Air travel, agriculture, semiconductors and computer chips are all markets which are susceptible to retaliatory action undertaken by Moscow.

Sanctions on Russia’s Aeroflot and a ban on Russian airlines operating in European air space have already seen Russia close off its skies, forcing European airlines to bypass Russia’s vast airspace. Similarly, Europe’s polymer market is likely to suffer shocks as Moscow has advised chemicals companies to suspend the export of methanol derivatives to Europe. In agriculture, Russia is suspending the export of fertilizers to Europe, a move that will disrupt the sowing season, likely to lead to European and American farmers lacking fertilizers. Semiconductor and computer chip industries are also set to suffer because Russia accounts for an estimated 80% of the entire market for sapphire substrates — a material used in microelectronics. Russia also holds a dominant position in chip-etching chemistry, accounting for almost the entire global supply of certain rare earth elements. In all these industries and countless others, Russian countermeasures will be most felt by those participating in the US-led sanctions regime.

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China Set to Deepen Involvement in Russian Energy

As European and US companies withdraw their operations from Russia, Chinese businesses may be eager to take advantage of the reduced value of many Russian enterprises. Support by the Chinese government in facilitating major investments in Russia could prove mutually beneficial for both Moscow and Beijing, with Russia’s massive energy industry a likely target for such arrangements.

The exodus of US and European companies from Russia is certain to leave a vacuum that China is able and likely willing to fill, with investments in oil, gas, and metals projects offering particularly lucrative opportunities for state-backed Chinese enterprises. While no concrete deals in these industries have been announced, a state-led effort to expand into Russia’s markets at a time when their value is plummeting presents mutual benefits for both China and Russia as China desperately needs raw materials and energy supplies to grow, while Russia possesses the raw materials and energy supplies. This would appear to both Moscow and Beijing as a win-win situation, offering opportunities to bolster their respective national interests, strengthening bilateral ties, and undermining the global dominance of the US dollar by increasing non-dollar transactions.

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UAE to Increase Oil Production

As the United States is seeking out alternative sources of oil and oil-related products to replace supplies linked to Russia, the United Arab Emirates has voiced support for increasing domestic oil production. Ambassador Yousef Al Otaiba announced the UAE’s desire for increased oil production following a call between officials in Washington and Dubai, with the UAE also indicating a willingness to table discussions for increased oil production when OPEC+ meets later this month.

The Biden administration has been actively pressuring its allies in the Gulf to increase oil production as a means of lowering the price of oil. However, Russia, Saudi Arabia and OPEC+ members have declined to increase production. But the UAE is also a member of OPEC, and appears to be changing its position by endorsing an increase in oil production. Otaiba emphasized that the UAE has an interest in maintaining “stability” in global energy markets, to which the UAE has long been a “reliable and responsible” supplier of energy. The price of crude oil dropped following Otaiba’s remarks, and US Secretary of State Antony Blinken immediately praised the statement made by the UAE Ambassador to the US. 

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