In 1997, an obscure Russian bureaucrat wrote a dull-titled dissertation. “The Strategic Planning of Regional Resources Under the Formation of Market Relations” advocated that the state exert national power through control of its natural resources. Unremarkable enough, had not this man vaulted in 2000 to the presidency.
Vladimir Putin has put his ideas into practice ever since. He has used Russia's oil and gas wealth to tame the oligarchs, rebuild the crumbling post-Soviet state, and then to assert national power in Russia's "near abroad" and into Europe. The Ukraine crisis is the latest and most dramatic manifestation.
Mr Putin has been lucky not to face any competitor able or willing to use energy strategically. Quite the contrary – his rivals have more usually played to Russia’s strengths.
Opec's successful production restraint – which, along with the Chinese economic boom, is the major factor in the high oil prices of the 21st century – gave Mr Putin the financial windfall that Mikhail Gorbachev or Boris Yeltsin never enjoyed. Relatively high production costs mean that, although Russia produces more oil than Saudi Arabia, it does not have Riyadh's ability to swing production to influence prices.
For Russia, oil is money, while gas is strategic. Other than across the flat Eastern European plains, the main alternative routes for gas into Europe are gates firmly barred by nature or politics.
According to BP, Russia has the world’s second-largest gas reserves. In first place? Iran, which of all countries is best-placed to challenge Russian dominance in the European gas market. But, apart from modest sales to Turkey, Iran has not emerged as a serious exporter. In the late 1990s, it was bogged down by endless domestic debates about how best to use its gas. The Ahmadinejad administration preferred the “spaghetti strategy” of drawing pipelines in all directions on a map, and not building them.
More recently, US-inspired sanctions have prevented any more progress on Iranian gas exports. At the same time, they have kept oil prices from sagging. Those US politicians now finding themselves to be Cold War warriors reborn were often those most hawkish on Iran. They might reflect on how their monomaniacal fixation on a lesser geopolitical adversary has benefited Mr Putin.
Iraq’s oil production is expanding rapidly, and – with US shale – is the largest threat to Russia’s petroleum-fuelled economy. But the continuing dispute with the autonomous Kurdish region prevents gas exports to Turkey and on to Europe.
Meanwhile, though Qatar’s gas is a key diversification for Europe, its latest argument with the UAE and Saudi Arabia is unpromising for a united GCC energy strategy.
In the east Mediterranean, the US’s supposed ally Israel prefers to keep most of its gas at home. Lebanon, a daydreamer with a lottery ticket imagining a Maserati, speculates about possible gas wealth rather than drilling for it. In any case, pipelines from the Levant face the obstacles of war-torn Syria or the divided island of Cyprus.
North African countries have removed themselves from contention through political upheaval and short-sighted domestic politics. Egypt has virtually ceased to export gas, selling it at home at subsidised prices to stave off discontent. For Algeria, although still Europe’s key supplier after Russia, exports have shrunk as it turns an unfriendly face to foreign investment.
Russia went along with Nato action in Libya reluctantly, but it has benefited from the support that the subsequent disruptions have lent to oil prices, as well as interruptions to the country’s gas pipeline to Italy.
With the past decade’s energy system facing upheaval for a host of reasons, economically vulnerable Russia has taken a big gamble in Ukraine. It now looks unreliable, not only to Europe but perhaps to booming Asian economies, too. The next few years will show whether a strategic player from the Middle East or North Africa can take advantage.
Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis
Follow us on Twitter @Ind_Insights
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.”
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Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
The specs
Price, base / as tested Dh1,470,000 (est)
Engine 6.9-litre twin-turbo W12
Gearbox eight-speed automatic
Power 626bhp @ 6,000rpm
Torque: 900Nm @ 1,350rpm
Fuel economy, combined 14.0L / 100km
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh132,000 (Countryman)
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
The specs
Engine: 1.5-litre 4-cylinder petrol
Power: 154bhp
Torque: 250Nm
Transmission: 7-speed automatic with 8-speed sports option
Price: From Dh79,600
On sale: Now
UAE v Ireland
1st ODI, UAE win by 6 wickets
2nd ODI, January 12
3rd ODI, January 14
4th ODI, January 16
