The United Arab Emirates (UAE) has emerged as a crucial trade hub for Russian gold, providing an alternative route for exports after Western sanctions over the Ukraine conflict disrupted traditional channels. Russian customs records reveal a significant increase in gold shipments to the Gulf state since the war began. This article explores the growing prominence of the UAE as a major destination for Russian gold, examines the impact of sanctions on conventional export routes, and discusses the potential risks associated with this shift.
Russian Gold Finds New Trade Routes Amidst Sanctions
The customs records disclose a substantial surge in gold imports by the UAE, totaling 75.7 tonnes valued at $4.3 billion since the onset of the Ukraine conflict. This represents a significant increase compared to the mere 1.3 tonnes imported in 2021. Notably, China and Turkey also emerged as significant destinations, each importing around 20 tonnes during the period between February 24, 2022, and March 3, 2023. Combined, these three countries accounted for 99.8% of Russian gold exports during this timeframe, as indicated by the customs data.
Shift from London as a Gold Trading Hub
The conflict prompted multinational banks, logistics providers, and precious metal refiners to cease handling Russian gold, particularly in London, a renowned trading and storage hub. The London Bullion Market Association banned the trade of Russian gold bars from March 7, 2022, and subsequent sanctions by several countries, including the UK, EU, Switzerland, the US, Canada, and Japan, led to a complete prohibition on Russian bullion imports. However, the export records demonstrate that Russian gold producers swiftly identified new markets in countries unaffected by the sanctions, such as the UAE, Turkey, and China.
Risk of Sanction Evasion
Louis Marechal, a gold sourcing expert at the Organisation for Economic Co-operation and Development, warns of the potential for Russian gold to be melted down, recast, and reintroduced into US and European markets under a different origin. This highlights the importance of due diligence for end buyers to ensure compliance with sanctions regimes. It is crucial to trace the origin and legitimacy of gold to prevent illicit activities and avoid inadvertently supporting sanctioned entities.
UAE’s Stance on Compliance and Transparency
The UAE government’s Gold Bullion Committee emphasizes its commitment to combatting illicit goods, money laundering, and transactions involving sanctioned entities. It asserts that the state conducts trade openly and transparently, adhering to international norms set by the United Nations. The UAE aims to maintain integrity in its gold industry and foster cooperation with its international partners while complying with relevant regulations.
Sanctions’ Impact on G7 Market Access
As part of efforts to isolate Russia, the United States has warned countries like the UAE and Turkey that they may lose access to G7 markets if they engage in business with entities subject to US sanctions. However, the data examined by Reuters does not suggest any violations of US sanctions by these countries. The US Treasury, responsible for enforcing sanctions through the Office of Foreign Assets Control, has not responded to requests for comment on this matter.
Gold Exports to UAE and Beyond
The customs data, provided by a commercial provider, indicates exports of 116.3 tonnes of gold between February 24, 2022, and March 3, 2023. Notably, consultancy firm Metals Focus estimates that Russia produced 325 tonnes of gold in 2022, suggesting that the recorded exports represent only a portion of Russia’s total gold shipments. The destinations for most Russian gold shipments to China were in Hong Kong, while Turkey’s finance ministry did not provide any comment on the matter. Neither the Russian government, customs authority, nor the central bank responded to requests for comments regarding gold exports.
Impact on London’s Gold Market
The shift away from London as a major destination for Russian gold exports is not considered a significant blow to the hub. In 2021, gold from Russia accounted for 29% of London’s imports, whereas in 2018, it constituted just 2% based on British trade data. London’s gold market remains resilient despite the reduced reliance on Russian gold.
UAE’s Thriving Gold Industry
The UAE boasts a thriving gold industry, evident from trade data that shows an average annual import of approximately 750 tonnes of pure gold between 2016 and 2021. The recorded shipments of Russian gold to the UAE account for only around 10% of its total imports. Furthermore, the UAE is a prominent exporter of bullion and jewelry, solidifying its position as a major player in the global gold trade.
Attractive Discounts and Business Incentives
According to a manager from a company involved in shipping significant volumes of Russian gold to the UAE, Russian firms have been selling bullion at a discount of approximately 1% compared to global benchmark prices. This discount acts as an incentive for traders to engage in gold transactions. The majority of gold shipped to the UAE is intended for refineries, where it is melted down and recast for further processing.
Key Players in Russian Gold Shipments
The customs records primarily identify the shippers or traders involved in the transactions, rather than the end buyers, who may include refiners, jewelers, or investors. Notably, Temis Luxury Middle East, a Dubai subsidiary of French logistics firm Temis Luxury, emerged as the largest handler of Russian gold exported to the UAE. Another significant handler was Transguard, a logistics firm under the Emirates Group, which facilitated the shipment of substantial gold quantities. Vpower Finance Security Hong Kong Ltd, a Chinese logistics company, played a pivotal role in handling Russian gold shipments to Hong Kong.
The United Arab Emirates has effectively positioned itself as a key trade hub for Russian gold, capitalizing on alternative routes after Western sanctions disrupted traditional export channels. While concerns about potential sanction evasion exist, the UAE government emphasizes its commitment to compliance, transparency, and cooperation with international norms. As the landscape of the gold trade continues to evolve, the UAE’s thriving gold industry and strategic location make it an attractive destination for gold exporters worldwide.