Muslim countries maintain awkward neutrality over the Russo-Ukrainian War 

While Western countries have imposed sanctions on Russia, a Malaysian research institution calls for leniency and other Muslim countries have adopted an uneasy neutrality.

Selangor, Malaysia; Dhaka and Dubai: The Russian invasion of neighbour Ukraine has triggered a political divide on global response with Western nations imposing sanctions while many Muslim countries, governments and businesses adopting a strained neutrality towards the world superpower.

Malaysia is a case in point – its close relations with European, North American and Asian countries, including Japan and South Korea, means it is loathe to breach those trading partners’ sanctions on Russia. However, the south-east Asian country has not imposed its own sanctions.  

Azmi Hassan, Senior Fellow at the Nusantara Academy for Strategic Research (NASR) in Selangor, told Salaam Gateway that should Russian companies be subject to non-Malaysian sanctions, the Malaysian government and businesses have “considerable leeway” in deciding whether or not to impose similar restrictions.  

In March a Russian-registered vessel was declined entry into Malaysian ports with the country’s transport ministry confirming the action was in accordance with international sanctions. Azmi said in that case the country did impose sanctions “if other countries specifically sanction a company or in this case, a vessel”.

Last year Russia celebrated its 30-year tie with the Association of Southeast Asian Nations (ASEAN) nations and has adopted a revised 2021-25 ASEAN-Russia Trade and Investment Cooperation Roadmap. However, Russia’s economic and trade performance with ASEAN has been underwhelming with turnover between the partners peaking at $23 billion in 2014 and falling to $15 billion by 2020.  

Regional economists from the Singapore-based Overseas Chinese Banking Corporation (OCBC) Bank said Malaysia’s exports to Russia were merely 0.33% of the country’s total shipments in 2021, while its imports of Russian goods were under 1% during the same time-period. 

Azmi affirmed Russian’s overall trade with Malaysia was worth less than $1 billion – not enough to shift business sentiment towards resisting (or promoting) sanction compliance. 

“So far, we are not on either side, even though we supported the United Nations General Assembly resolution a few weeks ago (that condemned Russia’s invasion), but we are neutral, so I don't see any dampening of our trade with Russian counterparts,” said Azmi.  

The same applies to all Malaysian companies, whether run by its Muslim Malay majority or (largely) non-Muslim Chinese, Indian and other minorities with Azmi indicating there would be “some impact”, but it would be minimum rather than drastic.

Bangladesh’s position

Bangladesh has shown a similar reluctance to take sides. Despite the unprecedented sanctions against Russia by key Western business partners, Bangladesh is likely to continue doing business with the superpower.

One reason was the Russian support for Bangladesh during the 1971 Liberation War that delivered the country’s independence from Pakistan. Russia is also one of Bangladesh’s major trading partners and its biggest supplier of wheat, oil and fertiliser and the country helped develop Bangladesh’s first nuclear power plant at Rooppur, Pabna. 

Khondaker Golam Moazzem, industrial economist and research director of Centre for Policy Dialogue, added Bangladesh exports ready-made garment products, mainly knitwear, woven, leather, some agro-products and a few light engineering products, to Russia.

As with the rest of the world, Moazzem said the war has impacted Bangladesh in terms of inflation in oil and fertiliser prices as the country now imports these products from alternative sources like Brazil.

This will eventually translate into hiked electricity, gas and food prices with Moazzem stressing the government faced the potential of increasing oil and fertiliser subsidies as a cost-reduction measure given inflation was affecting consumers’ purchasing power. 

“One solution Bangladesh can explore is taking a short-term soft loan from international banks like the Islamic Development Bank or World Bank to (help fund) subsidies,” Moazzem said.  

As for garment exports to Russia, according to the financial newspaper Business Insider Bangladesh, the country exported goods worth $700 million to Russia in the fiscal year 2020-21 of which 90% was ready-made garments.  

The problem now was that international sanctions by the European Union, US, UK, Japan and Australia on Russian banks and major companies, including the exclusion of major state-linked banks from global financial payment network SWIFT, was impeding the receipt of payments for up to 300 Bangladeshi factories, said Mohiuddin Rubel, director of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).  

“The government is trying to find an alternative transaction system. They are holding dialogues with Russian counterparts, but when it will see the daylight is a matter of concern,” he added, indicating one solution being explored was for Bangladesh to use other banks not subject to SWIFT’s sanctions.

The country can also explore making transactions via a third country such as China or Iran.

Meanwhile, Russia has expressed interest in importing potatoes from Bangladesh to better secure its food supplies with Rubel saying this could be a potential future market.

However, Moazzem warned that Bangladesh should be careful about building new diplomatic and economic relationship with Russia and advised the government watch the trade policy of its neighbour India among others “to be on the safe side with both Russia and the Western world”. 

The GCC’s stance

With their multifaceted relations with Moscow and ties to the West, the six Gulf Cooperation Council (GCC) states, namely Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates (UAE), have taken a neutral position. The UAE, that the country’s state-news agency WAM credits with being the largest Arab investor in Russia and accounting for more than 80% of Arab investments in the superpower, has particularly high stakes in the crisis and has refrained from sanctions.  

More than 4,000 Russian companies operate in the UAE and several dozens of Emirati companies are registered in Moscow, including Abu Dhabi’s sovereign investor Mubadala, with more than $3 billion in Russian investments.  

The UAE is also Russia’s second-largest Arab trading partner. In 2021 foreign trade between the two countries reached $4 billion, up from $3.3 billion the previous year, states WAM.  

“Many of the Gulf-based sovereign wealth funds have significant exposure to investments in Russia, often in partnership with the Russian Direct Investment Fund and have already suffered significant drops in their value,” said Kristian Ulrichsen, a non-resident senior fellow at the Arab Centre Washington.  

The Russian Direct Investment Fund has been heavily sanctioned by the West.

Russia’s flagship carrier Aeroflot has halted international flights, including to the GCC region, while Dubai’s government-owned low-cost airline flydubai has suspended certain flights to Russia. However, the UAE’s Emirates, AirArabia and Etihad Airways, the UAE’s second flag carrier, continue to operate Russia flights.  

“Travel restrictions and downward pressure on the Russian currency, along with individual sanctions and sanctions on Russian banks and firms, could impact on the (GCC) region’s property and hospitality sector. Conversely, the conflict could encourage some financial transfers and efforts to conceal assets in the Gulf,” said Karen Young, senior fellow and director of Program on Economics and Energy at the Middle East Institute.  

The influx of capital to Dubai through Russians looking for safe financial havens has created lucrative opportunities for the real estate sector. Tabani Real Estate, one of the oldest brokerage firms in Dubai, participated in last year’s Moscow Overseas Property & Investment Show and said it was “overwhelmed” by the response received regarding its properties.  

Emirati business executive Hussain Sajwani, founder of Dubai property developer DAMAC, similarly told CNBC the UAE stood to benefit as Russians seek to protect sanctions-threatened fortunes.  

By contrast, the tourism sector is expected to take a blow as the UAE heavily depends on Russian tourists. In 2021 Russia was the second-largest source market for tourists in Dubai, with nearly 440,000 people visiting the city – a 50% hike on the 2020 figures, according to government statistics.  

“Dubai can discount tourism from Russia for the time being. With the collapse of the Russian ruble, along with the likely increase in travel costs due to oil supply generated inflation, it will be very expensive for Russians to travel and invest overseas,” said Mohanad Alwadiya, CEO at Harbor Real Estate.  

Equally, the invasion has raised GCC food security concerns, said Li-Chen Sim, assistant professor at Khalifa University in Abu Dhabi. 

Among the GCC, the UAE, Oman and Qatar have significant dependence on wheat imports from Russia and Ukraine. Between 2015 and 2019, Russia and Ukraine increased their market share from one-third to almost half of all wheat imported by the UAE, said Sim.  

She said while ample grain storage facilities mean there is no short-term danger of supply shortages in the UAE, in Saudi Arabia – which only opened its market to Russian wheat in 2020 – the disruptive effects on supply reliability may cause it to re-evaluate increasing wheat imports from Russia to offset declining local production.

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