Israel and Russia have agreed to launch formal talks aimed at establishing a free trade zone between the two countries.

The decision was made at a meeting between Economy and Trade Minister Naftali Bennett and Russia’s Minister for Economic Development Alexey Ulyukaev on the sidelines of the World Trade Organization gathering in Bali, Indonesia on Thursday.

Economy Ministry officials believe Israel’s current level of trade with Russia, estimated at some $2 billion annually, nearly half of it in the diamond trade, leaves “huge untapped potential” for expansion.

The agreement is also viewed as a means for strengthening Israeli-Russian political ties, and is intended, in the words of a government official who spoke to The Times of Israel on Tuesday, as part of “the continued diversification of Israel’s economic ties around the world.”

“If there’s something we learned from the experience surrounding Horizon 2020,” the official said, “it’s that you can’t put all your eggs in one basket.”

Horizon 2020, the EU’s seven-year, $107 billion scientific research fund, was the subject of tense negotiations between the EU and Israel in recent months after new European guidelines forbade investment in institutions with operations or assets across the Green Line.

Economy and Trade Minister Naftali Bennett, November 6, 2013 (photo credit: Yonatan Sindel/Flash90)

Economy and Trade Minister Naftali Bennett, November 6, 2013 (photo credit: Yonatan Sindel/Flash90)

The crisis has fueled a sense among some Israeli leaders, especially on the right, that Israel must invest in expanding its network of economic and political ties eastward.

Bennett’s first overseas visit after joining the cabinet was to China; his second was to India. He opened an Israeli economic liaison office in Hong Kong, attended the WTO conference in Indonesia, and traveled to Australia for talks with government officials and business leaders.

The negotiations, which are expected to launch in the first quarter of 2014, will be led by the Economy Ministry’s Foreign Trade Administration.