April 7, 2022
The Nobel prize doesn’t protect
Looking for the Victory Day
Sanctions without effect
Yes, we can, as well!
Demand and supply
Indistinct decision
The UK bureaucracy is bureaucracy
Rogozin knows the secret
The car market in tatters
Here is your prize!
The editor-in-chief of Novaya Gazeta, Nobel Laureate Dmitry Muratov, was attacked on the Moscow-Samara train. His attacker doused him with oil paint and acetone. “He shouted: ‘Muratov, take this! For our lads!”,’” said the journalist, who suffered an eye injury.
Novaya Gazeta tried to continue informing Russians about what was happening in Ukraine while complying with censorship requirements but was forced to stop publishing the paper “on the website, in networks, and on paper” until a “special operation in Ukraine” ended after receiving a second warning from the Russian censor.
Such attacks on political and public figures who do not share Vladimir Putin’s policies occur regularly in Russia.1 But even in those cases where it was possible to identify the attackers, law enforcement agencies took no action.
Six months ago, after the Nobel Committee announced that Dmitry Muratov had been awarded the prize, Vladimir Putin was asked whether Muratov could be recognized as a foreign agent.
“If he does not violate Russian law and gives no reason to be declared a foreign agent, then it will not happen. And if he will hide behind the Nobel Prize as a shield to do things that violate Russian law, he will do it deliberately to draw attention to himself or for some other reasons,” Putin said.
In the past six months, the Kremlin has found no reason to recognize Muratov as a foreign agent. But Putin didn’t promise that Muratov wouldn’t be attacked, did he?
Decisive weeks
The past week clarifies that the decision to change the Kremlin’s military plan—to abandon the capture of Kyiv and concentrate efforts in eastern Ukraine—was made personally by Vladimir Putin. This was stated by his press secretary Dmitry Peskov.
“President Putin has ordered the withdrawal of troops from the region.”
The goals set for the Russian military are pretty straightforward: 1) To gain control over the entire territory of the Luhansk and Donetsk regions, and 2) To expand the corridor connecting the separatist entities (LNR/DNR) and Russia’s annexed Crimea. Achieving the first of these will allow the Kremlin to claim that it is “fulfilling its international duty2” to help the LNR/DNR authorities gain control over the territory they proclaimed as their own in 2014. Achieving the second would give the Kremlin a choice. On the one hand, it would be possible to continue the offensive against Mykolaiv-Odesa, if the Russian army maintains its combat effectiveness. On the other hand, it would be possible to offer Kyiv a ceasefire to negotiate, transforming into a frozen conflict. In both scenarios, Russia would retain control over access to the North Crimean Canal, guaranteeing Crimea’s water supply.
Most Russian experts agree that the next frontier for the Kremlin will be the first days of May (May 9—Victory Day), so the course of military action in the next three to four weeks will largely determine Russia’s subsequent actions.
Sanctions without effect
On Wednesday, April 6, the U.S. and Britain announced new sanctions against Russia. This decision should demonstrate continued pressure on Vladimir Putin and the Russian economy, on the one hand. On the other hand, I do not believe that the imposition of these sanctions will significantly impact the Kremlin’s assessment of the situation. Here are my arguments:
First, once again, the actions of the U.S. and Britain were not supported by the European Union, which had been eliminated from announcing new sanctions in the previous two weeks. This time, European politicians have said they have failed to agree on sanctions measures, and the discussion will continue. The set of actions on the table in Brussels affects different countries’ economic and political interests in different ways. Consequently, the search for compromises becomes more and more difficult each time.
Second, in my view, the U.S. economic sanctions have mainly been declarative. The ban on new investments in Russia is unlikely to stop anyone because there are simply no such investors today. The introduction of blocking sanctions against Sberbank followed six weeks after the announcement of the freezing of its correspondent accounts in American banks (that went into effect four weeks after the announcement), which allowed the bank to withdraw all its assets from American financial institutions. The imposition of blocking sanctions against Alfa-Bank, Russia’s largest private bank, would probably limit the Russian economy in some way. But outside of sanctions pressure, state-controlled Gazprombank is one-and-a-half times larger than Alfa-Bank, in terms of capital. Moreover, this bank plays a crucial role in controlling financial flows related to gas exports. It is also an essential element in financing the Kremlin’s propaganda machine and is used to personally enrich Vladimir Putin’s closest friends, the Kovalchuk brothers.
Third, the announced personal sanctions have again bypassed those who run the Kremlin propaganda machine. Neither Konstantin Ernst, Oleg Dobrodeyev, nor Margarita Simonyan is a journalist. They are the heads of state-controlled companies and were appointed to their posts by presidential decree (Dobrodeyev), by order of the director of a state company who was appointed to the position by the President (Simonyan), or by decision of the Board of Directors, the majority of which belong to officials.
It’s hard for us. But yes, we can!
Russian Prime Minister Mikhail Mishustin delivered the traditional annual government report to the State Duma. Undoubtedly, the main thesis of his speech was the words “Russia will overcome all troubles.” Still, between the lines, one could hear the admission that the situation in the economy is deteriorating rapidly. The government has no idea what it will look like in a few months.
...a genuine economic war has been waged against the country... Such sanctions were not used even in the darkest years of the Cold War. Their goal is to set us back years or even decades... ‘Former partners’ and now unfriendly states were counting on destroying the Russian economy in a few days, but ‘their scenario did not come true... But they [sanctions] have already failed—the Russian economy has survived.
The attempt to isolate and pull Moscow out of the world economy will also fail: Our country is integrated into global processes. We have allies and partners with whom we continue to work... The current situation, without exaggeration, can be called the most difficult in three decades of Russian history, and it is difficult but working... A historically unique ‘window of opportunity’ has emerged... And we are obliged to use it.
It will not be easy... The economy needs time to rebuild. It’s impossible not to have at least six months to rebuild with this hit.”
Prime Minister knows about supply and demand
Speaking of the government’s plans, Mishustin kept drawing analogies to the spring 2020 pandemic crisis. This desire is understandable: On the one hand, the Kremlin believes the government worked efficiently at the time and kept the economy stable; on the other hand, Mishustin became Prime Minister in January 2020 and wants to take credit for winning the crisis. The government’s decisions listed by the Prime Minister are mainly related to the different ways of financial support for sectors and companies. Although the Prime Minister has said that the government will support “those who are vulnerable,” he has not outlined any specific plans. This suggests that, on the one hand, the government does not yet understand who and how much will be affected by the economic crisis; on the other hand, we can say that the authorities are not yet experiencing any pressure from the population, which is ready to exchange a drop in living standards for an injection of propaganda doping.
Mishustin did not deny the strong influence of sanctions on the economic situation in Russia. However, he said that the panic that arose in the consumer market resulted from the activities of “crooks”.
And immediately, those who decided to capitalize on this situation—on people’s fears. Swindlers—we should directly call those who tried to cash in on panic moods. And they created an artificial shortage by keeping products in stock and throwing them on sale for a completely different price and through various channels.
The Prime Minister believes that the zealous demand in stores is gradually beginning to wane, but the price increase remains, and the markets still need to find a balance of supply and demand. He implicitly admitted that administrative control of prices leads to shortages of goods and empty shelves and said a phrase to which I am ready to subscribe:
It’s equally important for us to keep prices down and shelves empty, and the main thing now is to maximize supply. The more merchandise there is, the less pressure on prices.
That’s right. Only how we can expand the supply of goods at a time when Western companies are withdrawing from the Russian market, and the Central Bank is limiting the purchase of foreign currency by importers—the Prime Minister did not say. But he threatened that the government is ready to switch at some point to the establishment of controlled prices.
So far, the agencies are making recommendations to form a transparent price on the domestic market throughout the chain—from raw materials to producers, but there are other tools. We hope it doesn’t come to that, but I want to be heard.”
At what point and under what conditions such a decision could be made, the Prime Minister also did not explain.
Indistinct decision
The Russian Ministry of Finance (Minfin) and the U.S. Treasury decided to play hardball on the Russian foreign debt service issue. After the Russian Minfin tried to redeem its bonds, which were set to expire on April 4, using assets held in U.S. bank accounts, the U.S. Treasury first prohibited the bank from making this payment. Two days later, it issued a regulation prohibiting such operations in the future. The Minfin then announced it had transferred funds to the Russian depository to fulfill its obligations in rubles to be credited to investors’ special accounts. Investors from “unfriendly countries” would only be able to use rubles to pay taxes in Russia or buy ruble bonds from the Ministry of Finance. We will know in four weeks if the investors decide to default on Russia or if they prefer to compromise with Moscow.
I understand the desire of the U.S. Treasury to make Russia pay for its debt out of current revenues, but I am not sure such an approach would cause even minimal damage to the Russian economy. If the default is declared and investors can initiate legal proceedings on the issue, at best, they can get the money owed to them by seizing assets of Minfin in U.S. and European banks. But this is precisely what Minfin proposes to do today. It will take time and money to pay lawyers to get a favorable court decision.
At the same time, the announcement of default will not lead to any changes in relations between Russia and foreign investors—today, most transactions with Russian debts fall under sanctions restrictions, and when (and if) it comes to lifting sanctions against Russia, the problem of default, in my opinion, will be the smallest of all issues.
In short, this decision by the U.S. Treasury will deal a blow. But the blow will hit investors from different countries. Russian holders of Treasury bonds have already received their money. In rubles, but they got it.
Bureaucracy is an insurmountable barrier
Russian Railways (RZhD) Eurobonds totaling $604.6 million were not redeemed on time (April 5, 2022). The Irish SPV company RZD Capital, which issued the bonds under the guarantee of Russian Railways, could not obtain funds to pay the holders of these Eurobonds. RZD reported that the company had applied to the UK Financial Sanctions Enforcement Authority (OFSI) for a license to service its debt obligations but received no response.
You need to work better
Roscosmos CEO Dmitry Rogozin said Thursday, April 7, that his team needs to work better.
It has been almost a month and a half since the start of the Special Military Operation. We have repeatedly said how important it is for our country, our nation, and how much we must work with completely different quality and zeal under the new conditions, under Western sanctions and restrictions, blocking actions against our industry. I want to tell my fellow directors: Your main task is to clearly fulfill the state defense order, not to refer to difficulties, but to take the initiative.
According to Rogozin, not all CEOs of Roscosmos companies understand the changes in the country and the world; not all have readjusted to work in the new conditions.
The first group are those who clearly understand what is required of them in the new conditions. They are reorganizing themselves; they work ahead of the curve, including offering solutions that save us from unnecessary bureaucracy and approvals. They analyze the situation at their enterprises and see the prospects for their development. The second group works old-fashioned, pretending that nothing has happened. This is unacceptable.
There is also a third group of CEOs, who allow the timetable for import substitution to be disrupted. It is a knife in the back of our rocket and space industry. We will part ways with you if you do not conclude your so-called ‘leadership,’ despite your past merits.