March 21, 2022

1. War

2. Oil

3. Mark is the new enemy

4. Instead of money

5. No one knows what’s best

6. The market opens but under control

7. Statement by the Ministry of Foreign Affairs of Russia 

War

President Vladimir Zelensky said that Ukraine is ready to negotiate but not ready to capitulate. At the same time, the critical issues of the agreements with Russia [in my opinion, we are talking about the Kremlin’s territorial claims and the recognition of the Russian annexation of Crimea] will be put to an all-Ukrainian referendum. He seems well aware that, as a politician, he is willing to pay the price demanded by Moscow for peace, but he is not sure that Ukrainian society will be ready to accept it.

The right word is ‘negotiate.’ Negotiate because we have to. But to negotiate, not to fulfill an ultimatum. This is an important point. You can find compromise in dialogue.

We have an ultimatum, here are the points—fulfill them, and then we will end the war—this is wrong; it will lead to nothing, to no result whatsoever. The issue is not me; the problem again is that the people and the authorities are united.

The ultimatum will not be able to fulfill Ukraine, that’s all. We just can’t do it physically. We’ve lost people... We have to destroy us all; then their ultimatum will be automatically fulfilled, such as ‘give us Kharkiv, give us Mariupol. Give us Kyiv.’ Neither the people of Kharkiv, nor the people of Mariupol, nor the people of Kyiv, nor the President—we won’t be able to do that.

We even see this in the occupied cities—in Melitopol, in Berdyansk. They [the occupiers] raise the flag—people take it down. They killed a man—yes, people hide. But in the night they came, they took down the flag.

What do you want? Destroy us all? I answered that we can only fulfill the ultimatum when we’re gone.

Oil

Russian Deputy Prime Minister Alexander Novak believes that the refusal of the U.S. and Britain to buy Russian energy resources did not affect Russia much because of the small volume of such supplies. According to him, Russia used to ship 3% of its total exports of oil and 7% of exports of oil products to these countries. He confirmed that Russian companies are faced with disruptions in supply chains of energy resources from Russia, insurance, and financing of ships. He estimated that these problems are not critical and do not block the sale of Russian energy resources. 

The Russian Ministry of Energy estimated that from March 1 to 14, the oil production in Russia increased by 0.54% per day.

As well, Alexander Novak said that Russia and Kazakhstan agreed to create a working group to increase oil transit to China through Kazakhstan.

In early February, Rosneft and China’s CNPC signed an agreement to supply 100 million tons of oil through Kazakhstan for 10 years (until December 31, 2033) for refineries in Northwest China. This contract continues the previous one signed in 2014, which expires at the end of this year. 

The capacity of the existing oil pipeline in the direction of China through Kazakhstan is 10 million tons; according to experts, it can be increased by 30%-70%. This would require expanding the pipeline between Russia and Kazakhstan, Tuymazy-Omsk-Novosibirsk.

On March 19, four major international oil service companies announced their plans to withdraw from Russia.

Halliburton made the harshest announcement of the USA, which announced its immediate cessation of activities in Russia. Halliburton stopped supplying parts and products to Russia a few weeks ago.

Schlumberger, Baker Hughes, and Weatherford made less explicit statements that the companies “have decided to suspend new investments and technologies for operations in Russia,” but that the companies intend to “continue to honor existing contractual obligations under applicable international laws and sanctions.”

KCA Deutag, an international oilfield services group, joined the decision Monday by announcing the suspension of new investments in Russia and analyzing options for its Russian subsidiaries in Tyumen and Sakhalin.  

The withdrawal of foreign service companies from the Russian oil industry will certainly not stop its work, but it will slow down its development. Foreign companies account for about 20% of the total workload of oil service companies, but they are the suppliers of the most high-tech solutions. Thus, they account for more than 60% of the supply of software and more than 50% of work on intensifying methods to increase oil production. If the announced boycott of Russia for 4-5 years continues, it may result in the decrease of oil production by 15%-20%, which will result in a 20%-25% decrease in oil and oil products exports, while the volume of domestic oil consumption in Russia will remain the same. Such a decline will jeopardize the fulfillment of oil supply contracts, including exports to China.

Mark is the new enemy

The Tverskoi Court of Moscow, at the suit of the Prosecutor General’s Office, recognized the internet company, Meta, as an extremist organization and blocked the social networks Facebook and Instagram in the territory of Russia. The Prosecutor General’s Office went to court because the company refused to remove calls for violence against Russian militaries in Ukraine from its services.

“The activities of the American transnational holding company Meta Platforms Inc. in the sale of products—social networks Facebook and Instagram—on the territory of the Russian Federation on the grounds of the implementation of extremist activities are banned. This decision does not apply to Meta’s messenger WhatsApp activities due to the lack of functions for public dissemination of information.”

The hearing of the lawsuit was swift: Meta was not given time to study the case materials, and the court refused to conduct linguistic expertise. However, it would be strange if the process went the other way: A few days ago, Kremlin spokesman Dmitry Peskov already predicted the court’s decision. When asked if Meta’s services, including the blocked Instagram, could return to Russia, he said:  “The company played a little bit with the rules in this case, with manipulation, and, of course, this makes it impossible for such companies to operate in the country.”

However, no one knows yet how the court ruling will be enforced. This is how the discussion between the judge and the prosecutor took place at the hearing:

Judge: You tell me, ordinary person, will we wake up tomorrow and there will be no Facebook in the country?

Prosecutor: No. The prosecution says ordinary users won’t be held liable if they use Meta products. But the company won’t be able to open a representative office and do business.

Judge: [People] will be able to use [Meta’s social networks] or not after the court decision? I don’t understand.

Prosecutor: They will be able to use these products, but we understand that now they are blocked in Russia.

Judge: But, in fact, they will be able to use even with good intentions?

Prosecutor: Well, there are technical ways [VPNs].

At the request of the Prosecutor General’s Office, the Russian media censor, Roskomnadzor (RCN), restricted access in Russia to euronews.com and its Russian version on March 21.
According to the RCN, “The foreign media outlet systematically posted inaccurate publicly significant information about a special military operation conducted by the Russian Armed Forces, as well as information with appeals to citizens to participate in mass (public) events held in violation of the established order on Russian territory.”

Instead of money

Minsk and Moscow agreed to postpone repayment of Belarus’ state loan obligations to Russia for five to six years, according to Belarusian Finance Minister Yury Seliverstov.

Formally, the foreign debt of Belarus is not very large, less than 26% of GDP. However, sanctions imposed on Belarus by Western countries have limited opportunities for new foreign borrowing. The only source of major loans is Russia, which accounted for more than 80% of the loans attracted by Belarus in 2021 (international organizations provided the rest as part of earlier agreements). However, the total amount of new loans attracted during the past year was 20% less than the repayment of earlier loans. Even in relations with Russia for the first three quarters of 2021 (no later data are available), the amount of repayments were higher than the amount of borrowings.

Over the next four years, Belarus will have to pay back 45% of its foreign debt ($8 bln out of $18 bln), and more than 60% of this is owed to Russia and the Russian-controlled Eurasian Stabilization Fund. 

Thus, the decision to postpone the debt repayment is an accounting operation that spares the two countries from having to negotiate new Russian loans just to pay off the old ones. Putin is not giving Alexander Lukashenko any new money yet.

No one knows what’s best

Russian authorities update the regulation of currency operations almost daily, affecting both capital and current transactions. Presidential decrees introducing new rules appear every week, and they often contain norms that directly contradict the law or allow for ambiguous interpretation. For example, on March 18, the President introduced a ban on residents paying for shares in the capital of foreign companies, which should prohibit the purchase of shares, including those bought on stock exchanges. The same day, the Bank of Russia reported in its Telegram channel (which is not the source of official documents) that this norm of the presidential decree “does not concern instruments traded on stock exchanges.”

Among the most important innovations of the past week, we should note the instruction to create a mechanism to regulate the conditions of foreign trade, which the President issued to the government and the Bank of Russia simultaneously, without delimiting their powers. As a result, the Bank of Russia and the government commission, which does not yet exist, will establish the amounts of allowable advance payments and/or prepayments for all import contracts. At present, Russian importers are practically unable to obtain trade credits for their supplies and are unable to make prepayments for imports. This is largely due to the domestic market’s low demand for foreign currency. This factor will cause a sharp decrease in Russian imports in the coming months, a reduction of imported goods in the retail trade, and disruptions in the supply of components for Russian companies not affected by sanctions.

Prepayment for imports was actively used by Russian companies as a channel for capital outflow in the early 1990s, despite the rigorous currency control system that existed. But even at that time, the Bank of Russia did not aim to consider each import contract individually. In the current situation, the bank and the government commission will either have to put a dam in the way of imports, which will worsen the situation in the economy, or set universal restrictions, which will open up channels of capital outflow from the country. 

Neither is a good choice for the authorities, but there is no third option.

The market opens but under control

The central bank allowed trading in government bonds to resume on the Moscow Exchange on March 21, saying that it would intervene to keep yields within an acceptable range. What is “acceptable” for the Bank of Russia today is impossible to say, but most likely, these levels will be between its key rate (20%) and those levels that were recorded on the last day before the trading halt. There is no doubt that the largest state banks (Sberbank, VTB, and Gazprombank) will also buy government bonds at the levels agreed with the Bank of Russia.

Statement by the Ministry of Foreign Affairs of Russia 

Considering the apparent unfriendly nature of the unilateral restrictions imposed by Japan against Russia in connection with the situation in Ukraine, the following measures are taken.

In the current circumstances, the Russian side does not intend to continue negotiations with Japan on a peace treaty because it is impossible to discuss the signing of an entire document on bilateral relations with a state that occupies an openly unfriendly position and seeks to harm the interests of our country.

It was decided to terminate visa-free travels of Japanese citizens based on agreements of a visa-free exchange between the southern Kuril Islands of the Russian Federation and Japan from 1991 and on maximally facilitated visits of former Japanese residents of the southern Kurils to places of their former residence from 1999.

The Russian side is withdrawing from a dialogue with Japan to establish joint economic activities in the southern Kurils.

The Russian side is blocking Japan’s extension of its status as a sectoral dialogue partner of the Black Sea Economic Cooperation Organization. 

All responsibility for the damage to bilateral cooperation and Japan’s interests lies with official Tokyo, which has deliberately opted for an anti-Russian course instead of developing mutually beneficial cooperation and good neighborliness.