Kremlin’s hand becomes stronger
Russia can do everything!
Yes, we can!
A recalcitrant minister
Incompatible banks
You don’t like Putin? You will be unemployed
Russia needs thousands of satellites!
Kremlin’s hand becomes stronger
The Kremlin continues its military pressure on Ukraine and is waiting for Kyiv to accept its demands—i.e., to actually capitulate. This is how the words of Dmitry Peskov, the press secretary of the Russian President, can be interpreted.
Moscow is waiting for Kyiv to accept Moscow’s demands and to realize the de facto, real situation that exists.
Peskov did not explain Moscow’s demands, saying only that “These are not territorial concessions. Once again, Kyiv needs to recognize the de facto situation and just soberly assess it.”
The Kremlin’s position is easy to understand: The Russian army continues, albeit slowly, its offensive in eastern Ukraine; the Ukrainian military is not receiving weapons from Western countries that can deter the aggressor, let alone go on a counteroffensive. The U.S. refuses to supply multiple rocket launchers and anti-ship missiles; Germany blocks European countries from supplying heavy tanks;1 Henry Kissinger publicly suggests that Ukraine should make concessions and give the Kremlin what it demands; the European Union has been unable to agree on a sixth sanctions package for more than a month, demonstrating a clear split in recent unity.
Russia can do everything!
Speaking today at the Eurasian Economic Forum, President Putin said:
Let’s move forward. After all, import substitution is not a panacea for all ills, and we will not deal exclusively with import substitution. We are simply going to develop. But where we must do import substitution, we are doing it and will continue to do so. Yes, maybe with some variable success, but it will make us stronger, especially in high technology.
After these words, no one in Putin’s entourage can doubt that Russia can meet all the economy’s technological challenges. This is the position taken by Deputy Prime Minister Alexander Novak, who said that the plans to increase LNG production to 80 million-140 million tons by 2035 (27 million tons in 2021) remain unchanged.
We are not adjusting the [LNG] production target yet. We are working to implement the figures that we have in our strategy, even considering that it will be Russian technologies. Accordingly, a program for developing Russian technologies has been adopted; I’m sure it will be implemented; there’s nothing complicated there.
These are ambitious plans, considering that almost all Russian LNG plants are built using European and American equipment. The only example of an LNG line based entirely on Russian equipment was NOVATEK’s fourth Yamal LNG line with 0.9 million tons per year. Leonid Mikhelson, NOVATEK’s founder and principal shareholder, commenting on the construction of this line, noted that “there were many headaches—about a year, but it’s working now.” NOVATEK initially planned to build its new 5 million ton Ob LNG plant using only Russian equipment. Still eventually, foreign companies competed to supply turbines and compressors, and then the project was transferred to a completely foreign base amid problems with the Yamal LNG’s fourth line. The lack of powerful Russian turbines is the primary constraint for the business—the higher the unit capacity, the more costly the investment. Russia’s most potent 32 MW Ladoga turbine is manufactured under license from GE, and GE Frame 7E turbines with 86 MW and Baker Hughes LM9000 turbines with up to 75 MW were used for the Yamal LNG project.
In April, the European Union banned the supply of crucial equipment for liquified natural gas production, but the restrictions do not apply to exporting gas turbines to Russia. For now, the designers of the new plants expect to be able to sign contracts with turbine manufacturers. As they say, we’ll have to wait and see.
Yes, we can!
The Kremlin’s hardline stance is undoubtedly influenced by the sense of economic normalization that has permeated all the heads of the country’s political leadership.
Yesterday, the Bank of Russia lowered its key rate even more than I expected—by 300 bps—and said it intends to improve its forecast by reducing the Russian economy’s decline depth. After Rosstat reported Russian deflation for the week of May 13-20, Vladimir Putin announced that the government’s baseline forecast was 15% price growth in 2022—for this forecast to come true, prices should grow by less than 3% over the remaining months; that is, their annualized growth rate should be less than 5%. Deputy Prime Minister Alexander Novak predicted a decline in oil production this year by 4.5%-9% (25 million-45 million tons), which is much more moderate than the forecasts of some experts who spoke about a 20% fall.
A recalcitrant minister
This calmness was transmitted to Vladimir Putin, who repeated the thesis that the Russian economy has coped with all difficulties multiple times. However, Finance Minister Anton Siluanov disagrees, as he bluntly stated at yesterday’s meeting in the Kremlin, where Putin discussed expanding social support programs. After listening to the panelists’ suggestions, Siluanov asked to speak at the end of the meeting and said:
... now we need to be very careful about making new commitments. We have new tasks: To restore the economies of the new territories and ensure a high level of combat readiness for our army; we need a new impetus to support the economy in conditions of constraint. All of this requires much money and budgetary expenditures. Therefore, we need to concentrate resources on the decisions you have voiced, Vladimir Vladimirovich.
.. It would seem that these kinds of experiments in terms of long-term care and the whole range of other things that the Russian Federation’s regions have proposed might not be the right time to adopt, as they say, for the time being. We have a whole series of other tasks now, and we need to concentrate on existing commitments.
So, Mr. President, we propose taking the decisions you mentioned in your opening remarks, providing them with resources, and being very careful with the new spending commitments because today, I repeat, we have massive new tasks and challenges.
Anton Siluanov is one of the very few ministers who can tell Putin about the existing restrictions and get the President to change his mind. Siluanov’s opinions sometimes irritate Putin, but he rarely gives orders that a minister must obey. Siluanov’s advice can lead to serious negative consequences (for example, the decision to eliminate the funded pension system or to raise the VAT rate and the retirement age in 2018). Still, the Minister of Finance faithfully performs his main task: The inflow of money into the budget coffers has consistently exceeded their expenditure—i.e., Russia’s fiscal reserves have constantly been accumulating. And this has made Russia’s budget very stable today, able to withstand the pressure of economic sanctions for a long time.
Incompatible banks
The Russian authorities identified an unexpected problem: After many large and medium-sized banks came under Western sanctions, the remaining banks felt it right to refuse to work with their counterparts. There was a threat of dividing the Russian banking system into two isolated segments. The Chairman of the Bank of Russia, Elvira Nabiullina, spoke about this.
In all likelihood, the sanctioned banks will be forced to focus on domestic ruble operations, primarily on lending to the public sector, sanctioned enterprises, SMEs, and retail businesses. At the same time, the risk of secondary sanctions mustn’t cause the banking system to fragment into two isolated segments...
To prevent this, unique market mechanisms will have to be developed to redistribute clients, risks, and resources between the sanctioned and non-sanctioned banks. Creating such tools will require a creative approach and modern technological solutions.
What Nabiullina is talking about is called sanctions evasion. Let us see how it will work!
You don’t like Putin? You will be unemployed
In the third and final reading, State Duma deputies have adopted a law that would ban individuals with outstanding or unexpunged convictions2 under specific articles of the Criminal Code from driving public vehicles and cabs. The set of crimes that are subject to the restrictions can be divided into two parts: The first is crimes related to violence against other people (murder, severe intentional harm to health, kidnapping, robbery, crimes against sexual inviolability and personal sexual freedom); the second is crimes against public security, crimes against the foundations of the constitutional system and state security, crimes against peace and human security. The second group includes articles of the Criminal Code under which political activists, participants in political protests, and those who publicly condemn the policies of Vladimir Putin are tried.
It is interesting to note that both restrictions will apply to cab drivers, while for bus, streetcar, and trolleybus drivers and subway drivers, only the second group will be used.
Russia needs thousands of satellites!
Dmitry Rogozin, head of Roscosmos, decided to take advantage of the situation and get additional money from the budget. He argues that Russia needs a large-scale constellation of satellites, which will allow constant monitoring of the hostilities in Ukraine.
The more satellites, it is essential for the army today. It must see, hear practically 24 hours, and constantly observe the theater of military operations on the territory of Ukraine... We need satellites; now we have 161 spacecraft, including those of the Defense Ministry, which is not enough; there should be thousands.
Perhaps Dmitry Rogozin is sure that no one in the Russian Ministry of Finance knows that it will take Russia many years to produce that many satellites. Even so, Rogozin must assume that the war in Ukraine will stretch on for many years. This is a very strange forecast that should not please the Kremlin.
Wolfgang Hellmich, a representative of the SPD faction in the Bundestag, had disclosed NATO's decision not to supply Ukraine with heavy combat tanks, "neither Leclerc nor Leopard.”
Russian law provides for automatic additional punishment for all convicted, establishing the need to discharge a criminal record, a period after the completion of the sentence, during which the convicted person is partially restricted in his or her rights. This period ranges from 3 to 10 years, depending on the severity of the crime, and maybe reduced by a separate court decision (expunging a criminal record).