Public apprehension is on the rise. The ghost of ‘color revolutions’ is alive. Why has the Russian market fallen?
January 18, 2022
365 days ago
On January 17, 2021, the Russian opposition leader, Alexei Navalny, returned to Russia. He had spent the previous five months in Germany, where he had passed the treatment and recovery time from an assassination attempt by the Russian authorities. For the crime, the Kremlin used the chemical warfare agent Novichok, which had previously been used in the attempted murder of former Russian intelligence officer Sergei Skripal in Britain in March 2018.
Navalny was detained by Russian police at Moscow’s Sheremetyevo Airport. A few days later, he was sent to a prison colony to serve his sentence for a criminal offense attributed to him. The European Court of Human Rights ruled that there was nothing in Navalny’s alleged conduct that could distinguish it from ordinary business activity—i.e., there was no corpus delicti. But the ECHR did not dare to find the prosecution of Navalny political, just as the Biden administration did not dare to enforce the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) to sanction Russia for its use of chemical weapons.
While in prison, Navalny is under constant psychological pressure from the administration and other inmates, who follow the administration’s orders. “To celebrate” this sad anniversary, the Russian authorities have prepared a gift for Navalny: The local court has refused to allow him to receive into his account the money he earns by cooperating with the news agency. The prison authorities explain their position by saying that working outside the penal colony is possible only under contracts signed with the prison administration. And Navalny has no such arrangement.
CNN Films and HBO Max, in association with Fishbowl Films, Raefilm Studios, and Cottage M, announced they have partnered on Navalny, a revealing fly-on-the-wall documentary thriller by filmmaker Daniel Roher that will be released soon.
Pandemic News
If you look at the chart of the daily number of reported COVID cases in Russia, you might get the impression that Russia is rapidly entering a new wave of pandemic.
However, I am not so sure about this. The fact is that the number of reported cases directly correlates with the number of tests performed. Suppose we believe the official statistics (poor quality and lack of completeness). In that case, the ratio of the number of infected to the number of tests performed is approximately at the level of mid-December, when the previous pandemic wave was on the decline.
Russian authorities, including Vladimir Putin, have repeatedly accused Western countries of blocking recognition of the Russian vaccine, Sputnik V, for political and economic reasons. Of course, the Kremlin has no proof of that, and after the World Health Organization (WHO) made public all the details of its work in Russia and the claims that the experts had made, the wave of accusations subsided. Finally, the WHO reported that at the end of last year, Russia handed over all requested documents that would allow the WHO to resume the Russian Sputnik V vaccine certification.
However, having said A, Russia did not want to say B. According to EU Ambassador to Moscow Markus Ederer, Russian authorities have not responded to the European Medical Agency’s (EMA) request and have not provided the documents that should pave the way for the recognition of the Russian vaccine in the European Union. “The situation remains unchanged. The work on authorization continues; there were two inspections in the first half of last year, after which the EMA requested additional documents, which, as far as I know, have not yet been received.”
In early July 2021, the European Commission proposed that Russia begin work on mutual recognition of vaccination certificates. That would allow vaccinated EU and Russian citizens to travel mutually based on vaccination certificates obtained in their respective countries, without providing additional documents and without Russian vaccines being officially approved by the EMA, Ambassador Ederer explained.
On November 12, the European Commission reported that Russia had taken the first step and provided the European Union with the documents needed to verify the technical compatibility of the Russian and European vaccination control systems. After that, an application is due to be submitted to recognize Russian certificates. As of early this year, this had not been done. “I can report that there was an online technical meeting between Russian and EU representatives in October on equivalence. It was a positive meeting; experts discussed how to do it; Russia said that it was interested in achieving equivalence at the political level. Since then, there have been no more meetings, only informal contacts. The Russian side must send an official letter with an application for recognition of equivalence to the Secretary-General of the European Commission. Still, such a letter has not been received yet.”
Russian State Duma removed from consideration a law on mandatory use of QR codes to visit public places. Earlier in December, a bill on application of QR codes on transport was withdrawn from consideration. For a long time, the government had positioned these bills as one of the main instruments for fighting the spread of the pandemic but decided to retreat, having run into a powerful anti-vaxxer movement, whose nucleus is Vladimir Putin’s core electorate.
Two birds of a feather
Authorities in Syria and Russia’s annexed Crimea have overcome the sanctions regimes of Western countries and found ways to pay for supplies of goods as part of their cooperation, said Crimean head Sergei Aksyonov.
“All trends in payments we have already passed, we have overcome, we have found the tools. To overcome the sanction’s regime, we have also found all the tools. Words of gratitude personally to Mr. Minister.”
Minister of Economy and Foreign Trade of Syria Mohammad Samer al-Khalil said that “there is a lot of work to be done to outline the main areas of cooperation, not only in trade but also, for example, in tourism, culture and so on. We are very positive about the cooperation with the Republic of Crimea, and we will do everything that depends on us and do our best to achieve the most positive results.”
The minister confirmed my hypothesis
During a large press conference, Russian Foreign Minister Sergey Lavrov was asked why Moscow has now put forward its ultimatum demands to the United States and NATO, given that relations between the sides have long been tense. The minister’s answer only added to the fog: “It’s been accumulated. It has been accumulated since the 1990s... Our patience is at an end.”
This reinforces my earlier hypothesis that there is only one reason for everything going on—fear that has been driving Putin crazy. This fear has been building up inside him for a long time, occasionally making itself felt with tales of Russia’s new miracle weapons, or, for example, in the emotional outburst of December 2014:
“I myself sometimes think that maybe our bear should sit quietly, eat berries, honey. Maybe he’ll be left alone. They won’t! Because they will always try to put him on a chain. And as soon as they manage to put him on a chain, they will rip out his teeth and claws. In today’s understanding, this is the power of nuclear deterrence... as soon as it, God forbid, happens, and the bear is not needed, then so that the taiga will be cleaned up immediately.”
It is impossible to say what was the last straw that broke the camel’s back in this situation. But there is no easy way out for Putin, just as there are no easy solutions for Western politicians.
Public apprehension is on the rise
Since early 2014 (before the annexation of Crimea), the percentage of Russians who believe that an armed conflict with one of Russia’s neighboring countries is possible soon has almost doubled, from 20% to 37%. The proportion of Russians expecting an armed conflict with the United States or another NATO member country has increased from 16% to 25% since the beginning of 2015.
A call to war
State Duma Deputy Yevgeny Fedorov suggested a warning nuclear strike against the United States to demonstrate Russia’s determination to ensure its security and in response to the deployment of NATO tanks near Narva (the Estonian-Russian border).
“The third option is a warning strike with nuclear weapons; it is possible even without nuclear weapons, but simply with strategic missiles at the Nevada test site. This is a range where the U.S. military is, there are no civilians there, and especially if you warn two or three days, it is quite a good action to demonstrate the seriousness of the intentions.” The deputy mentioned rocket attacks on American laboratories producing biological weapons as an alternative.
Although no one has nullified Article 354 of the Russian Criminal Code, “Public calls for unleashing a war of aggression,” I do not doubt that the Investigative Committee and Prosecutor General’s Office have not heard this remark.
The ghost of ‘color revolutions’ is alive
Federation Council Speaker Valentina Matviyenko stated that the Kremlin intends to use the CSTO as a tool to combat “color revolutions,” should they occur on the territory of the post-Soviet space.
“We have shown that this [CSTO] is a serious organization and that they [Western countries] should reckon with it, that in case of attempts of a color revolution in any other state, the CSTO will always come to the defense. This is very important.”
Why has the Russian market fallen?
Over the past week, as relations between Russia and the West have become more heated by the day, Russian financial markets have shown that investors are aware of the political risks. Stock indices and blue chips quotes fell by 8%-12%; the ruble exchange rate lost 5% vs. the dollar; government bond yields increased by 70-100 basis points.
The main driver of the fall in the value of Russian assets was the desire of foreign investors to leave the Russian market and wait out the political turbulence in some safe haven. This is evidenced by the fact that shares of Sberbank, Russia’s largest bank, which recently reported record financial results, showed the most significant drop. The state owns a 50% stake in the capital of Sberbank, while non-residents own another 45% of shares. In such a situation, even minor sales by non-residents cause the share price to plummet due to a lack of domestic demand. Over the past three trading days, the volume of trades with Sberbank’s shares reached $3 billion (8% of total non-residents’ stake in the company).
It should be noted that the fall of the financial markets is not a factor causing serious excitement in Russia. As a rule, every company has a controlling shareholder who owns the biggest block of shares (very often 50%+) and is much more interested in retaining control than in the current value of the shares he will not sell. In addition, Russia maintains a pay-as-you-go pension system that does not require private pension savings, while the mandatory pension savings were frozen at the end of 2013 and have remained in that state for eight years.
Although statistics show that 17 million Russians have brokerage accounts (15.5% of all adults), there are no assets in 63% of these accounts, and another 19% of the accounts have no more than 10,000 rubles ($150) in assets. The total value of assets in the brokerage accounts is 7.3 trillion rubles (6.5% of GDP, $95 billion), 42.5% bonds. According to the Bank of Russia, 3.3% of retail investors hold about 91% of assets, and 1% of clients own 76% of assets.
Minister’s version
Russia’s GDP growth in 2021 will be 4.4%-4.5%, said the head of the Ministry of Economic Development, Maxim Reshetnikov. This is somewhat lower than the assessment given by him earlier, which he explained by Rosstat’s revision of the 2020 results.
“Rosstat recalculated the 2020 base... the annual estimate will be lower than 4.7%. Based on this, the preliminary estimate of GDP growth for 2021 is 4.4%-4.5%... This is a very preliminary estimate.”