September 12, 2022
Successful counteroffensive
Statisticians are amazing!
What would a “price ceiling” provide?
Sanctions don’t bother
I want other people’s money
Nothing unexpected
Just a fact
Counteroffensive!
The main news of the past few days was the rapid offensive by the Ukrainian army, which resulted in the almost-complete liberation of the Kharkiv region from the Russian occupation.
At the end of August, the Ukrainian military conducted limited (in terms of scale) offensives in the Kherson region, which were accompanied by intensive information support. The Ukrainian military and media created the impression that the Ukrainian army’s target was Kherson and misled the Russian military, which had moved some of its units there from Kharkiv Oblast. As a result, when the Ukrainian army started an offensive in Kharkiv oblast, it did not meet any serious resistance. In a few days, it liberated about 3,000 square kilometers (2.5% of the country’s territory occupied by Russian troops after February 24) from occupation.
The official Russian media did not talk about the incident for three days until the General Staff published a map of military actions, which marked almost the entire territory of the Kharkiv Region as controlled by Ukraine, and issued a statement:
To achieve the goals of the special military operation to liberate Donbas, it was decided to regroup the Russian troops stationed in the areas of Balakleya and Izyum to step up efforts in the Donetsk direction. To this end, within three days, an operation was conducted to draw down and organize the transfer of the Izyum-Balakleya group of troops to the territory of the Donetsk People’s Republic.
The Kremlin attempted to create the impression that the Russian army voluntarily withdrew from Kharkiv Region, as happened in early April in Kyiv and Chernihiv Regions. However, this version is refuted by the fact that while retreating, the Russian military left behind many weapons and ammunition—this did not happen in April.
A local military victory will undoubtedly strengthen the morale of the Ukrainian army, demoralize some of the Russian soldiers, and dramatically increase contradictions and conflicts within Putin’s entourage. However, I would not exaggerate the possible consequences: There are more than 75,000 square kilometers under the Russian occupation, which were seized after February 24; the Ukrainian offensive took place without using a large number of tanks and artillery, which on the one hand indicates good preparation of the operation, but on the other hand, indicates the limited resources of the Ukrainian army; retreat from the Kharkiv Region will allow the Russian military to overcome one of the grave mistakes since the war started—offensive in multiple directions, dispersion of forces.
On Sunday and Monday, the Kremlin decided to take revenge for the humiliation[1]: The Russian military launched missile strikes on energy facilities in several regions of Ukraine, resulting in power and water outages.
Statisticians are amazing!
Last Friday, the dynamics of the Russian economy over the past two years changed radically. After Rosstat published data on the dynamics of the GDP in the second quarter of this year, it turned out that 1) there was no booming growth in the second half of 2021; on the contrary, the Russian economy had been stagnating for three quarters from the middle of 2021, and 2) the economic decline in the second quarter of 2022 sharply decreased: From 5.6% to 1.9% (from 25% to 7.5% in annual terms).
This has been done exquisitely: Rosstat did not change the GDP growth for 2021—i.e., it left the annual growth rate unchanged and only slightly corrected the estimate of the decline of the Russian economy in the second quarter of this year according to “previous year”…that is, to the second quarter of 2021 (minus 4.1% compared to minus 4% previously). All that had to be done was to shift the GDP growth from the fourth quarter of 2021 to the second quarter of that year and to vigorously lower the growth estimate of the economy, showing the beginning of the recession at the beginning of 2022.
What has happened gives me an ambiguous reaction. On the one hand, the rate of GDP decline, which Rosstat earlier said (25% p.a. in the second quarter), raised doubts about its adequacy. On the other hand, it remains a mystery what statisticians could have discovered to drastically change the GDP dynamics within the past year. Unfortunately, Rosstat did not comment on the revision of its estimates, so one can only wonder.
And last, the updated data allow Rosstat to meet another challenge in the future: To combine Vladimir Putin’s desire to limit this year’s economic decline to “2% and maybe a little bit” and not show any growth during this year—i.e., the Russian economy has the potential to fall at an annual rate of 1.4% in the second half of this year. We will soon see whether Rosstat can keep the decline rate within these limits.
What would a “price ceiling” provide?
The U.S. Treasury Department has published principal approaches to the mechanism of limiting prices for exported Russian energy resources, which boil down to the following: Transportation and insurance companies will fall under U.S. sanctions if they provide transportation or insurance services for oil and oil products that are sold above the established price ceiling. It is to be expected that other G7 countries will use the same scheme.
The threat of such restrictions infuriated the Russian President, who last week threatened to halt exports of Russian raw materials.
...[limiting energy prices] An idiotic decision. If someone tries to implement it, it will lead to nothing good for those who make this decision... there are contractual obligations and supply contracts. Are there going to be any political decisions that contradict the agreements? We simply will not honor them and will not deliver anything if it is against our interests—in this case, our economic interests. We will not supply gas, oil, coal, or heating oil; we will not supply anything.
Last Sunday, Energy Minister Nikolay Shulginov tried to soften the President’s stance, saying that exports could be halted in exceptional cases if the price ceiling was set at a deficient level: “...we will not sell at a loss or below cost... we will not allow such an attitude to us.”
Shulginov is undoubtedly not an essential political decision-making player in modern Russia, so his words should be considered with caution as just one of the possible positions. What will be the final decision of the Kremlin? We will know in early December.
As for the price ceiling mechanism itself, I am not confident its application will produce the desired result. Iran’s experience shows that it is possible to export oil under a much-more-brutal sanctions regime than the one imposed on Russia.
At the same time, if the Kremlin agrees to this mechanism, it will get a powerful lever of global political corruption—when deciding to sell oil at a discount, Putin will decide which country will receive his weighty financial support. By selling oil today, Russian companies are looking for buyers willing to risk being hit by U.S. and EU sanctions and give a 30% discount on their oil. In such a situation, introducing a “price ceiling”—e.g., at 60% of the Brent price—would mean an increase in the discount to 40%. It seems that this would not have much impact on the stability of the Russian financial system.
One of the declared purposes of introducing the “price ceiling” is to limit the revenues of the Russian budget. However, one should not forget that oil and gas budget revenues depend on the volume of hydrocarbon production and exports, the export price expressed in dollars, and the ruble-dollar exchange rate. A decrease in oil revenues will weaken the ruble, which will be welcomed by the Ministry of Finance and many Russian companies.
Sanctions don’t bother
Conducted in late August, a poll by the LevadaCenter shows that most Russians are calm about the political and economic sanctions imposed on Russia: 57% of those surveyed said that they “do not bother them at all” or “do not bother them too much.” When respondents were asked whether they were concerned about the cessation of deliveries of certain Western goods to Russia, the proportion of those who were not at all or almost not at all concerned was even higher—62%. Differences in respondents’ assessments related to living standards or place of residence were insignificant.
As the initial shock of the sanctions, which Russians experienced in March, evaporated, the level of optimism increased: While in June, 26% of respondents thought that the sanctions would cause significant damage to the country, in August their share dropped to 16%. At the same time, the percentage of those who believe that the sanctions “will strengthen our country and become a stimulus for development” increased from 47% to 55%.
The data of the survey by the financial online platform Webbankir do not contradict the results of the Levada-Center survey: 44% of respondents stated that they do not regret the departure of foreign brands from the Russian market (40% of respondents in the Levada-Center survey said that sanctions “do not bother them at all”).
The most notable reductions in the supply of cars and spare parts (36.8%), medicines (28.4%), and household appliances and electronics (22.3%) were observed by respondents. Every fifth respondent noted a reduction in the supply of clothes, footwear, household chemicals, tableware, and personal hygiene items.
Of the individual brands, the most significant loss for respondents was IKEA (27.2%), followed by Adidas (23.8%), Samsung (17.3%), Apple (15.8%), Apple (15.8%), and Coca-Cola (15.3%). McDonald’s departure was regretted by 8.9% of respondents.
I want other people’s money
Bank of Russia Governor Elvira Nabiullina has decided to stand up for the financial interests of Russians who have had their investments in foreign assets frozen. According to the estimates of her Deputy, Vladimir Chistyukhin, this could affect, to varying degrees, 5 million Russians (considering the shareholders of investment and mutual funds), with the total amount of frozen assets he estimated at $100 billion.
Nabiullina said the Bank of Russia proposed that the government should create a special compensation fund, which would have the right to manage the money of non-residents frozen in type “C” accounts so that the income from the management would go to pay the victims. Nabiullina said the issue is not about confiscating funds from non-residents, but that the government wants to use them. According to Nabiullina’s scheme of management of other people’s funds, which has yet to be developed and approved in the form of a law, It will resemble the actions of Euroclear, which receives income from the placement of cash received on frozen assets of Russian investors.
Alexei Timofeev, President of the National Association of Stock Market Participants, estimated that foreign investors’ assets in Russian stocks and bonds total approximately $312 billion.
Nothing unexpected
This past weekend was a single day of voting in Russia: Gubernatorial elections were held in 14 regions, legislative assembly elections in six regions, as well as many local and municipal elections. There were no surprises: In all regions, the incumbent governors won confidently, getting from 64.5% to 86% of the votes; in five regions, United Russia got an absolute majority of the votes (from 51% to 75%); in Sakhalin region, it got “only” 47.2% of the votes, which will not prevent it from getting an absolute majority in the regional legislative assembly at the expense of deputies elected in single-mandate districts.
Just a fact
Agrocomplex, 77.5% owned by former Krasnodar Territory Governor (2001-2015) and former Russian Minister of Agriculture (2015-2018) Alexander Tkachev, became the largest owner of agricultural land in Russia.
“Agrokomplex emerged in 1993 from the feed production plant where Tkachev was Director. In 1994, Tkachev became a member of the regional legislative assembly, and until the spring of 2021, he denied that he was a shareholder in Agrokomplex.
Agrokomplex’ land bank has grown from 80,000 hectares during Tkachev’s governorship to 500,000 hectares during his years as governor, and to 650,000 hectares during his ministerial tenure.
[1] An essential emotional moment was the fact that the Ukrainian offensive was unfolding on the days when Moscow was celebrating City Day.
Well , Russia is the only one winning in this sort of protectionism war , thing The EU should have understood long ago instead of been dependent of everything, bu the several EU governments at the service of Klauss Shwab & the WEF minions are starting to pay the price for towing the WEF dictatorship . Unfortunately, the people of the nations embroiled in the tug of war are the one paying the price & with winter coming , it will dearly paid !! It is freeze to death for most of the one at the bottom of the scale effected , something the WEF is heavily promoting ! They should understand that Russia & president Putin are not the cause of their pains despite what the accomplice media is claiming , but their own leaders . who put them in this situation ..!!