September 7, 2022
He said
Western sanctions are hitting the West
It’s time for oil blackmail
Endless optimism
Is he the first in history?
Oil revenues are down, but that’s normal
Another optimist
Preparing for arbitration
He said
Vladimir Putin took part in the economic forum in Vladivostok and was very active. Apart from the main speech, which lasted 35 minutes, he answered the host’s questions in detail on 10 occasions. The character of his speech made a strange impression on me: There was a feeling that this speech was composed hastily and consisted of unconnected fragments. The forum was supposed to promote what has been dubbed “The Pivot to the East.” In my opinion, that meant the Russian President was supposed to focus on relations with foreign guests. However, his main words were directed in the other direction—the President was talking about internal problems and constantly giving instructions to the government and regional authorities.
Putin devoted much attention to discussing relations with Western countries and the state of Russia’s economy, which is under sanctions pressure. As often, Putin stated that Western countries are to blame for the worsening international situation.
The epidemic has been replaced by other global challenges, which pose a threat to the entire world. I am referring to the sanctions fever of the West, its blatant, aggressive attempts to impose patterns of behavior on other countries, to deprive them of their sovereignty and subject them to its will.
The unwillingness of other countries to submit to such dictate and arbitrariness forces Western elites, simply put, to snap, to make short-sighted, adventurous decisions—both in terms of global security, politics, and economy.
Western sanctions are hitting the West
The sanctions against Russia, according to Putin, have affected Western countries much more than Russia.
Before our eyes, we have lost confidence in the dollar, euro, and pound sterling as currencies to settle accounts, store reserves, and nominate assets. We are gradually moving away from such unreliable, compromised currencies.
In the spring, many foreign corporations were racing to leave Russia, believing our country would be the hardest hit. But now we are seeing, one by one, the closure of production facilities and jobs in Europe itself. And one of the critical reasons is, of course, the severing of business ties with Russia.
It’s time for oil blackmail
Having cut off Russian gas deliveries to Europe almost entirely, as a response to technological sanctions, Putin said he did not intend to give in to pressure and was ready to stop oil exports from Russia if a “price ceiling” was introduced.
There are contractual obligations. Will any political decisions contradict the contracts? We will not fulfill them. We will not supply anything at all if it is against our interests. In this case, it is the economy. We will not supply gas, oil, coal, fuel oil, or anything else.
The decline in gas supplies to Europe began last August. Pipeline exports to Europe fell 70% in July, leading to a 24.5% year-on-year drop in gas production. If the G7 countries can create a working mechanism to limit Russian oil prices and Putin delivers on his promise to halt exports, it could be a natural disaster for the Russian oil industry. The fact is that Russia does not have significant amounts of oil storage, and it would be necessary to stop oil production to stop exports. Plugging oil wells means its conservation, which, on the one hand, is much more expensive than shutting down gas wells, and, on the other hand, an oil well cannot be restarted—a new one must be drilled. In addition, the introduction of the “price ceiling” is scheduled for early December, when Siberia will experience severe frosts, which will make well-preservation work much more expensive and complicated.
Endless optimism
Putin could not help but admit that the sanctions against Russia had played a markedly negative role. Still, he expressed the view, well-established in the corridors of Russian power, that the peak of the sanctions pressure was behind us, and that the Russian economy had not suffered much.
Russia is coping with the West’s economic, financial, and technological aggression. I am talking about attack; there is no other word for it.
...we believe... that the peak of the most challenging situation is over, the situation is normalizing; macroeconomic indicators show this. Inflation is falling... public finances in Russia have stabilized. The budget will show a surplus. It was predicted that there would be a significant recession in the economy. That is not going to happen. There will be a recession, but not a big one, just 2.2%.
It is hard for me to understand what the Russian President’s optimism is based on. Perhaps he succumbed to the optimism of Deputy Prime Minister Andrei Belousov, who said that this year’s recession is likely to be less than 3%—somewhere around 2% with a small percentage point. This forecast suggests that the Russian economy should start growing as early as the third quarter of this year, which looks highly unlikely, given the drop in steel and coal production associated with the ban on their imports to Europe and the decline in gas production associated with Putin’s gas blackmail.
The Russian economy showed rapid growth at the end of last year and the beginning of this year, which arithmetically conditions a much more substantial decline in Q4 2022 to Q4 2021 than the fall in annual GDP levels.
...Despite the attempts of external pressure, the total cargo turnover of Russian sea ports for the seven months of this year almost did not decrease, remaining at the same level as the year before—it is somewhere around 482 million tons of cargo. Last year it was 483—practically the same.
Once again, the Russian President confirms Mark Twain’s statement that there are lies, big lies, and statistics. Indeed, the total cargo turnover of the Russian ports for the seven months of the current year has remained at last year’s level; however, the volume of imported cargo in Russian ports dropped by over 11%, and the number of containers handled decreased by 23.5%. Although sea exports remained almost unchanged, its structure seriously changed: Decreases in the exports of coal (-2.9%), grain (-8.2%), and ferrous metals (-12.7%) were compensated by fertilizers (+17.0%) and ore 8.2 (+28.7%).
Is he the first in history?
The moderator of the forum session at which the Russian President was speaking asked him a question about the plight of Russian journalists:
The license of Novaya Gazeta was revoked, and a Nobel laureate runs it. In general, since the beginning of February, some 30 media outlets in Russia have closed or suspended operations. Many journalists have gone abroad, to Latvia, for example, and now work from there, from Latvia. In your opinion, is such an increase in pressure on the media justified?
As one would expect, without blinking an eye, Putin evaded the answer.
You mentioned the Nobel Peace Prize winner, and we are delighted that our citizen received the Nobel Peace Prize. But, in my opinion, the Nobel Committee has largely devalued the significance of Nobel prizes in the humanitarian field...
We know of many cases where decisions are taken solely under the influence of the current political conjuncture. This does not give credit to those who make such decisions. Nevertheless, we are happy for those of our citizens who receive such an award.
Now about those who have left and are working in other countries. I assure you, they are happy that they can leave. They had always worked against our country when they were here, but now, under the pretense that something is threatening them here, they are happy to move there on the same salary that they received when they were here. Yes, it’s just that today’s situation forces everyone who has a position to determine their position. They decided to go to the nearest foreign country and work there in some anti-Russian centers.
The tradition of Russian journalists communicating with Vladimir Putin does not allow them to “pester” the President and get an answer to the question posed. Therefore, let’s assume that Vladimir Putin considers himself entitled to limit freedom of speech in Russia in various ways, and he is sure that anyone who disagrees with his policy works against our country.
Is he the first dictator to hold such a viewpoint?
Oil revenues are down, but that’s normal
The Ministry of Finance has published data on the average price of Russian oil in August: $74.7/bbl, which turned out to be 10% higher than a year ago. Many experts were surprised that, at the same time, oil and gas revenues of the Russian budget this August were 3.5% lower than last year’s level. The explanation of this “phenomenon” is quite simple: The fact is that the dollar exchange rate this year was 18% lower than last August. The graph clearly shows that the total value of oil and gas revenues is closely related to the price of Russian export oil, expressed in rubles, with a lag of one month. Given that today we know the oil price and the dollar exchange rate in August, we can assume that in September, the oil and gas revenues of the budget will be even lower.
Another optimist
Russia’s largest car manufacturer, AvtoVAZ, has decided to support the Russian President’s optimism: The company’s CEO, Maxim Sokolov, announced that AvtoVAZ will aim to produce 500,000 cars next year. This target looks super-ambitious, considering that the company sold 345,000 and 305,000 cars in the previous two years, respectively.
In the first eight months of this year, AvtoVAZ produced 105,000 cars, and Maxim Sokolov promises that in the remaining four months, the company will have 140,000 cars.
Sokolov admitted that the company is facing severe sanctions restrictions: The share of imported components exceeds 25%, and it is impossible to import a large part of them to Russia, because of the sanctions. In particular, Sokolov said that the company will not produce its most advanced model, the X-Ray, which was produced on the Renault platform.
We are not planning to resume its production, because too large a set of car components used in this car is blocked for supply today.
At the same time, Sokolov is optimistic about the future. According to him, cooperation with the former major shareholder, Renault, has continued after AvtoVAZ was able to build new logistics chains.
We do not interrupt our relations with Renault, and we respect our former shareholders, who have been shaping the technical policy of AvtoVAZ for 14 years and have contributed much in terms of modern production technologies, organization of processes. and product quality.
Now, certain obligations remain in the framework of the supply of automotive component kits for, first and foremost, those platforms that came to us with Renault. In particular, we are talking about the B0 platform. The relationship with Renault is also maintained in terms of a number of other components that are supplied to our line of vehicles. We do not consider it necessary to break off relations with Renault. At the same time, we act strictly within the framework of the agreement signed with the Ministry of Industry and Trade.
Preparing for arbitration
Russia’s Energy Minister, Nikolai Shulginov, confirmed that oil production within the Sakhalin-1 project has almost stopped after the project operator, ExxonMobil, left.
Oil production has almost stopped at Sakhalin-1, while gas production continues. We will try to make this project work. But a lot depends on Exxon’s position, because this company is the operator. There are difficulties, but we think that some solution will be found. We would like to see oil production at Sakhalin-1 restored by the end of the year.
In August, ExxonMobil reported that it was working to transfer the company’s rights under the Sakhalin-1 PSA project to an unnamed third party. The next day, President Putin signed a decree prohibiting shareholders from “unfriendly” countries from buying and selling stakes in strategic enterprises and joint-stock companies in Russia and in several other projects, including Sakhalin-1, until December 31, 2022.
Thereafter, ExxonMobil sent a notice of disagreement to the Russian authorities in connection with said decree. The notice sets a deadline by which the parties must reach an agreement. Otherwise, the company may file a lawsuit in international arbitration, which could take years to resolve.
The Kremlin’s strategy is clear: File a counterclaim against ExxonMobil in a Russian court, claiming violations of production processes, contractual obligations, and environmental requirements. On the one hand, this would permanently block ExxonMobil’s exit from Russia; on the other hand, counterclaims, which may amount to billions of dollars, would further delay the arbitration process.