Vladimir the Winner ?
March 29, 2022
Optimism and skepticism
The ruble continued its rapid strengthening against the background of the Russian-Ukrainian negotiations in Istanbul, peaking at 12.5% in two incomplete trading days. I attribute this enthusiasm to the fact that the leading Russian exporters decided to sell the currency, believing that the announced results of the negotiations indicated a quick end to the war and a return to “normal life” and the pre-war exchange rate of the ruble. I do not agree with the optimistic assessment of the negotiations, nor with the expectations of a quick return to pre-war life.
Probably for the first time in five weeks of the war, the comments from both sides were as close as possible: Both sides confirmed that a political treaty between Russia and Ukraine would fix the neutral status, and international security guarantees for the latter were taken. In addition, both sides confirmed the sequence of movement toward the declared goal: First, the discussion of the text of the treaty at the level of delegations, then negotiations at the level of the Ministers of Foreign Affairs, and after that, the signing of the document during the meeting of the Presidents.
The Russian proverb says that a bad peace is better than a good quarrel. I want to extend it by saying that it is better for diplomats to negotiate for years than for armies to shoot and kill within a day. However, the political declarations of the negotiators did not stop the hostilities and did not give reason to expect an armistice soon (at least). Here is how I interpret what happened today.
Russia retreated
The Kremlin instructed the Russian delegation to move as far as possible toward a convergence of negotiating positions. Perhaps the military explained to Putin that the Russian army could not take Kyiv under any circumstances. Maybe the ministers of the economic bloc explained to him how devastating the sanctions already imposed by the West were for the Russian economy. Maybe friends of the Russian President told him about the problems they and their families have faced. Maybe the FSO (Federal Guard Service—the analog of the Secret Service but limited to physical security only) put the poll results on the President’s desk, showing a sharp increase in anti-war sentiment in the country. I can only guess. But the fact that today’s announcements by Vladimir Medinsky, Russia’s chief negotiator, were prepared by Colonel-General Sergei Rudskoi’s press conference, which I told you about recently, is obvious.
The Russian negotiators went to a significant softening of their starting position to bring their positions closer. They agreed:
1) To a meeting between the two Presidents. This proposal by Vladimir Zelensky had been long pushed aside by the Kremlin as pointless;
2) To remove from the agenda the slogans of “de-Nazification” and “demilitarization” of Ukraine;
3) To remove from the agenda the demand for Ukraine to recognize the Russian annexation of Crimea and Sevastopol—“disputed issues between Russia and Ukraine regarding Crimea and Sevastopol are resolved only through bilateral negotiations”;
4) To remove from the agenda the requirement for Ukraine to recognize the independence of the LNR/DNR;
5) To state that Ukraine’s proposals on its neutral status, security guarantees, and negotiations on the status of Crimea and Sevastopol “are constructive and will be considered in Russia.”
Ukraine has achieved significant diplomatic success. Its concept of a treaty between the two countries has become the basis for the further work of negotiators. And the softening of its position looks much less significant. The Ukrainian delegation agreed:
1) To acknowledge the existence of a dispute between the two countries over the status of Crimea and Sevastopol;
2) To withdraw Crimea and Sevastopol from future “security guarantees”;
3) To Russia’s use of the slogan that “Ukraine renounces its desire to regain Crimea and Sevastopol militarily” though Ukraine never declared this goal.
But the war continues
However, any military-to-military agreements have not supported progress in the political process. Deputy Defense Minister Colonel-General Alexander Fomin reported that Russia made a unilateral statement about reducing military activity near Kyiv and Chernihiv.
Because negotiations on the preparation of a treaty on Ukraine’s neutrality and nuclear-free status, as well as on the provision of security guarantees to Ukraine, are moving into practical terms, taking into account the principles discussed during today’s meeting, the Russian Ministry of Defense, to increase mutual trust and create the necessary conditions for further negotiations and achieve the ultimate goal of agreeing and signing the treaty mentioned above, has decided to radically, many times, reduce military activity in the direction of Kyiv and Chernihiv.
However, what it will look like in practice, Fomin promised to tell upon the delegation’s return to Moscow. Apparently, the Russian military did not disclose any details of their decision to the Ukrainian representatives either, so the statement about “reducing activity” has not been commented on, or supported by, the Ukrainian military. The only comment from the Ukrainian side on this matter was a statement by the advisor of the head of the presidential office, Mikhail Podolyak, that it “will allow solving significant humanitarian problems.”
I am not ready to praise General Fomin’s “dovish” statement because it was “compensated” by a whole set of hawkish declarations from the Russian side:
1) The head of the negotiating delegation, Vladimir Medinsky, said, “This is not a cease-fire—it is our desire to come to a de-escalation of the conflict at least in these directions”;
2) General Fomin’s superior, Defense Minister Sergei Shoigu, said that the reduction of activity in the Kyiv and Chernihiv directions “allows us to focus our main attention and main efforts on achieving the main goal—the liberation of Donbas.” That is, Shoigu promised that we should expect an escalation of hostilities in eastern Ukraine;
3) Federation Council Speaker Valentina Matviyenko said that Russia will continue fighting until Russia and Ukraine reach agreements on all issues. “Our position is open; we are not changing it. We are clear and articulate on what basis, on what principles agreements can be reached, after which we are ready to stop the special military operation and establish further cooperation”;
4) President Putin, according to French President Emmanuel Macron, refused to support the operation to evacuate civilians from besieged Mariupol proposed by France, Turkey, and Greece, promising to “think about it” before responding.
We are left to wait
The devil is in the details, which Vladimir Putin is fond of discussing, so the road to “reaching agreements” could take a long time. Especially if Russia makes it a condition to enshrine the treaty’s provisions in Ukrainian law. According to Vladimir Zelensky, the treaty on Ukraine’s neutral status and security guarantees must be approved in a referendum, which may take at least seven to eight months. What the Russian army will do in the meantime remains under the veil of secrecy. Or rather, it is a subject of discussion by the negotiating delegations.
To sum up: The negotiation process is at a fork in the road. On the one hand, Russia may intensify it to finish it by May 9 and declare another “victory over Nazism.” On the other hand, Russia can abandon its plans to seize Kyiv and other major Ukrainian cities and continue its tactics of rocket attacks, simultaneously shifting the focus of its attacks to the south of Ukraine to expand the “land corridor” between Donbas and Crimea. The choice of which path to take, as always, is up to Vladimir Putin.
Mosaic of the Day
Russia’s Federal Antimonopoly Service (FAS) has initiated proceedings against Prodimex, the largest sugar producer in Russia. According to the FAS, the company is suspected of illegal coordination of economic activities of retail chains, which led to an increase in retail prices of sugar.
The deputy general director of Prodimex, Vadim Eryzhenskiy, said that the company had not seen any documents from the FAS about the initiation of the case.
We learned about the initiation of the case from the news. We have not received any documents from the FAS ourselves. The essence of the claim has not been explained to us. We’ll wait for the papers from the antitrust agency and get to the bottom of the claims.
The Belarusian law enforcement authorities have detained eight employees of Bank BelVEB (a subsidiary of VEB.Russia in Belarus), including its Chairman of the Board, former Deputy Prime Minister Vasily Matyushevsky, and members of the Board. As of October 1, 2021, in terms of assets (about $1.9 billion in equivalent), BelVEB ranked fourth among the 24 Belarusian banks.
It is worth recalling that in the summer of 2020, on the eve of the presidential elections in Belarus, the head of another Russian state bank, Gazprombank, Victor Babariko was arrested and imprisoned for 14 years.
President Vladimir Putin expelled from the Scientific Council of the Security Council four scientists who signed a letter demanding an end to hostilities in Ukraine. They are Alexei Gromyko, Director of the RAS Institute of Europe; Alexei Gromyko, grandson of Soviet Foreign Minister Andrei Gromyko; Sergei Rogov, Scientific Director of the RAS Institute of the United States and Canada; Alexander Panov, a researcher at the institute; and Alexander Nikitin, director of the MGIMO Center for Euro-Atlantic Security.
Although Novaya Gazeta suspended its activities, the Russian media censor, Roskomnadzor, did not leave it alone, demanding that the newspaper’s journalists remove from its website materials about the war in Ukraine and its aftermath.
A few days before the redemption of the $2 billion Eurobond issue, which is due on April 4, the Russian Ministry of Finance announced early redemption of the issue from all applicants, paid in rubles and credited to bank accounts in Russia.
The Ministry of Finance did not explain why it decided to carry out this operation. In my opinion, we are not talking about a default, and the answer to the question about the purpose of the redemption lies on the surface: A large part of these bonds belong to Russian banks and companies that are under sanctions and will not be able to receive their funds, in case of redemption under the general rules.