Weapons around: Gas and Coal, Virus, Ongoing Rearmament
‘Neither peace nor war and the army is demobilised’
said Leon Trotzky refusing to sign a peace treaty with Germany in February 1918 in Brest-Litovsk.
By his decree, President Putin has declared “a non-working day regime" (do not mix up with “days off”!) throughout Russia from October 30 to November 7. This decision is half-hearted. On the one hand, Putin looks to halt the rapid development of the COVID-19 epidemic in Russia by introducing severe restrictions on the functioning of businesses providing services to households (retail trade, cafés/bars/restaurants, leisure and entertainment). On the other hand, the presidential decree reserves the right of the CEOs of other companies to make their own decisions about the mode of operation. Since the restrictions imposed do not have the character of a full-scale lockdown, many Russians decided to use this opportunity to travel around the country. Such behaviour will undermine the authorities' intentions to combat the epidemic.
Vaccination Rate is Low …
COVID-19 vaccination rates in Russia remain low. Health Minister Mikhail Murashko announced that 40% of the Russian population got at least the first dose of the vaccine. At the same time, according to a poll by Levada-Center:
45% do not want to be vaccinated,
50% are not afraid to be infected by Covid-19
61% agree COVID-19 is a biological weapon (35% - completely agree).
Close to One Million Deaths
Deputy Prime Minister Tatyana Golikova has admitted that more than 100% of excess mortality is associated with COVID-19, with mortality from other diseases decreasing by 1.8%. In the last week, official statistics reported about 1,150 deaths from CovidCOVID-19 per day. However, these data underestimate the actual mortality rate by about three times. According to the same data, 750 to 800 people died every day in Russia in July-September. According to Rosstat, excess mortality in these months (compared to 2019) was 64,000 to 67,000 people per month —i.e., 2,130 people a day.
In total, since April 2020, excess mortality in Russia has amounted to 600,000 to -610,000 people. By the end of this year, this the number may rise to 900,000.
Economy Has Recovered while Personal Incomes …
Rosstat has published information on the results of the Russian economy for nine months of this year, which look very optimistic. The Rosstat’s Index of core sectors (an approximation of the dynamics of GDP; the first GDP assessment appears in Russia approximately 45 days after the end of the quarter) increased to 103.2% to the level of nine months of 2019.
Growth (+)/Decline (-) 9 months of 2021 vs 9 months of 2019
Industry +2%
Agriculture -1.4%
Construction +5.8%
Cargo railway turnover -0.4%
Consumer spending, Goods +4.3%
Consumer spending, Services -0.7%
At the same time, as in 2014-2016, the post-crisis economic recovery was not accompanied by a comeback in household incomes. Real disposable household income showed an increase of a mere 0.4% to nine months of 2019, while all growth resulted from emergency payments to pensioners (10,000 rubles per person) and military personnel (15,000 rubles per person), which were made at the end of August and the beginning of September by decree of President Putin on the eve of the elections to the State Duma.
Several times recently, President Putin has spoken about the problem of the households’ low incomes, which he has not experienced before. Real households’ incomes began to fall in 2014, and at the end of 2020, they were 10% below the level of 2013. The problem of low incomes is acute politically, and the Kremlin’s inability to solve it could complicate Putin’s re-election to the presidency in 2024.
In addressing this problem, the government focuses on accelerating economic growth through increased investment. However, I have great doubts that such a strategy can lead to the desired results. The fact is that a large share of investments is directed to the development of transport infrastructure, the economic effect of which does not come quickly, and to the development of health care, the economic effect of which is generally difficult to calculate.
Gas Is not for Sale
Gazprom reported that for 10 months of 2021, its gas production increased by 15.8%, compared to 2020. At the same time, gas exports to non-CIS countries during this period increased by 10.4%. As a result, it turns out that domestic gas consumption in Russia increased by more than 20%, including more than 30% in October.
The growth rates of the Russian economy, which Rosstat reports, cannot explain such rapid growth in domestic consumption. The only possible option that can explain these data is an intensive gas injection into underground storage facilities in Russia. These data demonstrate that Gazprom had every opportunity to increase gas supplies to the European spot market during October but preferred to allow the worsening of the crisis.
Moldova Will not Freeze
Gazprom has started providing gas supplies to Moldova under a new contract signed last week. The contract is designed for five years, and according to its terms, the gas price will be about $450 per 1000 cubic meters.
Simultaneously with the signing of the gas supply agreement, Gazprom and MoldovaGaz agreed to conduct an audit and sign an agreement on the settlement of Moldova’s debt for previously supplied gas. At the same time, the issue of the indebtedness of the non-recognized republic Transnistria, the territory over which the central government lost control in 1991, was not discussed during the negotiations.
In the territory of Transnistria, Moldavskaya Power Station generates about 85% of the electricity in Moldova (including Transnistria). The fuel for the station is Russian gas. The Moldovan government collects payments from the households and corporations for electricity consumed in the territory it controls and transfers the managed funds to the power generation company. However, the latter does not fully pay for the gas it purchases from Gazprom, sending substantial funds to finance the unrecognized republic. According to some experts, the amount of this debt is not disclosed by Gazprom—according to some experts, it may exceed $3 billion.
Ukraine Should Be Ready for Energy Crisis This Winter
The Kremlin continues to skillfully use energy as a weapon in a hybrid war against Ukraine. The Ministry of Economic Development of Russia decided to ban thermal coal export to Ukraine starting November 1. The share of thermal generation in electricity production in Ukraine exceeds 26%, while all thermal generation uses coal as fuel. After the occupation by Russia of part of the Donetsk and Luhansk regions of Ukraine, with their large coal mines, Ukraine needs to import significant volumes of coal to keep its energy and metallurgy operating. The share of imports in the total volume of coal consumption in Ukraine is 40%—68% of imports are from Russia.
The operator of the Ukrainian gas pipelines reported that since November 1, the daily transit of Russian gas through the territory of Ukraine has decreased by more than a third, compared to October.
According to the terms of the agreement concluded in 2019 between Naftogaz and Gazprom, the Russian company is obliged to pay for the pumping of 40 billion cubic meters of gas per year, while it has no obligations for the physical transport of gas.
I get the impression that the Kremlin is preparing an energy crisis for Ukraine in the coming winter: The country may face a shortage of gas and coal, jeopardize the entire energy system, and disrupt heat and power supply to large cities.
Putin’s Favorite Toys
President Putin has begun a series of traditional annual meetings with the top management of the Defense Ministry and defence companies. At these meetings, Putin reviews the progress of the Rearmament program for 2018-2027 and discusses possible adjustments to the state defence procurement composition.
At the first meeting, Putin discussed the problems of the Navy and the Military Space Forces (MSF). In his opening remarks, President Putin identified the MSF’s critical tasks for creating a “centralized aerospace defence control system” and “ensuring the ability to detect and destroy hypersonic and ballistic targets of all types along the entire flight path.” In addition, Putin set the task of developing new types of weapons using domestic hardware components.
Putin identified the accelerated development of naval aviation as the main task of the development of the Navy.
Putin named many different types of weaponry to be delivered to the Ministry of Defence before 2027. According to experts estimates, a significant share of them will be financed using banks’ credits and repaid by the budget after 2027.
Russia Is Going to Be Green. Maybe…
On October 29, 2021, the Russian government approved the “Strategy for the socio-economic development of Russia with a low level of greenhouse gas emissions until 2050.” The document describes two scenarios—inertial and target (intensive).
In the inertial scenario, net greenhouse gas emissions from current levels will increase by 8% by 2030 and another 25% by 2050. At the same time, the current level of absorbing capacity in Russia will remain stable.
In the target scenario, the situation does not change until 2030—i.e., emissions grow by 8%. The turning point comes in 2031 when emissions begin to decline. As a result, by 2050, their volume will be 33% lower than the current level. In this scenario, the level of absorbing capacity will more than double.
To implement the target scenario, environmental investments in the Russian economy will have to amount to 1% of GDP annually until 2030 and from 1.5% to 2% of GDP in subsequent years.
It is interesting to note that the next day, the website kp.ru published a long interview with one of the officials closest to Putin and one of the most controversial apologists for the Putin regime, Secretary of the Russian Security Council Nikolai Patrushev. In his interview, Patrushev very critically described wind and solar power generation technologies, not finding any advantages in them. Moreover, he repeatedly drew attention to the enormous harm that the production of equipment for wind and solar power generation and its operation is causing to the environment.