Yes, he can! India follows the Turkish path. Central bank doubts. Money doesn’t smell

November 16, 2021

Uncontrolled sphere of influence

The continuing tension on the border between Belarus and Poland caused by the attempts of refugees from Iraq and Afghanistan to penetrate the territory of Poland remains the main topic for Vladimir Putin. On Friday-Saturday-Sunday, statements from the Western politicians began to be heard from many capitals, in fact blaming Putin for the crisis. The threat to cut off the flow of Russian gas to Europe, voiced by the President of Belarus Alexander Lukashenko, only added fuel to the fire. In such a situation, Putin felt that admitting he did not control his clientele would do him less damage than silence.

In his interview for the Russian state TV channel, Putin said that 1) the West is to be blamed for everything, having started the wars in Iraq and Afghanistan; 2) Lukashenko has nothing to do with it; refugees arrive in Minsk on charter flights operated by non-Belarusian companies; 3) Belarus cannot block the entry of refugees because there is a visa-free regime; and 4) we [Russia] have absolutely nothing to do with it. 

Putin does not hide the fact that he had discussed the situation with Lukashenko and outlined explicitly his  demands: “We must still create the conditions for these people to give them jobs, and to solve the problems...related to the accommodation of refugees, according to the construction of camps for them and so on. I hope that direct contact between the leadership of Belarus and the leaders of the leading countries of the European Union will help solve these problems.”      

Unexpectedly, Putin admitted that he had not heard anything about Lukashenko’s threats to shut the pipeline until the interview. “I, frankly, for the first time on this [shut down pipeline] hear…I have twice talked with Alexander Grigorievich recently; he never told me about it, he didn’t even hint.” Lukashenko voiced those threats a day before the interview went on the air, and if you believe that Putin has not heard anything about them, this means that the Russian president lives in an information vacuum.         

Putin’s desire to force, at any cost, the European Union to enter into direct negotiations with Lukashenko suggests that the Kremlin wants to ease the pressure of the West on the Belarusian economy. And in an implicit form, it has supported and will continue to support the aggravation of the crisis.

A statement by Poland, Latvia, and Lithuania on the possibility of convening an emergency meeting of the NATO Council due to the situation with migrants on the border with Belarus will bring the crisis to a new level. Polish Prime Minister Mateusz Morawiecki said that Warsaw intends to use Article 4 of the NATO Charter, which envisages consultations of the alliance’s member states if the territorial integrity, independence, or security of one of them is under threat. In addition, he said that Poland is ready to demand the introduction of new sanctions against Belarus, including “complete closure of the border.”

The crisis on the border of Belarus and Poland demonstrates the utopianism of Putin’s hopes for reaching an agreement with the West on the “spheres of influence”—how can this be negotiated if the Kremlin cannot control the actions of its only ally in Europe and does not want to put pressure on him to normalize the situation?

Yes, he can!

But Kremlin can control European politicians: late evening Monday chancellor Angela Merkel called Alexander Lukashenko and discussed the border crisis. No details are available at the moment.

Russia strengthens military ties with Turkey

Director of the Federal Service for Military-Technical Cooperation of Russia Dmitry Shugaev said that after supplying the S-400 air defense system to Turkey, “...negotiations are continuing on the supply of modern Russian military products, as well as the joint development of weapons.”

In the fall of 2019, Russia delivered to Turkey four sets of S-400 air defense systems worth $2.5 billion. This caused a sharp chill in American-Turkish relations. In April of this year, the United States imposed sanctions against the Turkish Defense Industry Directorate and four employees of that organization, excluded Turkey from the list of partners in the production program for the latest F-35 fighter, and withdrew an offer to supply Patriot missile systems. 

In September of this year, Turkish President Recep Erdoğan announced that Ankara intends to buy another set of S-400s from Moscow. Earlier, the Kremlin’s spokesman Dmitry Peskov reported that the contract for the supply of S-400s to Turkey provides for a partial transfer of technology. Shugaev said that within the framework of a new contract for the supply of S-400s, Russia and Turkey would discuss the partial localization of their production in Turkey.   

The Kremlin’s desire to strengthen its military ties with Turkey aims to weaken NATO’s unity. But this policy looks very strange, given the role of Turkey in the military conflict between Azerbaijan and Armenia in Nagorno-Karabakh a year ago. Turkey contributed to the strengthening of the Azerbaijani army and supported Azerbaijan’s military operations. As a result of that war, Azerbaijan inflicted a crushing defeat on Armenia, whose military ally and adviser Russia has always declared itself to be, and established control over a significant part of Nagorno-Karabakh. Turkey, in turn, received land access to the Caspian Sea through the territory of Azerbaijan and the possibility of developing economic ties with the countries of Central Asia. 

Taking into account language and religious affinity we should not be surprised if Turkey starts to supersede Russia of this region in the coming years.

India does not want to be left behind

In addition to Turkey, Russia started supplying S-400s, according to Shugaev, to India. This contract was signed three years ago and envisages five sets of S-400s totaling $5.43 billion. U.S. threats to impose sanctions against Indian politicians and companies associated with this contract did not have any impact and did not stop the agreement’s implementation. 

Embassies lose staff

Moscow is outraged by Washington’s demand for the departure of 55 employees of Russian diplomatic missions and intends to respond to this if the situation is not resolved, Deputy Foreign Minister Sergei Ryabkov announced on Monday. “...of course, we will answer. If we fail to stabilize the status quo, and they insist on it, retaliatory measures will be inevitable on our part,” he said.

Earlier, the official representative of the Russian Foreign Ministry, Maria Zakharova, indicated that the United States now employs about 130 people in Russia, in the Russian diplomatic mission in Washington, and two consulates general in New York and Houston—less than 200.

Kremlin helps separatists

In the television interview mentioned above, Vladimir Putin somewhat softened the position of Foreign Minister Sergey Lavrov regarding Russia’s participation in the Normandy Four meeting to resolve the conflict in eastern Ukraine. In response to the question: “...is there any sense in the conference of the Normandy Four...?” Putin replied: “...I believe that we do not have other mechanisms; and these mechanisms, no matter how difficult it is today, no matter how difficult it is to solve this problem, but these mechanisms must be used to at least come closer to solving problems.”  However, this softening in form does not mean softening the essence of the Russian position. The Kremlin’s website published Putin’s decree making a significant step forward in recognizing the statehood of territories uncontrolled by Kyiv (so-called Donetsk and Luhansk People’s Republics, LPR and DPR). The decree instructs the government to soften the conditions for admitting goods from the LPR and DPR to the Russian markets, including their admission to budgetary contracts. In addition, the president ordered the government to ensure the recognition in Russia of the validity of certificates of origin issued by organizations operating in the DPR and LPR, as well as to abolish the application of quantitative restrictions on exports and imports concerning goods, “the movement of which is carried out across the state border of Russia on the territory of these regions, or from such territories.”

Putin constantly declares that Russia is not a party to the conflict in the east of Ukraine, but all of the Kremlin’s actions aim to ensure that his solution is never found.

Central bank doubts

Since last week’s meeting with Putin, the government has begun active work on the administrative regulation of food prices. Agriculture Minister Dmitry Patrushev said that the government intends to “decouple domestic prices from those prices that are present on world markets.” Since “...on the Russian market...prices for vegetables and potatoes are growing strongly, prices for the meat group are growing,” the government will “...increase support for these industries and, among other things, we will work with retail chains [requiring them not to raise retail prices —SA].” 

Deputy Prime Minister of Russia Viktoria Abramchenko instructed several ministries to prepare “...a forecast of domestic prices for white sugar and vegetable oil, as well as agreed proposals aimed at preventing an increase in prices for these products.”

An unexpected public critic of these measures appeared to be the Chairwoman of the Bank of Russia Elvira Nabiullina. Speaking at the State Duma, she said that regulating prices through administrative measures should not be a permanent practice. “It is fraught with risks for investments,” she said.

Elvira Nabiullina is one of the most influential economic voices around Vladimir Putin. Her decision to publicly criticize the government’s proposals does not mean her transition to the opposition. Still, it points to the rush in which the government was preparing its proposals for discussion with the president. Nabiullina was present at that meeting but did not have the opportunity to express her opinion there.

It seems to me that in this case, Putin will not heed her—for him, the rapid rise in food prices in Russia is a signal of an increased danger of social discontent. And he will be ready to discard any long-term considerations in order to establish his beloved stability.

I agree with Nabiullina’s assessment that administrative regulation of prices distorts market signals. Still, I am ready to assume that the government will not abandon such a policy, because it has no other way to implement Putin’s desire and to limit price increases in the short term.

...to enemies—the law

According to Vladimir Putin, one of the components of his agreement with President Biden at the meeting in Geneva was the implicit refusal of the United States to discuss the problem of human rights and democratic freedoms in Russia. In this regard, the tweet of the U.S. Secretary of State Anthony Blinken to Russia not to abuse the legislation on “foreign agents” sounded like a bolt from the blue. “Russian authorities’ lawsuits, aiming to close Memorial International and Human Rights Center Memorial, is their latest attack on freedom of expression. Russia must end the lawsuits and stop misusing its law on “foreign agents" to harass, stigmatize, and silence civil society,” Blinken wrote. 

The Kremlin’s response was not long in coming. “…It is vital for the president that any NGOs act within the framework of Russian legislation. As far as I know, Memorial has had problems for a long time complying with Russian legislation. This is a well-known fact,” said Kremlin spokesman Dmitry Peskov.

Russian legislation on foreign agents is mocking. First, there are no clear criteria in the law that help an organization determine whether it is a subject of this law. The decision to recognize an organization (or an individual) is made by the Ministry of Justice and doesn’t contain transparent reasons for such a decision. Second, the law requires that the organization that became the subject of this law mention this fact when performing any actions. Failure to comply with this requirement (which may consist of the organization not indicating this “title” when referring to old material that appeared before the decision of the Ministry was made) is considered a violation of the law and is punishable by a large fine.  

One of the most famous Russian writers, Lyudmila Petrushevskaya, renounced the title of laureate of the 2002 State Prize (the highest award in Russia) in protest of the persecution of Memorial. She said that she received an award from Russian President Vladimir Putin for a play “dedicated to those who did not return from the GULAG camps,” and now “Memorial,” the memory of those convicted and executed, is being taken away from her.  

One more warrant

The Russian police have put Pyotr Verzilov, the publisher of the online resource Mediazona, on the wanted list. Mediazona disseminates information about the work of the Russian law enforcement system, paying particular attention to the problem of criminal prosecution of political activists. Verzilov became widely known in July 2018, when, in the final match of the soccer World Cup, he and three members of the Pussy Riot group ran out onto the field in police uniforms—later they stated that in this way they protested against police arbitrariness and demanded the release of political prisoners, the cessation of criminal cases for publishing on social networks, and illegal arrests at rallies, as well as allowing political competition in the country.   

According to the lawyer involved, Verzilov is wanted in a criminal case for concealing information about his second citizenship. This case was initiated in the summer of 2020. Then, during a search in his apartment, Verzilov’s Canadian passport was found—he received the citizenship of this country at the age of 18 through naturalization (his father worked in this country, and Verzilov himself studied at a Canadian school). 

Since 2014, Russian law has required citizens to notify the police about their other citizenship or residence permit in another country. Failure to comply with this requirement faces a fine of up to 200,000 rubles ($2,800) or up to 400 hours of community service. Russians who have second citizenship or a residence permit in another country are deprived of the right to be elected to public office and to work in executive bodies at all levels, serve in the armed forces, or be an employee of law enforcement agencies.

He can’t be replaced

One of Putin’s closest aides, FSB director Alexander Bortnikov, has turned 70. In Russia, a law limits the term of office of appointed officials in the public service to the age of 70 years. But earlier this year, Putin introduced a bill that repeals this rule for officials he appoints.

Putin’s reluctance to replace the head of the most influential law enforcement organization is understandable. The FSB, on the one hand, fulfils all Putin’s wishes to clean up the political space in Russia. On the other hand, the employees of this organization are active participants in the redistribution of property in Russia, engaging in racketeering, forcible seizure of property, and criminal prosecution of businessmen who do not agree “to share.” Replacing Bortnikov with a younger leader will lead to the emergence of a person who will think about his life “after Putin” and make decisions based on his understanding of Russia’s development. 

Money doesn’t smell

A joint venture between Rosneft and BP—Ermak Neftegaz—based on the results of drilling an exploratory well in Taimyr peninsula, discovered a gas deposit with reserves of 384 billion cubic meters. 

Rosneft is on the U.S. and EU sanctions lists, which restrict the provision of financial resources to the company. In addition, there is a ban for American and European companies to participate in offshore projects with Rosneft. The CEO of Rosneft is one of the most notorious members of Putin’s team, Igor Sechin, who is also on the sanctions lists. Sechin oversaw the demolition of the Yukos oil company and the nationalization of its assets in 2003-2005. In 2010-2013, Sechin first actually removed the BP representatives from participating in the management of TNK-BP, in which BP owned 50% of the shares, and then forced BP to sell its stake to Rosneft.

But, as they say in modern Russia, “money doesn’t smell,” -  BP does not violate any restrictions. The company is only helping Putin and Sechin earn some more money and tighten the energy noose around Europe’s neck.

Shortage of labor in the construction

Vyacheslav Petushenko, the CEO of the state corporation Avtodor, which builds highways in Russia, told Vladimir Putin about the lack of workers to construct the Moscow-Kazan highway. “...one of our sites is being made by our colleagues from China, but in general the issue of labor resources is one of the difficult ones,” he said, adding that earlier, the construction site required unskilled workers, but now work is underway with complex equipment, so highly qualified personnel are needed. 

In Russia, a shortage of workers arose due to the closure of borders connected to the pandemic. In different periods, the Ministry of Construction estimated the lack of workers in the construction industry to range from 1.2 million to 5 million people. To solve the labor problem, the Ministry is lobbying to create a state-run “mechanism for bringing migrants to construction sites.”

A labor shortage could pose a major barrier to implementing Putin’s giant infrastructure programs until 2024. Earlier, the Russian Railways reported its problems with the labor force in expanding the Baikal-Amur Mainline. After a special meeting, Putin gave his consent to attract soldiers and prisoners to this project.