Hello from the Bear Market Brief.
This week in the news:
President Putin reshuffled several ministers and cabinet positions in the federal government, including replacing former Defense Minister Sergei Shoigu.
On Thursday and Friday, Putin visited China to meet with his counterpart Xi Jinping.
Five new governors were appointed this week in the Kemerovo, Kursk, Tula, Kaliningrad, and Khabarovsk regions.
Russia launched a new offensive in Kharkiv, possibly attempting to create a buffer zone to protect Russian border regions from shelling.
— Sara Ashbaugh, Editor in Chief
Changes in the government
Russia’s federal government was reshuffled over the past week, following the appointment of Mikhail Mishustin as Prime Minister for a second term. The reshuffle saw the appointment of five new ministers, two new deputy prime ministers, and a rearrangement of duties between deputy prime ministers. In addition, Putin appointed Boris Kovalchuk, the son of his friend Yury Kovalchuk, to head the Accounts Chamber, Russia’s main body of financial control.
The most important change in the government was the appointment of Andrei Belousov, an economist and former deputy prime minister, to head the Ministry of Defense. Belousov replaced Sergei Shoigu, who held the position since 2012. Belousov, a competent economist who enjoys Putin’s trust, is a long-time proponent of increasing the state’s role in mobilizing the economy for war purposes and of taxing business more heavily to serve the purposes of the state in general. Meduza’s sources claim that Shoigu’s dismissal was the result of his conflict with Sergey Chemezov, the head of state technology conglomerate Rostec, a major military supplier. Chemezov’s influence in the government was also strengthened by the appointment of Kaliningrad Governor Anton Alikhanov as Minister for Industry and the promotion of his predecessor, Denis Manturov, to First Deputy Prime Minister.
However, Belousov’s appointment also likely signals, as presidential spokesperson Dmitry Peskov mentioned, that the government is putting war-related expenditures (which make up roughly one-third of the federal budget) under stricter control. Outlasting and outproducing Ukraine and the Western coalition behind Ukraine in order to maintain Russian artillery superiority is a key part of Russia’s strategy to turn the war in its favor over the course of 2024. Under Belousov, the current policies of higher taxation, stronger control over military production by the state (which may include further nationalizations), and overall economic mobilization will likely continue. It is unclear how successful this will be given the structural constraints on the economy—including labor shortages—and the fact that the government’s so-called “economic bloc” is largely unchanged. It remains to be seen whether Belousov will appoint a new Chief of Staff. In the meantime, corruption probes continue: Lieutenant General Yuri Kuznetsov, of the army’s Main Directorate of Personnel, was arrested on May 13.
Apart from Alikhanov, an oft-cited example of the type of young, technocratic bureaucrats that the Kremlin started to appoint to head regions over the past decade, three other governors were appointed to serve as ministers in the government. Kursk Governor Roman Starovoit was appointed to head the Ministry of Transportation, where he worked before; Sergey Tsivilyov, Governor of the Kemerovo Region (the center for Russia’s coal industry and coal lobby), was appointed to serve as Minister for Energy; and Mikhail Degtyaryov, the Governor of the Khabarovsk Territory, became the new Minister for Sport. Tsivilyov’s elevation was fully expected, not only due to his good relations with the coal industry but also his family relationship, through his wife, to Putin. In the case of Degtyaryov, the last sitting Governor of the nominally opposition Liberal Democratic Party and associate of its late leader Vladimir Zhirinovsky, the appointment was likely partly motivated by the desire to appoint a new, Kremlin-friendly governor in the restive Far Eastern region (but also to remove a potential rival of the LDPR’s much more supine new leader, Leonid Slutsky).
Alikhanov, Starovoit, and the new Minister of Agriculture Oksana Lut (former deputy minister) will functionally work under their predecessors—Denis Manturov, Alexei Savelyev, and Dmitry Patrushev—who will continue to oversee industrial, transit, and agricultural policy as deputy prime ministers. In a similar position, Alexander Novak will oversee economic policy.
Another significant change took place in the Security Council, an advisory institution that has evolved into a key deliberation body over the past decade under its secretary, Nikolay Patrushev. Patrushev, a hawkish ex-KGB man and Putin confidant, was removed from his position and Shoigu appointed in his place. Patrushev, however, will likely maintain his influence, and not only due to the elevation of his son to deputy prime minister in the government. As a presidential aide (officially responsible for shipbuilding) he will maintain access to Putin, as will Tula Governor Alexei Dyumin, Putin’s former bodyguard, who was also appointed as aide (and for whom this is a clear promotion). However, as political analyst Tatiana Stanovaya pointed out, Patrushev’s removal from the Security Council means that Shoigu will take over any informal dialogue with the U.S. Government’s national security advisor. This might be important if the Russian government attempts to push the West for peace on Russia’s terms later this year, as is expected.
— Andras Toth-Czifra
President Putin enjoyed a warm welcome to Beijing during his visit to China this week. His Chinese counterpart, Xi Jinping, greeted him at a ceremony outside the Great Hall of the People on Thursday. After meeting with Xi, Putin traveled to the northern city of Harbin on Friday to take part in the eighth China-Russia trade and investment expo. “Russia is ready and able to continuously power the Chinese economy, businesses, cities, and towns with affordable and environmentally clean energy,” Putin said at the event. (photo: kremlin.ru)
Putin visits China
President Putin traveled to China this week in his first trip abroad since his re-election. This is Putin’s second trip to Beijing in just over six months, highlighting the two countries’ increasingly close relationship. In the face of Western sanctions, China has become an economic lifeline for Russia; Chinese-Russian trade is up more than 64% since 2021, reaching $240 billion in 2023, according to Chinese customs.
Ahead of the visit, Putin celebrated the “unprecedented” level of cooperation between the two countries, likely hoping to generate more support for Russia’s war in Ukraine. Officially, China remains neutral toward the conflict, despite supplying Russia with crucial military technology like machine tools and microelectronics. As a result, the U.S. recently announced a new sanctions package targeting 20 firms in China and Hong Kong that are reportedly helping Russia bypass trade restrictions. China is attempting to strike a delicate balance, neither condemning nor condoning Russia’s war. During a joint press conference following Thursday's talks, Xi said that both countries agreed on the need for a “political solution” to the conflict. He also advocated for adhering to the norms and principles of the UN Charter and respecting the national sovereignty and territorial integrity of all countries. Putin called China’s position “objective, fair, and balanced” and said that Russia welcomes China’s readiness to facilitate negotiations. After their meeting, Putin and Xi also signed a joint statement “on deepening relations of comprehensive partnership and strategic interaction.”
The trip showcased China’s importance to the Russian government, not only as a buyer of energy exports, but also increasingly as a source of dual-use and military technology and investments. It also highlighted Russia’s anxiety over declining trade, likely as a consequence of sanctions (for a good summary, see BOFIT’s analysis). Additionally, several regional governors accompanied Putin on the trip. The gubernatorial delegation included the heads of almost all of the Siberian and Far Eastern regions that play a key role in Russia’s forced trade pivot to Asia and expect Chinese contributions to infrastructure projects. It also included governors of regions such as Kaluga, where Chinese companies now have an important role in the automotive industry, and Arkhangelsk, where China has growing importance for the development of the Northern Sea Route, which is also suffering due to sanctions.
— Sara Ashbaugh & Andras Toth-Czifra
Careful gubernatorial appointments
Following the government reshuffle, Putin also appointed five new governors to replace those who got positions in the federal government. Four of them are alumni of the “School of Governors,” a public administration academy that is the brainchild of deputy Presidential Administration head Sergey Kirienko. 53 alumni of the School have now served as governors. Altogether, the appointments reflect a conservative personnel policy in the regions and a desire to cause as few potential disruptions as possible.
Of the five new appointees, three served as first deputy governors under their predecessors and are considered local cadres: Ilya Seredyuk, the new head of the Kemerovo Region, Alexei Smirnov, the new head of the Kursk Region, and Dmitry Milyaev, the new governor of the Tula Region. Milyaev and Seredyuk also led their regions’ respective capitals, while Smirnov served as regional prime minister.
Of the two outsiders appointed as governors—“Varangians” in Russian political parlance—Alexei Besprozvannykh, the new head of the Kaliningrad Region, worked as Deputy Minister for Industry and Trade in the federal government (that is, in the Ministry that his predecessor now heads). Similarly to the cases of the “locals” appointed to Kursk, Kemerovo, and Tula, this suggests that the Kremlin expects the new governors to take over their predecessors’ teams seamlessly with as few changes as possible and to maintain contact with the previous governors now in Moscow.
Dmitry Demeshin, the new head of the Khabarovsk Territory, is the odd one out. Demeshin has so far served as Deputy Prosecutor General in charge of the Far Eastern Federal District. His appointment, however, is not a surprise. The Kremlin can be expected to follow a blueprint similar to what it did in the Maritime Territory after 2018, where the heavy-handed Oleg Kozhemyako was appointed to “pacify” local elites. As a prosecutor, Demeshin was actively traveling to the regions he oversaw and often berating regional elites based on “citizens’ complaints.” One of his last cases was the arrest of Denis Arkhipov, the former Minister of Housing and Utilities in the Novosibirsk Region, shortly after the city’s communal collapse in January. His role in Khabarovsk will likely be to keep local elites in check. Four years after the arrest of former Governor Sergey Furgal, which prompted major protests in the region, United Russia is still in opposition in both the city and regional assemblies. Elections, however, are scheduled for September. It is also notable that Presidential Plenipotentiary Yury Trutnev—who has built a strong personnel network in the Far East—was not able to promote one of his proteges to head the key region.
Apart from the gubernatorial appointments, a key development in regional politics over the past week was the resignation of Magomed Daudov, the Speaker of the Parliament of Chechnya. At the time of writing, it is unclear where Daudov will be appointed next, but analyst and FPRI contributor Harold Chambers opined that the official will likely occupy a role in the security services or international relations.
— Andras Toth-Czifra
Thousands of Ukrainian civilians have been evacuated from the Kharkiv region in response to Russia’s renewed offensive in the area. Evacuation efforts are ongoing despite heavy shelling, which has all but destroyed many villages in the oblast. Local authorities and volunteers can be seen here assisting residents who arrived at an evacuation point by bus. Kharkiv Governor Oleh Syniehubov reported that more than 7,500 civilians have been relocated over the past few days. (photo: Roman Pilipey / AFP)
Russia launches a new offensive in Kharkiv
Last Friday, Russia launched a new wave of attacks on Ukraine, mainly focusing on border settlements in the Kharkiv oblast. Nearly 30,000 Russian troops are reportedly involved in this operation, and the border town of Vovchansk has become a main target of the new offensive. The Institute for the Study of War (ISW) concluded that Russia’s goal is to create a buffer zone in the international border area, rather than make deeper inroads into the Kharkiv region. Creating a buffer zone would be consistent with Putin’s suggestion back in March; according to the Russian President, a buffer zone would protect Russian border regions from shelling. In response to the Russian offensive, Ukraine deployed additional forces in the region. On Wednesday, Nazar Voloshyn, spokesperson for the Khortytsia operational-strategic group, said that the situation in the region has somewhat stabilized. “There are settlements across a significant portion of our border area where the enemy is attempting to establish a foothold and utilize them for further advancement. Over the past day, our soldiers repelled 11 enemy attacks, notably in localities such as Hlyboke, Lyptsi, Lukianivka, Borysivka, Neskuchne, and Vovchansk,” Voloshyn commented.
Ukraine’s Military Intelligence Chief Kyrylo Budanov spoke about the Russian offensive with The New York Times on Monday. According to General Budanov, the new Russian attacks are intended to stretch Ukraine’s reserves of military personnel and divert them from fighting elsewhere, particularly in Chasiv Yar in the Donetsk region. The town is located on elevated ground, making it a strong fortified position for the defending Ukrainian forces. He added that Ukrainian forces should be able to stabilize the front within the next few days. Following this stabilization, Budanov expects Russia to launch a new attack on another northeastern region: Sumy.
Besides launching a new offensive, Russia has intensified attacks on the city of Kharkiv. On Tuesday, Russia carried out a series of air strikes on residential areas. 21 people, including three children, were injured as a result. According to Oleh Syniehubov, Russia struck the city seven times throughout the day. On Wednesday evening, the Russians launched another attack on Kharkiv, injuring at least two people.
— Lisa Noskova
You might be interested in…
Russia launched a new offensive near Kharkiv, amidst continuing questions about Ukraine’s ability to mobilize enough manpower to blunt Russian advantages. FPRI President Aaron Stein sat down with Senior Fellow Rob Lee to discuss the latest from the Russo-Ukrainian war. Read the transcript here.
Quickfire: Regions
A state of emergency was introduced in the Rostov Region after unexpected frosts damaged crops on more than 140,000 hectares. This damage comes on top of droughts in some other regions during the spring months. The Ministry of Agriculture estimated that around 830,000 hectares were affected by the frost, mostly in Central Russia, but this number could be even higher. According to expert estimates quoted by Kommersant, grain harvest is likely to drop by 10-30% in 2024. It is unclear whether producers will be able to completely re-sow the affected crops. While the situation is not disastrous, any such event puts pressure on domestic (and potentially global) food prices.
Lilya Chanysheva and Ksenia Fadeeva, the former heads of Alexei Navalny’s headquarters in Ufa and Tomsk respectively, refused the offer of money from Yulia Navalnaya. Navalnaya said she would donate the money awarded to her from the Dresden Peace Prize to their families. Chanysheva and Fadeeva likely did so because accepting money from Navalnaya would potentially expose their families to prosecution and harassment in Russia. They were sentenced to 9.5 and 9 years in prison last year. Chanysheva recently asked Vladimir Putin for a pardon, while Fadeeva’s appeal is pending.
— Andras Toth-Czifra
Quickfire: Ukraine
On Tuesday, Ukraine started implementing emergency blackouts in the Kyiv, Odesa, Dnipropetrovsk, and Donetsk regions, as well as the city of Kyiv, due to a significant power shortage in the energy system. Over the past month, Russia has intensified its attacks on Ukraine’s critical infrastructure, destroying several thermal and hydroelectric power plants. Ukrenergo previously reduced the energy supply for industrial and commercial users on May 10.
On Wednesday, Ukraine attacked the Belbek airfield in temporarily-occupied Crimea. Russian Telegram channel ASTRA reported that an S-400 air defense system, two MiG-31 fighters, and a fuel depot were hit overnight. As a result, two Russian service members were killed and 13 were injured. Following the attack, the Russian Ministry of Defense reported that its air defense systems destroyed 10 ATACMS missiles over Crimea. It did not mention any personnel losses or damage during the attack, however.
— Lisa Noskova