All talk, no action
Russia and Ukraine hold direct peace talks in Turkey
Hello from the Bear Market Brief.
This week in the news:
Russian and Ukrainian delegations met for the first direct peace talks between the two countries since 2022.
Grigory Melkonyants, co-chair of the election monitoring organization Golos, was sentenced to five years in prison for participating in an “undesirable organization.”
Poland accused Russian intelligence services of orchestrating a massive fire in a Warsaw shopping center last May.
The State Duma adopted in the first reading a draft law that allows authorities to prosecute in absentia Russian emigres who “act against the interests” of Russia.
— Sara Ashbaugh, Editor in Chief
Russia-Ukraine talks in Istanbul
Ukrainian and Russian officials held short, inconclusive talks in Istanbul on May 16 for the first time since 2022. The conversation lasted less than two hours. A major breakthrough was unlikely, given that neither Ukrainian President Volodymyr Zelenskyy nor his Russian counterpart Vladimir Putin were present. Turkey’s Foreign Minister described the meeting as “technical talks” aimed to facilitate an eventual meeting between the two presidents. However, following the meeting, the Ukrainian delegation reported that Russia’s demands were unrealistic, beyond what had been discussed earlier. Kremlin propagandist Margarita Simonyan indicated in a post on X that the Russian delegation demanded that Ukraine withdraw entirely from the four Ukrainian regions that Russia partially, but not fully, controls. There was one tangible outcome from the talks, however; the two sides agreed to exchange 1,000 prisoners of war.
The Ukrainian side, which was led by Defense Minister Rustem Umerov, also claimed that the Russian delegation lacked the authority to make important decisions. Zelenskyy was initially planning to attend the negotiations, but only if Putin also appeared in Istanbul, which the Russian leader declined to do. Instead, the Russian delegation was led by Vladimir Medinsky, a presidential aide known for his ultraconservative positions and his role in the failed 2022 talks between Ukraine and Russia. According to Medinsky, he regards the current talks as a continuation of that process. The Russian delegation also included two deputy ministers (of defense and foreign affairs) and Igor Kostyukov, the head of the GRU, Russia’s military intelligence service. Appointing Medinsky to lead the Russian delegation likely signals that the Russian side is not ready for substantial talks with Ukraine and that the Kremlin continues to favor dragging out the negotiations in order to keep its talks with the U.S. alive. U.S. and Russian officials did hold a brief meeting before the Ukrainian-Russian talks, during which they likely touched upon other topics as well as the war in Ukraine.
Initially, the talks in Istanbul were proposed by Putin himself. However, he rejected a joint Ukrainian-EU proposal for an unconditional 30-day ceasefire, which was a condition for Ukraine to engage in the talks. U.S. Secretary of State Marco Rubio and President Donald Trump, who recently threatened to walk away from the peace process altogether, initially supported the Ukrainian position, then changed their minds. They advised Ukraine to take part in the talks regardless, then finally proposed that Putin should meet Trump personally, otherwise “nothing is going to happen.”
Following the failure of the Istanbul talks, the leaders of the UK, France, Germany, and Poland called Russia’s position on the ceasefire “unacceptable.” NATO Secretary General Mark Rutte also said that the Russian President made a mistake by not appearing in person. German Chancellor Friedrich Merz criticized Putin for shunning the talks and underlined that the European Union was ready to adopt a new sanctions package against Russia to put further pressure on the Kremlin. This new sanctions package would target Russia’s “shadow fleet” and financial institutions, among other things, and also confiscate Russian assets. The EU adopted its seventeenth sanctions package against Russia earlier this week, blacklisting some 200 “shadow fleet” tankers, individuals, and organizations involved in the trade of dual-use goods, with the European Commission also presenting plans to completely end the import of Russian gas into the EU. However, in order to increase the chances of energy-related sanctions having a larger impact, the EU will have to coordinate its position with the unpredictable U.S. administration.
— Andras Toth-Czifra
Grigory Melkonyants waved to the media from the glass defendant’s cage during his trial at the Basmanny District Court in Moscow on Wednesday. Melkonyants, co-chair of the election monitoring watchdog Golos, was sentenced to five years in prison for organizing the work of an “undesirable organization” in Russia—charges that are widely believed to be politically motivated. “Don’t worry,” Melkonyants told supporters after the judge announced the verdict, “I’m not despairing. You shouldn’t despair either!” (photo: AP Photo / Alexander Zemlianichenko)
Grigory Melkonyants sentenced
The Basmanny District Court in Moscow sentenced Grigory Melkonyants, one of the leaders of the independent election observation organization Golos, to five years in prison on trumped-up charges of organizing an “undesirable organization” in Russia—the latest high-profile case of political persecution. The authorities regard Golos, without evidence, as the Russian branch of the international election observation network “ENEMO” (European Network of Election Observation Organizations), which was labeled “undesirable” by the Russian government in 2021. In one absurd turn of the court case, the prosecution tried to use a roundtable organized by Russia’s Central Electoral Commission, to which Melkonyants was invited as an expert speaker, as evidence of the alleged crime.
In his final statement before the court, Melkonyants highlighted his pride in intellectual freedom and his joy over the support that he has received over the past years. He talked about his “productivity” in prison and urged his supporters to consider the importance of independent election monitoring. Melkonyants was arrested in 2023, after increasingly harsh crackdowns targeting Golos and its network of volunteer observers. Golos has collected evidence of fraud organized or facilitated by the authorities in various Russian elections. It continued to publish frequent and detailed reports on Russian elections even after being labeled as a “foreign agent” by the Justice Ministry in 2013.
— Andras Toth-Czifra
Poland accuses Russia of orchestrating Warsaw shopping mall fire
Poland has accused Russian intelligence services of orchestrating a major fire in a Warsaw shopping mall last year. On the night of May 11, 2024, a huge fire broke out in the Marywilska 44 shopping center, burning down the building and destroying the 1,400 small businesses inside. After a year-long investigation, Poland has pointed the finger squarely at Moscow. “We now know for sure that the great fire of the Marywilska shopping centre in Warsaw was caused by arson ordered by the Russian special services,” Polish Prime Minister Donald Tusk posted on X. According to Tusk, Polish authorities have already detained some of the perpetrators and are searching for the rest. “We will get you all!” he said.
In an interview with the BBC, Polish Foreign Minister Radek Sikorski said that Russia used Telegram to recruit the arsonists, who were then paid to set the fire. “It was by miracle that nobody was hurt, but this is completely unacceptable,” he said. On Monday, the Polish Foreign Ministry announced the closure of its Russian consulate in Krakow in order to “further curtail” Russian presence in Poland. This is not the first Russian consulate to be shuttered; in October, Poland closed the consulate in Poznan in response to another alleged arson attempt in the region. According to Polish authorities, a Ukrainian man was paid by Russian special services to set fire to factory buildings in Wroclaw. The man, Serhii S., was found guilty and sentenced to 8 years in prison.
Russia has denied the accusations, with Kremlin spokesperson Dmitry Peskov calling them “Russophobic” and “absolutely groundless.” “Warsaw continues to deliberately destroy relations, acting against the interests of its citizens,” Foreign Ministry spokesperson Maria Zakharova said. She added that an “adequate response” will follow soon. After last year’s closure of the consulate in Poznan, the Russian Foreign Ministry retaliated by shutting down the Polish consulate in St. Petersburg.
Relations between the two countries are unlikely to improve anytime soon. According to Sikorski, the Marywilska attack is part of a pattern of “hybrid warfare” by Russia against Poland, involving instances of arson, cyberattacks, and sabotage. Other European countries have accused Russia of hybrid warfare as well, including another arson attempt on an Ikea store in Lithuania last year. “We will take further decisions if they continue these hybrid attacks,” Sikorski said, hinting at the possible closure of other Russian diplomatic services. Russia currently has only one remaining consulate in Poland—in Gdansk—in addition to its embassy in Warsaw.
Meanwhile, the Polish National Research Institute (NASK) recently announced possible foreign interference in Poland’s upcoming presidential election, which begins this weekend. According to NASK, the agency found numerous political ads on Facebook that were likely financed from abroad, although it did not say by which country. However, just days earlier, Polish Digital Affairs Minister Krzysztof Gawkowski remarked that Poland was facing an “unprecedented attempt to interfere in the electoral process from the Russian side.”
— Sara Ashbaugh
Russian state-owned diamond mining company Alrosa unearthed the largest diamond in the country’s history last week. The 468-carat amber-colored stone was named “80 Years of Victory in the Great Patriotic War,” to commemorate this year's anniversary of Soviet victory in World War II. It was discovered in the Sakha Republic in the newly-reopened Mir mine, one of Russia’s largest diamond mines. The news came just a month after Alrosa finished cutting the then-largest diamond in Russia's history—a 100-carat yellow jewel named “New Sun.” (photo: Alrosa)
Further degradation of property rights
Private property rights took two further hits in Russia this week with the adoption of a draft law on the property of emigrants by the State Duma and the publication of a decision by the Constitutional Court on privatization deals.
The law on the property of emigrants, which was adopted in the first reading, allows the authorities to prosecute and convict in absentia Russian citizens who left the country and “act against the interests” of Russia. The authorities would then be able to seize the property of these citizens. In practice, this would mean that any Russian living abroad who criticizes Russia’s war in Ukraine, refuses to comply with Russian authorities’ requests, or shares information that the Russian government regards as fake, could face criminal prosecution and a potential loss of property inside Russia. Legal experts warned that the proposed amendments significantly broaden the circle of “offenses” under which the authorities can target emigres compared to the status quo. The purpose of this is likely to prevent Russian citizens abroad from cooperating with the exiled opposition, Ukrainian organizations, or Western governments.
Also this week, the Constitutional Court established that, in cases having to do with unlawful privatization deals, courts should calculate the statute of limitations from the moment of inspection by the Prosecution and not from the moment of the deal itself. Given that the Prosecution has used these inspections liberally over the past years to support the seizure of business assets in a growing number of sectors and has occasionally seen owners successfully fighting back through the courts, the Constitutional Court’s decision will likely allow the Prosecution to expand the scope of its activities in this field much more confidently.
Both developments highlight the continuing degradation of property rights in Russia, which is an important circumstance for foreign investors to consider as they plan their potential return to the country in the event of the removal of sanctions.
— Andras Toth-Czifra
Report in Short: The War’s Impact on Russia’s Regional Power Dynamics
This week on Report in Short, Aaron Schwartzbaum speaks with András Tóth-Czifra about his recent report, “The Kremlin’s Balancing Act: The War’s Impact On Regional Power Dynamics.” In the report, Tóth-Czifra explains the shift of government control, highlights instances of pushback, and identifies limitations on the Kremlin's strategy going forward.
Quickfire: Regions
Vladimir Putin reportedly approved a new crisis management program for the Russian coal industry. The measures, proposed by Deputy Prime Minister Alexander Novak, draw in VEB.RF, a state development vehicle, to restructure and rehabilitate lossmaking or bankrupt coal enterprises and offer tax and insurance deferrals without collateral to a set list of struggling firms. Additionally, the program forces Russian Railways to subsidize coal exports in the western and southern directions by offering discounts and returning to an earlier method of calculating tariffs, albeit the federal budget will compensate the company for these losses (which, according to earlier estimates, could reach almost 300 billion rubles). The plan also proposes high-level talks with China and India to abolish import duties on Russian coal, but the prospects of this have been highly disputed by industry experts. As regards the budget of the Kemerovo Region (Russia’s main coal-producing region), which has suffered heavy shortfalls, the federal government will use VTB and Sber, two state-owned lenders, to provide loans to the regional budget to plug the gap. This is important because the interest on these loans—more than 23%—is significantly larger than the interest on cheaper budgetary loans that the federal government has, in past years, replaced market loans with. Altogether, both developments highlight the federal government’s unwillingness to increase spending directly and heavily on the struggling coal sector in spite of its continuing troubles.
According to the business news site RBC, the Kremlin set a new “key performance indicator” (KPI) for governors, obliging them to verifiably prepare 30-60 war participants every year to take up positions in public institutions. Earlier, regions were required to set up local equivalents of the federal “Time of Heroes” program, which trained handpicked war participants (e.g. current Urals Presidential Plenipotentiary Artyom Zhoga) to work as public officials. An even earlier set of KPIs included a (more vague) mention of helping war participants find jobs. Notably, RBC’s sources claim that many veterans who are appointed to public offices are supposed to interact with other veterans as government representatives. In this sense, the purpose of the program seems to be to maintain control over the potentially problematic group of returnees, rather than to elevate them into the status of a “new elite,” as Vladimir Putin mentioned earlier. The Vyorstka news outlet recently reported that the Kremlin has allocated at least 215 million rubles for supporting the “Association of Special Military Operation Veterans,” another means of keeping the activity of returnees under control.
— Andras Toth-Czifra