Direct line to Putin
Putin reinstates his annual call-in press conference called "Direct Line"
Hello from the Bear Market Brief!
This week in the news:
Putin visited the United Arab Emirates and Saudi Arabia on Wednesday in a rare trip abroad.
Regional budgets predict growing deficits next year.
Putin reinstated his annual call-in press conference called “Direct Line,” which will take place on December 14.
U.S. Senate Republicans voted against a $111 billion emergency supplemental package that included aid for Ukraine.
Polish truckers continue to block border checkpoints with Ukraine in protest of the EU’s transport permit rules for Ukrainian trucks.
Putin visits the Middle East
President Putin made a brief trip to the United Arab Emirates (UAE) and Saudi Arabia on Wednesday. Ahead of the visit, the Kremlin announced that he would meet with the countries’ leaders to discuss de-escalation in Gaza as well as conflicts in Syria, Yemen, and Sudan. Additionally, the oil market is “always on the agenda,” Kremlin spokesperson Dmitry Peskov said. Western sanctions have limited Russia’s oil profits, forcing it to look elsewhere to fund its war effort in Ukraine. Over the last year, Russia has drastically increased crude oil exports to both Saudi Arabia and the UAE, making them key trading partners.
Putin received a warm welcome when he arrived in Abu Dhabi, including an air show that painted the sky with the colors of the Russian flag. In his meeting with UAE President Sheikh Mohamed bin Zayed Al Nahyan, he praised the countries’ trade relationship, calling the UAE “Russia’s main trading partner in the Arab world.” Bilateral trade between Russia and the UAE reached a record-breaking $9 billion last year. The COP28 UN climate talks are also currently taking place in the UAE, but Putin did not attend any COP28 events. He traveled to Saudi Arabia later that day to meet with its de facto leader, Crown Prince Mohammed bin Salman. The pair had a brief televised chat in which they complimented their countries’ bilateral cooperation. “Nothing can prevent the development of our friendly relations,” Putin said.
Putin has traveled abroad only a few times since March, when the International Criminal Court (ICC) issued a warrant for his arrest. He is accused of taking children from the occupied territories of Ukraine and transferring them to Russia, which is a war crime. As a result, he has been absent from several international summits this year, including the G20 and BRICS summits. He has, however, visited countries that do not recognize ICC’s jurisdiction, such as China, Iran, Kyrgyzstan, and Kazakhstan.
On Thursday, Putin met with Iranian President Ebrahim Raisi in Moscow. “Our relations are developing very well. Please convey my best wishes to the Supreme Leader, Ayatollah Khamenei,” Putin said in his official remarks, before praising the countries’ trade relationship. The pair also discussed the war in Gaza. “This is not a regional issue, but a global issue, and a solution should be found promptly,” Raisi said.
— Sara Ashbaugh
Moscow set a new record for daily precipitation on Sunday, when 11 millimeters of precipitation fell in just 12 hours. The previous record for December 3 was set more than 40 years ago at 9.4 millimeters. A storm originating in southern Europe is responsible for the snow in Moscow, as well in the Smolensk, Kaluga, Ryazan, and Penza regions. The height of the resulting snowdrifts is also breaking records, with some reaching over 40 centimeters in the capital. (photo: Alexander Avilov / Moskva News Agency)
Budget blues
Regions continued adopting their 2024 budgets over the past week. While there are no overarching figures available yet, several major regions expect to run deficits next year—expenditures on housing, social aid and public investments are expected to grow. Based on the most recent data on the (aggregate) execution of regional budgets as of October, regional incomes have grown adequately this year. Revenues from profit taxes are 21% higher and personal income tax receipts are 13% higher y-o-y, even though transfers from the federal budget have only grown by 8% (only slightly above inflation). The growing incomes mostly reflect the effects of state-driven economic stimuli: inflation and—to a certain extent—growing oil prices. Planned deficits next year, however, suggests that the economic recovery experienced in 2023 will have run its course. It is likely that the structural limitations of further growth—labor shortages, higher interest rates, and limited infrastructure capacities—will be felt in regional finances, all while expenditures will likely remain high, at least in the first half of the year. A recent report published by the Central Bank also suggests that economic growth is slowing in the fourth quarter of 2023, and that revenues from energy exports—currently strong due to high oil prices in spite of the G7 oil price cap—are also expected to drop in the coming months. Regions can, however, also rely on budgetary and short-term treasury loans to cover their deficits.
Meanwhile, Igor Sechin, the CEO of Rosneft, openly criticized both the Finance Ministry and the Central Bank for their economic policymaking last year. In a Rosneft press release issued just a day before he met with Vladimir Putin (behind closed doors), Sechin said that it was the government’s decision to temporarily withdraw “damper” payments for oil exporters that triggered a fuel crisis on the domestic market. He also criticized the changes to the taxation of oil and gas production and exports adopted this year in a bid to increase the income of the federal budget. Sechin also said that higher interest rates have diminished Rosneft’s profits, all while the Central Bank has not figured out how to ensure cross-border financial transactions.
Sechin’s frustration and cautious regional budgeting suggest that in spite of better-than-expected numbers for Russia’s treasury this year, the country’s economic stability is seen as precarious. The government’s economic policymaking (characterized by a focus on securing savings and additional revenues as they appear) and its prioritization of the war and the occupied regions (which technocrats can only react to) are creating frustration in the regions.
— Andras Toth-Czifra
Direct Line
President Putin will hold his marathon call-in press conference called “Direct Line” on December 14. This is going to be the first time since the start of the February 2022 invasion of Ukraine that Putin participates in what used to be an important and symbolic yearly event. Last year, the Kremlin decided not to hold it, likely due to the still-fresh memory of military mobilization and Ukrainian successes on the battlefield. This year, however, the Presidential Administration seems to have found a narrative of the war (a civilizational struggle with a decadent West, which does not affect the material well-being of Russian voters) that it feels comfortable with for a long, ostensibly live interview with Putin. The event announcement was timed to come shortly after the announcements that Russia’s next presidential election will be held on March 17 (and the two preceding days) and that Putin will run.
The “Direct Line” is not only supposed to showcase the President’s competence and concern for the problems of the average voter (in carefully choreographed bits of Putin lecturing hapless local officials); it is also an important survey of the problems that voters expect the President to solve (even though the majority of the questions sent in by voters will not get addressed). It is noteworthy then, that according to a Levada Center poll, 21% of those surveyed want to ask the President about the end of mobilization and the war—topics that are increasingly concerning to both the population and the Kremlin. Relatives of mobilized men from the Samara and Vladimir regions are reportedly planning to flood editors with their questions and demands regarding the rotation of their loved ones out of Ukraine. The rest of the most popular question topics concern bread-and-butter issues.
Over the past week, several regional governors also held similar press conferences. These typically take place at various times across the year and are usually shorter than Putin’s “Direct Line.” The issues covered here are mostly of local interest, such as ecological concerns and problems with housing and local investments. However, they also cover topics connected to the war, such as social support to the families of war participants and labor shortages. The federal government expects governors to handle these issues on their own, but also to use a format trademarked by the President in their interactions with their voters.
— Andras Toth-Czifra
According to American officials, Moscow rejected a new proposal for the release of two Americans detained in Russia. Evan Gershkovich, a Wall Street Journal reporter, and Paul Whelan, a former U.S. Marine, were both arrested on espionage charges. In 2020, Whelan was found guilty and sentenced to 16 years in a maximum security colony. Gershkovich is in pre-trial detention and can be seen here at an appeal on October 10, 2023. U.S. State Department spokesperson Matthew Miller described the recent proposal for their release as “substantial,” but did not provide any other terms of the deal. “We don't discuss this topic in public,” Kremlin spokesperson Dmitry Peskov said. (photo: REUTERS/ Evgenia Novozhenina / File Photo)
Aid package blocked
On Wednesday, U.S. Senate Republicans blocked a $111 billion emergency supplemental package that included financial aid for Ukraine and Israel. This package—requested by President Biden—also included aid for the Indo-Pacific region, funding for humanitarian aid in Gaza, and provisions aimed at bolstering border security and combating fentanyl trafficking. 60 votes were needed to advance the bill, but the Senate voted against it in a 49 to 51 vote, with all Republicans voting against. According to Senate Republicans, the bill did not include satisfactory domestic border security reforms.
The summary of the legislation shows that the package would provide $15.1 billion for U.S. support to Ukraine through military training, intelligence sharing, increased presence in the European Command area of responsibility, and other activities until November 15, 2024. It would include $13.5 billion for weapons to be built by the U.S. industrial base to re-arm Ukraine as well as $24.25 billion to replenish U.S. weapons provided to Ukraine and Israel. Lastly, the bill would “provide $1.7 billion in foreign military financing to address Ukraine’s and other regional partners’ air defense, artillery, maritime security, and maintenance and sustainment requirements; $360 million to help Ukraine reestablish and maintain rule of law across the country; and $100 million to support export controls, address Russia’s sanctions evasion, provide counter-Chemical, Biological, Radiological, Nuclear, and Explosives assistance and training, and sustain demining efforts.”
Prior to the vote, President Biden emphasized the urgency of passing the bill before the holiday recess. On Monday, in a letter to House and Senate leaders, Office of Management and Budget Director Shalanda Young warned that the U.S. will run out of funding to procure weapons and equipment for Ukraine by the end of the year. She stressed that “cutting off the flow of U.S. weapons and equipment will kneecap Ukraine on the battlefield” and provide the Russians with a window of opportunity for future military victories. Ukraine’s President Zelensky has not commented on Republicans blocking the bill yet. Moreover, he was supposed to have a high-profile briefing with U.S. lawmakers on Tuesday, but it was canceled last minute. Senate leader Chuck Schumer did not elaborate why the meeting was canceled.
— Lisa Noskova
Polish border protests continue
Polish truckers have been blocking checkpoints on the Polish-Ukrainian border since November 6, protesting the EU’s 2022 decision to suspend transport permit requirements for Ukrainian trucks. As the protest enters a one-month mark, around 2,500 trucks remain stuck on the border waiting to cross.
The European Business Association conducted a survey among 55 member companies whose operations were affected by the protests on the border. According to the Association’s findings, on average, one day of downtime costs a company about 1 million hryvnia (which converts to around $27,000) in losses. The total estimated amount of losses incurred by the surveyed companies since the beginning of the Polish protests is at least UAH 305,880,000 hryvnia (over $11,300,000).
Ukrainian retailers shared that the blockade has significantly complicated the delivery of goods into the country and forced companies to forgo some imports altogether. In addition to Polish products, imports from other countries, including the Baltics, Germany, and Belgium, now have to be transported through alternative routes. Movement restrictions on the Polish-Ukrainian border have resulted in longer lines on the borders with Slovakia and Hungary, increased delivery times, and raised transportation costs. Many retailers also face a challenge in finding transportation, as many trucks are still stuck on the Polish border. Naturally, the border blockade also negatively impacts consumers. It increases the risks of shortages and results in price hikes. Furthermore, retailers are now unable to offer any price promotions or other favorable offers to consumers. Polish businesses are also affected by the protests, as Ukrainian grocery stores sell a lot of Polish dairy products, frozen vegetables and fruits, pasta, beverages, alcoholic products, cleaning supplies, and cosmetic goods.
Kyiv and Warsaw have yet to negotiate a solution to the border blockade. Thus far, the countries agreed to open an the Ugriniv-Dolhobychuv checkpoint for empty freight trucks to free up the other border crossings, which is not immediately helpful to Ukrainian retailers who import goods from other countries.
— Lisa Noskova
On the Podcast
Almost two years after Russia’s full-scale invasion, Bear Market Brief investigates how we got here in the first place. What does theory say about Vladimir Putin’s decision making? Seva Gunitsky joins to discuss.
Quickfire: Regions
Pushback against local self-governance in the city of Tomsk, which has experienced remarkably pluralistic politics over the past few years, continues. After scrapping direct mayoral elections last year and appointing a mayor with no prior connection to the city earlier this year, this week, the Tomsk City Duma voted to transfer oversight of urban planning and development to the regional government. The vote was close but it passed, suggesting that the ruling party somehow convinced opposition deputies to support the proposal. The decision significantly extends the regional government’s control over the city. Days before the vote, Chingis Akataev, the United Russia Speaker of the City Duma, resigned. He cited pressure from the region’s deputy governor, an FSB-connected outsider from Moscow, as the reason. Ksenia Fadeeva, his erstwhile independent rival and former head of Alexey Navalny’s office in the city, was put on trial for “extremism” charges earlier this year. Meanwhile, the trial against the city’s former (directly elected) mayor Ivan Klein also continues. Klein is accused of abuse of office for ordering a road repair as mayor (which the City Hall still denies).
According to Kommersant, the Federal Antimonopoly Service suggested increasing electricity tariffs for industrial consumers in Central Russia and the Urals in order to finance subsidized prices in the four annexed regions of Ukraine. The annexed regions will require 36 billion rubles ($391 million) worth of subsidies in 2024, of which the federal budget can only provide 3 billion ($33 million). According to budgetary estimates, the occupied regions will need to be subsidized this way until at least 2028 (provided that they are not liberated by Ukraine). This proposal highlights both the federal government’s prioritization of the war over domestic efficiency and its methods to provide covert subsidies to the occupied regions.
Prosecutors in the Kirov Region are seeking a 12-year prison sentence for the region’s former governor, Nikita Belykh. Belykh is a former opposition politician who accepted the gubernatorial nomination in 2009 from then-president Dmitry Medvedev. Additionally, he was advised by Alexey Navalny. He is already in prison after being sentenced to eight years in 2018 for alleged bribe-taking. In another high-profile trial of a Medvedev-era official, prosecutors asked the court to sentence Mikhail Abyzov, a former federal minister for open governance, to 19.5 years in prison for large-scale fraud. Abyzov was arrested in 2019, a year after leaving office. While the merits of the two cases might differ, the prosecutorial approach to both reflects the increasingly hard crackdown on those seen as deviant members of the political elite.
— Andras Toth-Czifra