Energy ceasefire
Russia and Ukraine agree to pause attacks on energy infrastructure
Hello from the Bear Market Brief.
This week in the news:
Vladimir Putin agreed to a temporary “energy ceasefire” during a phone call with Donald Trump.
A U.S. delegation will meet with Russian and Ukrainian teams separately in Saudi Arabia next week to facilitate peace talks.
Russian regions are implementing programs to help reintegrate war participants into civil life following a potential demobilization.
At their Board of Directors meeting, the Central Bank of Russia maintained the key rate at 21% despite criticism from the business community.
— Sara Ashbaugh, Editor in Chief
Trump-Putin call
U.S. President Donald Trump held a long phone conversation with President Vladimir Putin—after several other unannounced calls, according to Trump—in which the two discussed a tentative 30-day ceasefire involving strikes on energy infrastructure as well as an agreement on Black Sea security. Later, Ukrainian President Volodymyr Zelenskyy also agreed to implement the ceasefire. However, Russia has continued to target Ukrainian civil and energy infrastructure, and Ukraine reportedly hit a south Russian oil depot in response.
For Russia, focusing on energy infrastructure is important because of a series of successful Ukrainian drone attacks against Russian energy establishments over the past week. These include a hit on the Tuapse oil refinery on March 14, a drone allegedly hitting an oil depot in the Krasnodar Territory on March 19, as well as several other successful attacks that have started causing problems for Russia’s fuel industry. In regards to the Black Sea initiative, Russia appointed Sergey Beseda, current aide to the director of the Federal Security Service (FSB), to handle the talks on Russia’s behalf. In 2022, Beseda was reportedly one of those named responsible for the Russian intelligence failure prior to the invasion.
According to the Russian readout of the call, Putin refused to agree to the earlier U.S.-Ukrainian ceasefire proposal, but in a way that suggested that Russia was ready to cooperate with the U.S. government and Trump should pressure Ukraine to do more to make peace possible. Russia also accused Ukraine of “undermining the U.S. President’s peace initiatives” by attacking the Kavkazskaya oil depot. In particular, Putin stressed that any settlement of the war should take into account Russia’s “legitimate security interests,” and that Ukrainian military mobilization and rearmament and U.S.-Ukrainian intelligence sharing should stop. The Russian President also hinted that he saw the continued presence of Ukrainian soldiers in the Kursk Region as a serious obstacle to any deal.
The main Russian objective still seems to be decoupling talks with the U.S. on economic cooperation and sanctions from developments in Ukraine. Over the past week, the Kremlin has carefully tried to manage expectations about an imminent end to warfare in Ukraine domestically, all while keeping the focus on sanctions relief and economic cooperation in its talks with the U.S. According to the U.S. readout of the Trump-Putin call, potential bilateral cooperation was the focus of the call, rather than Ukraine. Prior to his call with Trump, Putin told business leaders that he would agree not to take Odessa (a city that Russia is ill-equipped to subdue, but which it attacked on Thursday) “and other territories” if Ukraine were to accept Russia’s terms, but he also warned them that he did not expect the economic dimension of the conflict to end in the near future. Putin was reportedly also pushing the Trump Administration to recognize the territories occupied by Russia in Ukraine as parts of Russia. According to press reports, the U.S. government was considering both recognizing the annexation of Crimea and putting the Zaporizhzhia nuclear power plant on the table as a bargaining chip, but it does not appear that the Trump Administration took actual steps in these directions. At the same time, the many symbolic efforts around the call (e.g. plans to organize hockey games between American and Russian teams) and the American side’s refusal to criticize Russia both certainly benefit the Kremlin’s foreign policy agenda.
— Andras Toth-Czifra
A Ukrainian drone strike hit the Engels-2 airbase in the Saratov Region early Thursday morning, igniting weapons storage warehouses and causing a series of explosions. The resulting blasts set fire to the base and damaged more than 30 homes in the nearby community. The airbase is home to Tu-95 and Tu-160 strategic bombers, which Russia has used to carry out air attacks on Ukraine. The Russian Defense Ministry reported downing 54 drones over Saratov on Wednesday night, in what Saratov Governor Roman Busargin described as the “largest ever” drone strike on the region. (photo: t.me/astrapress)
Ukraine to hold talks with the U.S. in Saudi Arabia
On Thursday, Ukrainian President Volodymyr Zelenskyy announced that Ukrainian and American delegations are scheduled to hold a new round of talks in Saudi Arabia on March 24. On the same day, the U.S. delegation will also meet separately with the Russian delegation. The U.S. Special Envoy for Ukraine and Russia, Keith Kellogg, clarified that the Ukrainian and Russian delegations will be in separate rooms, with American representatives moving between the two to facilitate the discussions.
Zelenskyy provided some insight into the ongoing ceasefire negotiations. He explained that Ukraine initially proposed a ceasefire “in the air and at sea” to the U.S., as the Ukrainians did not believe Russia would agree to a full ceasefire. However, the U.S. rejected this proposal, stating that their goal was to end the war and demand a complete ceasefire from Russia. After the U.S. meeting with the Russians, the discussions reportedly shifted back to a partial ceasefire, focusing on energy infrastructure and other civilian infrastructure. Zelenskyy noted that he informed U.S. President Donald Trump that Ukraine would prepare a list of infrastructure facilities that Kyiv considers “civilian” and believes should be included in the agreement.
Before Zelenskyy's announcement regarding the talks in Saudi Arabia, Trump had a phone conversation with Russian President Vladimir Putin on March 18. The following day, Trump spoke with Zelenskyy. After these calls, Trump stated that he had reached an agreement with Putin for an immediate ceasefire involving all energy and civilian infrastructure facilities. Despite this, Russia launched a large-scale drone strike against Ukraine overnight on March 19, damaging a hospital in Sumy in northeastern Ukraine. On the evening of March 19, Russia also targeted a residential area in Kropyvnytskyi, a city in central Ukraine, injuring 10 people (including four children).
In retaliation, Ukrainian drones struck Russia’s Engels-2 airbase in Saratov oblast overnight on March 20, according to a source from the Security Service of Ukraine. Following the attack, a fire broke out at the airbase, accompanied by explosions and secondary detonations of ammunition. The Engels-2 military airbase is home to strategic bomber planes that are frequently used for aerial strikes on Ukraine.
— Lisa Noskova
Are Russian regions preparing for demobilization?
According to the business daily Kommersant, over the past three months, more than half of Russia’s regions have started programs aiming to reintegrate war participants into civil life by training them and offering them jobs in the public and private sectors. Most of these programs are regional versions of the “Time of Heroes” initiative announced last year, which saw more than 20 handpicked war participants appointed to (typically, but not only) junior positions in public administration. The regional programs, which have been set up to start later this year, suggest that the Kremlin is not ruling out mass demobilization sometime this year. The programs would place returnees in jobs within state and municipal authorities (the Khanty-Mansi Autonomous District, for instance, claims to have reserved 1,500 jobs for them), patriotic organizations, and large companies. Some regions will create funds to help returnees set up private businesses; pilot projects were (or will be) launched in the Ryazan Region, Lipetsk Region, Tatarstan, and Dagestan, and the Stavropol Territory has announced preferential loans and credit holidays.
Either way, it appears that, similar to enforcing COVID rules and recruiting contract soldiers, regional and local governments will be expected to motivate or coerce local private entrepreneurs into carrying out the policies set by the Kremlin. This has been confirmed by the sources of journalist Farida Rustamova, who also suggested that the Kremlin is afraid of a wave of violence, alcoholism, and continued pressure for massive social payments or high salaries once soldiers are demobilized. This highlights how social and labor market distortions triggered by the Kremlin’s focus on the war are likely here to stay, even in the event of a ceasefire or peace talks.
The elevation of war participants to the status of a “new elite,” which the Kremlin has turned into a policy priority, will likely also keep causing friction—due to both the expected cooperation of private employers and existing elites working to protect their positions.
— Andras Toth-Czifra
Warm weather caused major flooding in the Chelyabinsk Region this week. Melting ice raised the water levels in several rivers, flooding cities and villages across the region. The Emergency Situations Ministry evacuated 70 residents from the city of Asha, and at least 28 residential homes are at risk of flooding in the village of Ostrolensky. Warm weather has led to flooding in other Russian regions as well; runoff from melting ice breached a dam in the Krasnoyarsk Region on Wednesday, causing the Minusa River to overflow. As a result, 21 people have been evacuated from the nearby Minusinsk. (photo: 74.mchs.gov.ru)
Central Bank maintains the key rate
The Central Bank of Russia (CBR) maintained the key rate at 21% during its Board of Directors meeting on Friday, citing high inflationary pressures as a main factor in its decision. Annual inflation exceeded 10% in February, well above the Bank’s 7-8% forecast for 2025. “Current inflationary pressures have decreased but remain high, especially underlying ones,” the Bank said in a press release following the meeting. The statement went on to say that the CBR expects annual inflation to return to its 4% target in 2026, although it also warns that achieving this will require “a long period of maintaining tight monetary conditions in the economy.” This may include raising the rate further, CBR Governor Elvira Nabiullina said at a press conference on Friday, if additional pro-inflationary risks materialize. “Our current view is that monetary conditions are sufficiently tight, but if it is necessary, we are ready to raise the rate,” she said.
The CBR hiked the rate to 21% last October, its highest level in more than 20 years. This immediately sparked concern from Russian banks and businesses that high interest rates would stifle economic growth. Despite analysts’ expectations that the Bank would hike the rate further at its Board of Directors meeting last December, it maintained the current rate. This decision may have been influenced by President Putin, who requested “balanced” action by the Bank during his annual Direct Line call-in show on December 19. Current monetary policy has faced significant public criticism, including from several prominent Russian entrepreneurs, leading to political tension. On Tuesday, Putin commented on the key rate again, urging the CBR to avoid “excessive cooling,” and comparing current monetary policy to a “cryotherapy chamber.” While the CBR did not decrease the rate during this week’s meeting, it remains optimistic that inflationary pressures will continue to decline. A stronger ruble, high domestic demand, and a cooldown in lending are all reducing the risk of inflation. Additionally, as the CBR notes, “if geopolitical tensions ease, external conditions may improve, which might have a disinflationary effect.”
The CBR will discuss the key rate again at their next Board of Directors meeting on April 25.
— Sara Ashbaugh
On the podcast
The two weeks after Donald Trump and Volodymyr Zelenskyy’s Oval Office clash have precipitated drastic shifts in transatlantic relations and the potential trajectory of Russia’s war in Ukraine. Now a possible ceasefire is on the horizon.
This week on the Bear Market Brief podcast, host Aaron Schwartzbaum and Maximilian Hess make sense of the Oval Office blow-up and discuss President Trump’s strategic aims, Russia’s goals, Europe’s response, the U.S.-Ukraine minerals deal, and what might come next with Russian sanctions.
Quickfire: Regions
The springtime series of gubernatorial resignations continued this week with Yury Bezdudny, the head of the Nenets Autonomous District (NAO), a sparsely-populated but hydrocarbon-rich Northern Russian region. Bezdudny left after four and a half years in office. Before his appointment in 2020, he was the deputy of his predecessor, Alexander Tsybulsky, who went on to become the governor of the Arkhangelsk Region, to which the NAO is administratively connected. Together, they spearheaded a botched attempt to merge the two regions (and their budgets), which elicited significant resistance from local elites in the NAO—enough for it to become the only Russian region that, according to the official tally, rejected Vladimir Putin’s constitutional reform that year. Bezdudny’s successor is Irina Gekht, who made her career in the Chelyabinsk Region under three different governors. Gekht most recently worked in the occupation administration in the Russian-occupied part of Ukraine’s Zaporizhzhia Region. She is thus the latest in a series of regional leaders to be appointed after a stint in Ukraine or following work in a position having to do with the war. The business paper Vedomosti earlier speculated that several other gubernatorial resignations are likely this spring, but, as of this writing, no more have taken place. In fact, Putin endorsed the candidacy of one of the officials who was rumored to resign imminently: Kostroma Governor Sergey Sitnikov, who has been in office for 13 years.
Several Russian regions are reporting problems with the provision of medical services. In the Kemerovo Region (which experienced a fiscal shock last year due to the crisis of its coal mining enterprises), local media reported mass dismissals and salary cuts at a pulmonology hospital, albeit the local authorities have denied this. The regional government, however, has had to cut other social expenditures over the past months. In Miass in the Chelyabinsk Region, local media reported that dozens of paramedics quit their jobs at the same time due to low salaries and a lack of support from higher ups. In a town in the Moscow Region, locals protested against the closure of the pediatric wing of the local hospital due to layoffs. Over the past year, medical personnel, especially paramedics, have mounted protests in several regions to draw attention to their low wages and poor working conditions. Regional spending on health care grew significantly during the COVID pandemic but dropped over the past three years, even as inflation has soared.
The Anti-Corruption Foundation (FBK), founded by the late Alexei Navalny, published an investigation alleging that Vasily Golubev, the former governor of the Rostov Region, bought real estate worth more than $10 million in Dubai following Russia’s full-scale invasion of Ukraine. The apartments were registered under the names of Golubev’s family members, and, according to the FBK, Golubev was going to use them as a safety net if he had to flee Russia. The former governor, who has since become a member of the Federation Council representing the Rostov Region, has become a person of interest for the Russian authorities as well. In February, he was reportedly summoned to the Investigative Committee for questioning, with the Security Service (FSB) and the Prosecution also interested in hearing from him. Although this was later denied, several of his former aides and ministers in the regional government have been arrested or questioned over the past months in relation to the embezzlement of money from grand development projects in the region, also suggesting that the Russian authorities may be interested in Golubev’s attempt to transfer wealth abroad.
— Andras Toth-Czifra