Freezing their assets off
President Putin signed a decree offering to trade Russian residents for their frozen foreign assets
Hello from the Bear Market Brief!
This week in the news:
President Putin signed a new decree allowing Russians to trade their frozen foreign assets for assets belonging to foreign companies in Russia.
Numerous court cases against activists and journalists show that Russia is ramping up its repression of dissidents.
The State Duma adopted a proposal to raise the mineral extraction tax on natural gas and gas condensate in its second reading.
The Commander-in-Chief of the Armed Forces of Ukraine listed five major needs for Ukraine to win the war.
Frozen foreign assets
On Wednesday, President Putin signed a new decree aimed at freeing frozen foreign assets owned by Russian investors. The decree allows Russians to trade in their foreign assets, which have been frozen by sanctions, for assets belonging to foreign companies within Russia.
Last year, sanctions imposed by the West following Russia’s invasion of Ukraine cut Russia off from the international banking system and froze Russians’ assets abroad. According to the Russian government, 3.5 million Russians currently own a total of $16 billion in frozen foreign investments. In response to sanctions, the Russian government froze the assets of foreign investors and companies within Russia. Now, according to the new decree, the government will exchange the frozen assets of foreign companies in Russia for frozen assets owned by Russians abroad. Russian residents can trade assets up to a value of 100,000 rubles ($1,085), and the foreign company will get back the shares previously owned by the Russian investor. However, in order for this to work, foreign clearing houses such as Euroclear and Clearstream would have to facilitate the exchange of shares.
In addition to freezing assets, the Russian government has made it increasingly difficult for foreign companies to exit the Russian market. In some cases, Russia has outright seized local subsidiaries of foreign companies, including subsidiaries of France’s Danone, Denmark’s Carlsberg, Germany’s Uniper, and Finland’s Fortum. Under a law that allows the government to take “temporary management” of the assets of “unfriendly countries,” Carlsberg-owned Baltika Breweries was placed under the control of the Russian Federal Agency for State Property Management last July. Carlsberg was in the process of selling Baltika when the business was seized. This week, Carlsberg officially cut ties with its Russian subsidiary. “We're not going to enter into a transaction with the Russian government that somehow justifies them taking over our business illegally,” said Jacob Aarup-Andersen, Carlsberg’s new CEO. “There is no way around the fact that they have stolen our business in Russia," he added.
Russia also introduced new currency controls that make it more difficult for foreign companies to sell their Russian assets. According to the Financial Times, companies are now required to sell Russian assets for rubles rather than dollars or euros. If they insist on receiving foreign currency, they risk delayed payments in reduced amounts. Although Kremlin spokesperson Dmitry Peskov denied that the new currency controls were related to fluctuations in the ruble, it’s likely that the government is attempting to prop up the falling currency. The new restrictions add to existing requirements that foreign companies sell Russian assets at a 50% discount and pay a 15% contribution to the state budget.
— Sara Ashbaugh
Snapshot
On November 4, in celebration of National Unity Day, an exhibition called “Russia” opened at VDNKh in Moscow. Russian patriotic musical artist Shaman, pictured here, performed at the opening ceremonies with a children’s choir. Within the exhibition, regions and state-owned companies showcased their unique successes and attractions. According to Siren, the exhibit reportedly cost 5.1 billion rubles ($55.3 million). Its aim is likely to highlight Russia’s achievements ahead of the 2024 presidential election and generate patriotic support for the government. The exhibition will run in VDNKh until April 2024. (photo: Maxim Shemetov / Reuters / Scanpix / LETA)
Don’t mention the war
There have been several court cases against activists and journalists in various regions over the past week. Together, these cases highlight that the authorities are determined to step up the repression of dissidents, especially those criticizing Russia’s war in Ukraine, before the March 2024 presidential election (which is likely going to be dressed up as a grand acclamation of the war). Most of the cases involved political prisoners who were jailed over the past 20 months, but authorities are also constantly bringing new cases against dissenters.
On November 2, the authorities brought new charges against Maria Ponomarenko. The RusNews journalist was sentenced to six years in February for posting about the Russian army’s bombing of the Mariupol Drama Theater, which was being used as a bomb shelter in Ukraine. She was accused of “spreading fakes” about the Russian army. This time, Ponomarenko stands accused of attacking a prison guard, which she denies. This charge could add several years to her sentence. Ponomarenko has previously complained about the circumstances in which she has been held in prison, accusing the prison authorities of torturing her.
Three days later, authorities in Chuvashia opened a case against Semyon Kochkin, the editor of the Telegram channel “Angry Chuvashia,” for using the symbol of an extremist organization. The symbol in question is a white-blue-white flag used both by certain dissidents and paramilitary organizations, such as the “Freedom of Russia” legion, fighting on the side of Ukraine. Kochkin, however, thinks that the authorities targeted him due to his channel’s reporting on Russian military losses in Ukraine.
In St. Petersburg, the trial of Sasha Skochilenko, an activist who protested against the war last year by replacing price tags in supermarkets with anti-war messages, closed this week. She faces up to 8 years in prison.
Also this week, a second-degree court confirmed the 2.5-year prison sentence of Natalya Filonova, a 62-year-old pensioner-activist from Buryatia who was accused of beating four policemen at an anti-war protest. Another court confirmed the 7.5-year prison sentence of Liliya Chanysheva, the former head of Alexei Navalny’s local headquarters in the city of Ufa, in a trial held behind closed doors. Chanysheva is now also accused of “organizing an extremist group” and of being “motivated by political hatred.”
— Andras Toth-Czifra
A taxing debate
The State Duma adopted, in the second reading, a proposal to raise the mineral extraction tax (MET) on natural gas and, crucially, gas condensate, which is also used as motor fuel. The measure is expected to increase the tax burden of Gazprom (though not on some of its subsidiaries, such as Gazpromneft). Earlier, state-owned oil company Rosneft complained that the original plans to raise MET on gas benefited Gazprom over smaller gas producers. Gazprom’s losses, stemming not only from higher taxes but also from the loss of its European export markets, will be compensated by higher domestic gas prices and a major cut in the company’s investment program. Energy exporters will also likely be exempt from paying the “extraprofit tax” introduced by the government this year.
The purpose of the tax changes is to compensate the budget for the full reintroduction of so-called “damper” payments—essentially, compensation for selling products on the domestic market—to oil companies. In September, the halving of these payments contributed to fuel price hikes and shortages, so the government reinstated them. This decision will cost the budget an estimated 400 billion rubles ($4.3 billion) in the fourth quarter.
The proposal also suggests changing the method of calculating mineral extraction tax for oil producers. While the budget will continue using prices quoted by the Argus pricing agency, in the future it will take into consideration the price of oil before loading in Russian ports, instead of the price including freight and insurance costs (CIF) in the European ports of Rotterdam and Augusta.
Debates around the taxation of the energy sector highlight how Russian policymakers are scrambling to keep the budget stable and domestic political risks low amidst rapidly changing conditions triggered by the war and Russia’s forced pivot to Asian export markets.
— Andras Toth-Czifra
Snapshot
On Sunday night, the northern lights were visible across Russia due to a rare solar storm. This geomagnetic storm caused significant ejections of the sun’s corona, making the northern lights visible much farther south than usual. The scarlet and green aurora borealis was seen all the way from Russia’s Far East to the North Caucasus. It was also visible in Ukraine, Turkey, Kazakhstan, Georgia, and parts of North America. (photo: The Moscow Times)
What Ukraine needs to win the war
On November 1, The Economist published an article by the Commander-in-Chief of the Armed Forces of Ukraine, Valerii Zaluzhnyi, in which he laid out Ukraine’s five major needs to win the war. According to General Zaluzhnyi, the war is now entering a stage of “positional” warfare characterized by static and attritional fighting, which benefits Russia because it gives it time to rebuild its military power.
The first key need highlighted by General Zaluzhnyi is air power—specifically drones. More drones will allow Ukraine to overload Russia’s air defense systems and hunt down Russian drones, among other things. Second, Zaluzhnyi pointed to the importance of improving electronic warfare, specifically jamming Russia’s communication and navigation signals while avoiding suppression of Ukraine’s drones. To achieve this, Ukraine needs access to more electronic intelligence from its allies, including data from assets that collect signals intelligence. The third key task is enhancing counter-battery fire to defeat Russian artillery. According to General Zaluzhnyi, Ukraine has achieved parity with Russia through a smaller quantity of more accurate firepower. However, he believes that this parity may not last and that Ukraine needs to grow its local GPS fields to make precision-guided shells more accurate in the face of Russian jamming. He also emphasized the importance of using kamikaze drones to target Russian artillery. Fourth, Ukraine needs mine-breaching technology such as sensors that use invisible pulses of light to detect mines in the ground and smoke-projection systems to help conceal the activities of Ukraine’s demining units. Lastly, General Zaluzhnyi said building up reserves may help Ukraine break out of positional warfare. Ukraine is introducing a unified register of draftees, and Zaluzhnyi argued that Ukraine should expand the category of citizens who can be mobilized into the Armed Forces as well.
Zaluzhnyi’s article provoked discussion among Ukrainian officials and military experts. For instance, Deputy Head of the Office of the President Ihor Zhovkva criticized the article and said that the military members should not comment on the situation on the front in the media. Last weekend, during a joint press conference with the Head of the European Commission Ursula von der Leyen in Kyiv, President Zelensky commented that the war has in fact not entered a stalemate.
— Lisa Noskova
On the Podcast
Where does Russian public sentiment on politics and war stand these days? And on a more basic level, how is it measured? Bear Market Brief talked with Isabelle DeSisto of Russia Watcher to learn more!
Quickfire: Regions
The U.S. Treasury sanctioned Arctic LNG 2 LLC, the company behind the Arctic LNG 2 project of Novatek, a major gas company and LNG exporter. This means that all transactions with the project will be forbidden except those related to divestment. The sanctions will mostly affect France’s TotalEnergies, which owns a 10% direct stake in the project (along with Chinese and Japanese consortiums and Novatek itself), and which had previously indicated that it wanted to leave but then chose to stay. Novatek was planning to make the project fully operational by 2026 and announced that the first of three production lines was ready in August. It is—or at least so far it has been—one of the company’s flagship developments in the Russian Arctic and one of the few remaining links between Russia’s energy sector and European investors. However, its rentability had been called into question since the U.S. introduced sanctions against the company overseeing shipment from the project back in September.
With a presidential decree on November 8, President Putin transferred ownership of the Far Eastern Shipping Company (FESCO), one of Russia’s largest shipping firms, to the state-owned nuclear company Rosatom. The company was effectively nationalized after its previous owner, Ziyavudin Magomedov, was sentenced to 19 years in prison on corruption charges in December 2022. Magomedov was initially arrested in 2018 after a dispute with the oil transit company Transneft over the ownership of the Novorossiysk Commercial Sea Port. His imprisonment was viewed as an emblematic example of the downfall of elites who rose to prominence under the presidency of Dmitry Medvedev. In September, Magomedov and his family filed a lawsuit against what they saw as a conspiracy to expropriate him at London’s High Court. The transfer of FESCO will further strengthen Rosatom’s position in what the Russian government regards as a priority future transit corridor.
The past week saw a series of actions against representatives of the systemic and non-systemic opposition in Siberia. In Novosibirsk, where by-elections will be held in two districts, election authorities refused to register the candidates of the local opposition movement Novosibirsk 2020—which, allied with Team Navalny’s “Smart Voting” campaign, achieved successes in 2020’s municipal elections—and the candidates of the liberal Yabloko party. While three of them did collect the necessary signatures in support of their candidacy, the authorities questioned the validity of Yabloko’s signatures and disqualified Novosibirsk 2020’s candidates for their association with Navalny. In Krasnoyarsk, where the Liberal Democratic Party (LDPR) made headway in recent municipal elections, Alexander Gliskov, the head of the party’s group in the regional legislature, was arrested for bribe-taking which allegedly occurred in 2016-17. While it cannot be ruled out that the deputy—who had a good relationship with recently dismissed governor Alexander Uss—did partake in corruption, the fact that the case is 6-7 years old did raise eyebrows. Some saw it as a power move by recently-appointed governor Mikhail Kotyukov.
— Andras Toth-Czifra
Quickfire: Ukraine
On November 3, Russians struck Ukraine’s 128th Separate Mountain Assault Brigade during an award ceremony in honor of Artillery Day in the front-line zone of the Zaporizhzhia oblast. As a result of this missile attack, at least 19 Ukrainian military members were killed. An internal investigation has been opened against military officials responsible for organizing this celebration near the front line. President Zelensky also expressed his condolences to the relatives of those killed and added that the tragedy “could have been avoided.” “Defense Minister Umerov has reported to me on the measures taken to clarify all the circumstances of what happened, who was specifically involved, and what orders were given,” Zelensky said in his daily address on November 5. Starting November 6, three days of mourning for the fallen Ukrainian servicemen from the 128th Mountain Assault Brigade were announced by authorities in the Zakarpattia oblast, where brigade had originally been formed.
The Armed Forces of Ukraine confirmed that, on November 4, they damaged the Zaliv shipbuilding yard (or the shipyard named after Boris Butoma) in Kerch, a city in temporarily-occupied Crimea. Zaliv is one of the largest shipbuilding enterprises in Eastern Europe. Since 2020, it has been building aircraft carriers for the Russian Navy. Ukraine’s Air Force Commander Mykola Oleshchuk commented that one of the Russian Black Sea Fleet’s most modern ships, capable of carrying Kalibr cruise missiles, was stationed on the territory of this shipbuilding yard at the time of the attack and incurred damages. According to Ukraine’s Office of Strategic Communications, it was the Askold Russian cruise missile carrier that was damaged during the strike on Kerch. The Russian Ministry of Defense confirmed that the damage to the ship was a result of a missile attack by the Armed Forces of Ukraine. “The Ministry of Defense of Russia reports that on November 4 the Armed Forces of Ukraine struck the shipbuilding yard named after Butoma in Kerch with 15 cruise missiles. Air defense system shot down 13 cruise missiles. As a result of the enemy's cruise missile strike, a ship was damaged,” said the Ministry.
— Lisa Noskova