Not so busy in St. Petersburg
The St. Petersburg International Economic Forum kicked off this week
Hello from the Bear Market Brief.
This week in the news:
The St. Petersburg International Economic Forum began on Wednesday, but foreign attendance remained sparse.
Although the Kremlin officially condemned Israel’s attack on Iran, its overall response to the conflict has been muted.
Russia launched a massive missile attack at Kyiv on Tuesday morning, killing 28 people and injuring 140 others.
— Sara Ashbaugh, Editor in Chief
Not so busy in St. Petersburg
The yearly St. Petersburg International Economic Forum (SPIEF) is taking place in Russia’s second city between June 18 and 21, with President Vladimir Putin holding a keynote speech on the forum’s penultimate day—albeit his daughter, Katerina Tikhonova, is scheduled to speak at the forum earlier (journalist Farida Rustamova published a collection of children of high officials who are participating in the event). The forum’s reputation has dropped considerably in recent years as Russia’s international isolation has increased, meaning that foreign guests, especially Western investors, are few and far between. This year, the Kingdom of Bahrain was the forum’s guest of honor, with foreign guests mostly arriving from China, Vietnam, Saudi Arabia, African countries where Russia has a military presence, and Taliban-administered Afghanistan.
Given the Russian government’s restrictive approach to investors from “unfriendly countries,” foreign attendance was not going to change substantially at this year’s event. However, as the Kremlin has expended significant diplomatic efforts to improve relations with the Trump administration, the hope seemed to be that U.S. guests would showcase how the country’s international isolation is easing. A “Russia-USA” panel was organized with American participants, but apart from the head of the American Chamber of Commerce in Russia, it attracted no heavyweight business figures. However, Indonesian President Prabowo Subianto, in a snub to the West and a win for the Russian government, declined an invitation to this week’s G7 Summit and chose to attend SPIEF instead.
Apart from the usual announcements of regional investment projects with the participation of state-owned companies timed to coincide with the forum, some of the reports also reflected the realities of Russia’s wartime economy in its fourth year. The general director of Severstal—a major steel manufacturer whose owner, Alexey Mordashov, has been engaged in a power struggle with the Vologda Region’s Kremlin-backed governor—warned of steel plants going out of business due to a drop in domestic and international demand. Economy Minister Maxim Reshetnikov warned that the Russian economy was on the verge of recession (with Central Bank head Elvira Nabiullina simply claiming that the economy was cooling). Samara Governor Vyacheslav Fedorishchev attended the presentation of a new Lada car, manufactured in his region, even as the perspectives of Russian car manufacturing continue to be gloomy. In a bid to save money, several governors chose not to attend the forum at all and scale down their region’s representative pavilions.
Signaling a continued focus on war production and the development of still-underdeveloped alternative shipping routes to support Russia’s Asian pivot, the Governor of Astrakhan, Igor Babushkin, is seeking money to expand port infrastructure and build defense plants. As Russia has ramped up domestic drone production, the forum presented a rating of the “dronification” of regions. There were also announcements of Chinese investors entering eastern Ukraine’s Russian-occupied regions.
— Andras Toth-Czifra
President Putin delivered the keynote address at SPIEF’s plenary session on Friday, focusing on the restructuring of the Russian economy and the creation of a multipolar world order. His speech was followed by a panel discussion with several other political leaders, including Indonesian President Prabowo Subianto, Chinese Vice Premier Ding Xuexiang, Bahraini Prince Nasser bin Hamad Al-Khalifa, and South African Deputy President Paul Mashatile. In response to the idea that the war in Ukraine is “killing” the Russian economy, Putin quoted Mark Twain, saying, “As a well-known writer once said: ‘The reports of my death are greatly exaggerated.’” (photo: Reuters / Anton Vaganov)
The Israel-Iran war and Russia
On June 18, the Kremlin warned the United States not to meddle directly into the ongoing conflict between Israel and Iran and condemned Israel’s initial attack on the Islamic republic. However, in general, the reaction of the Russian government to the war has so far remained muted, and President Putin has proceeded to talk to the leaders of both countries. On June 14, according to a Kremlin readout of a call between Putin and U.S. President Donald Trump, the Russian leader offered to be a mediator in the conflict, an offer he repeated days later.
The reasons why Russia is in no rush to go beyond lukewarm statements in support of Iran are manifold. In spite of an oft-seen perception in Western media, the two countries have never been allies, just partners of convenience, while also engaged in a rivalry in the South Caucasus and the Middle East (above all in Syria). While during the war in Ukraine, Iran increased its export of military technology to Russia—including the setting up of a facility to manufacture Shahed (also known as Geran) drones domestically—military experts say that Russia is much less dependent on Iranian imports now than it was at the beginning of its full-scale invasion. A prolonged conflict, on the other hand, may benefit Russia by distracting Ukraine’s key backer, the United States (and also Israel), from the war in Ukraine.
The most important impact of the war in Iran on Russia so far has been the upwards pressure it extended on global oil prices. Brent crude futures were above $76 per barrel on June 18, less than a week after the start of Israel’s military action against Iran, albeit with no clear upwards trend. However, considering the risk of a blockade of the Strait of Hormuz, a key shipping node of oil, this may still change. The situation stands in stark contrast with the downward trend seen over the past months—the price of Brent crude was hovering around $60 in late May—which has put considerable and increasing pressure on Russia’s federal budget. Even though so far oil prices are still below the Kremlin’s original expectations for this year, depending on the length and the intensity of the conflict, this pressure may now ease. The federal budget is not the only structural limit on Russia’s abilities to maintain and expand its war production—and arguably, even with fiscal incomes falling, there was no substantial debate about reducing war-related expenditures—but a prolonged period of higher-than-expected oil prices would increase the Kremlin’s economic breathing space.
— Andras Toth-Czifra
President Zelenskyy visited one of the sites of this week’s massive missile strike on Kyiv to lay flowers in memory of the victims of the attack. The apartment building pictured here was struck by a ballistic missile, which leveled an entire section of the nine-story complex and killed 23 residents inside. Zelenskyy visited the site after leaving the G7 Summit in Canada, where he was attempting to secure additional aid for Ukraine. He posted about the attack on X, calling it “vile” and writing, “This strike is a reminder to the world that Russia spurns a ceasefire and chooses to kill.” (photo: @ZelenskyyUa)
Attack on Kyiv
Russia launched a massive missile and drone attack on Kyiv in the early hours of Tuesday morning, killing 28 people and injuring 140 others. Residential buildings, schools, and critical infrastructure were hit, according to Ukrainian Interior Minister Ihor Klymenko, with most of the casualties resulting from the collapse of an apartment building in the Solomianskyi district. An entire section of the nine-story building was flattened by a direct hit from a ballistic missile, destroying 35 apartments and killing 23 of the residents inside. According to President Volodymyr Zelenskyy, Russia launched more than 440 drones and 32 missiles in total on June 17, in what he described as “one of the most horrific attacks on Kyiv” of the war to date. “Putin is doing this solely because he can afford to continue the war. He wants the war to continue,” Zelenskyy posted on Telegram, calling on Ukrainian allies to respond. The Russian Defense Ministry characterized the attack as a series of “high precision” strikes on Ukraine’s “military-industrial complex,” reporting that the goals of the strikes were achieved.
The attack came while Zelenskyy was out of the country, attending the G7 Summit in Canada in an attempt to drum up additional support for Ukraine. Zelenskyy was expected to meet with U.S. President Donald Trump on the sidelines of the Summit, but Trump left early, citing the crisis in the Middle East. Although the G7 countries failed to agree on a joint statement of support for Ukraine, individual countries did pledge new support measures: Canada announced a new aid package that includes $1.5 billion in military aid, and the UK implemented additional sanctions to target Russia’s shadow fleet. Zelenskyy planned to stay in Canada for events and press conferences following the Summit, but he cut his visit short after the deadly missile strike on Kyiv.
The strikes on Kyiv also came as Ukraine and Russia completed the exchange of fallen soldiers negotiated during their peace talks in Istanbul. “The repatriation part of the Istanbul agreements has been completed,” Ukraine’s Coordination Headquarters for the Treatment of Prisoners of War said in a statement. In total, Ukraine received 6,057 bodies from Russia, and Russia collected 78 in return. Neither side has commented on this discrepancy, although Russia described the repatriation as a unilateral initiative. The two countries also carried out another prisoner swap on Thursday, although neither has disclosed the number of prisoners freed. During the negotiations in Istanbul, Moscow and Kyiv agreed to release 1,000 prisoners of war each.
— Sara Ashbaugh
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
The Russian government agreed to pay 6 billion rubles to Russian Railways (RZhD) to compensate the company for a 12.8% discount to Siberian coal exporters on the price of shipping coal to Northwestern and Southern Russian ports, which the government forced the company to adopt in May. However, according to calculations by the Energy Ministry as well as industry experts, this is only about a third of the sum needed to offset exporters’ losses. Additionally, southern exports are also affected by limited throughput capacity. RZhD earlier complained that, due to the low profitability of exports, exporters often do not even ship the amount of coal that they had previously booked. The government therefore also wants to introduce a so-called “ship-or-pay” arrangement for Khakassian coal and urged RZhD to negotiate with individual exporters rather than the region’s government. The Russian coal industry is going through its second year of crisis due to falling global demand (including in China) and transportation issues. According to Rosstat, in the first quarter of 2025, coal companies lost a combined 79.9 billion rubles, with more than 60% of coal enterprises in the red and several suspending operations. The crisis has affected the Kemerovo region especially deeply. In Yakutia, however, coal production has grown by 15% in the first five months of this year.
The state industrial conglomerate Rostec will suspend the construction of three waste processing plants, two in the Moscow Region and one near Kazan (the capital of Tatarstan). According to Rostec CEO Sergey Chemezov, who met with Vladimir Putin this week to talk about the company’s plans and results, the projects will be postponed until “cheaper money or state support is available.” He is likely referencing the Central Bank’s key interest rate, currently at 20%, which investors have tried to push the Bank to lower. Rostec’s problems are more complex, however, and they have to do with Russia’s war against Ukraine. The company originally planned to build five plants using Japanese technology, envisaged in Russia’s 2019 waste management reform, but this became unavailable following the 2022 invasion of Ukraine. One plant was completed and test-launched late last year. For the Kazan plant, the company tried to use Chinese technology, but compatibility issues forced it to revise schedules.
Тen regions are not going to use online voting in their regional and local votes in September this year even though they have used this method in the past. According to the Central Electoral Committee, this is due to threats to the integrity of the voting system—an odd explanation, given that regional online voting is hooked up to the Gosuslugi online government services system and, apart from Kursk (which is dealing with the aftermath of the Ukrainian army’s incursion), there is no known threat to internet infrastructure in any of these regions. This marks a rare setback in the rollout of online voting across the country. The system, through its opacity and integration with other government services, has presented an opportunity for the authorities to employ the same electoral engineering and coercion methods as in traditional “offline” voting even cheaper and with greater efficiency. It has so far been primarily opposed by so-called “electoral sultanates,” where local elites have long held a firm grip on electoral and political infrastructure and therefore have been able to produce high turnout and pro-government vote figures. You can read more about the role of online voting in center-region power dynamics in the FPRI report, “The Kremlin’s Balancing Act.”
— Andras Toth-Czifra