Off the rails
Poland points the finger at Russia for recent railway sabotage
This week in the news:
Poland announced the closure of Russia’s last remaining consulate in the country in response to two railway sabotage incidents.
The State Duma passed, in the second reading, the 2026 federal budget and fiscal plans for 2027-2028.
The U.S. government extended its sanctions waiver for Lukoil until December 13 to give the Russian company time to find a buyer for its international assets.
— Sara Ashbaugh, Editor in Chief
Polish railway sabotage
Poland has decided to close Russia’s last operating consulate in the country in response to two acts of sabotage that occurred over the weekend. The events took place between Saturday and Monday and targeted a railway line that is used to transport supplies to Ukraine, running from Warsaw to Lublin and then across the border to Ukraine. One incident involved a steel clamp attached to the train tracks near the village of Puławy, which was “likely intended to derail a train,” according to Polish Prime Minister Donald Tusk. In the other incident, a military-grade explosive was detonated on a section of track near the village of Mika, about 50 miles south-east of Warsaw. A freight train was passing when the explosion occurred, but no one was injured in the attack. Tusk called the event an “unprecedented act of sabotage” and “perhaps the most serious national security situation in Poland since the outbreak of the full-scale war in Ukraine.”
On Tuesday, Tusk announced that two suspects had been identified. The perpetrators were Ukrainian citizens working with Russian intelligence, Tusk told Polish Parliament. The pair “have been operating and cooperating with Russian services for a long time,” he said, although their identities have not yet been released. Both are believed to have fled to Belarus following the incidents. Tusk speculated that the attacks were likely intended to trigger “social and political consequences,” such as fueling anti-Ukrainian sentiment in Poland. Kremlin spokesperson Dmitry Peskov denied Russia’s involvement, suggesting that Poland was only blaming Russia due to bias. “Russophobia is certainly rampant there,” he told state-run media.
In response, Poland announced the closure of the last remaining Russian consulate in Poland. “I have decided to withdraw consent for the operation of the Russian consulate in Gdansk,” Polish Foreign Minister Radosław Sikorski told reporters on Wednesday. The Russian Embassy in Warsaw will remain open, however. Additionally, Polish Defense Minister Wladyslaw Kosiniak-Kamysz said that up to 10,000 soldiers would be deployed to help protect critical infrastructure, including railways. Peskov criticized the decision to close the consulate, calling it a “manifestation of degraded relations” between the two countries. “This has nothing to do with common sense,” he said at a news briefing. According to the Russian Foreign Ministry, Russia will retaliate by reducing Poland’s diplomatic presence, although the exact measures remain to be seen. Poland currently has one consulate operating in Russia, in Irkutsk, in addition to its embassy in Moscow.
— Sara Ashbaugh
A Russian spy ship was spotted off the coast of Scotland on Wednesday, according to UK Defense Secretary John Healey. This is the second time this year that the Yantar, a Russian oceanic research vessel, has been seen in British waters. British authorities suspect that the ship is mapping the UK’s critical undersea cables, a claim that Russia has denied. The HMS Somerset, pictured here, and a Poseidon P-8 surveillance plane were deployed to track the Yantar’s movements. According to Healey, the Russian ship then attempted to disrupt the plane by shining lasers at it. The UK will continue to monitor the Yantar with “military options ready,” Healey said. “My message to Russia and to Putin is this: we see you. We know what you’re doing. And if the Yantar travels south this week, we are ready,” he said. (photo: UK Ministry of Defence)
Federal budget: Second reading
The State Duma passed, in the key second reading, the 2026 federal budget, fiscal plans for the 2027-2028 period, and the tax bills associated with the budget, which is expected to clear a vote in the Federation Council soon. The budget bill did not change significantly from its first reading, with planned defense expenditures dropping slightly in nominal terms next year but remaining high and growing in the years thereafter. Altogether, the government plans to spend 39.5 trillion rubles over three years under this heading. Possibly more, given that over the past two years budgetary expenditures and fiscal deficit have been repeatedly reviewed upwards during the year. Health care expenditures will decrease in real terms, in spite of the potential pressure that returning veterans will put on the Russian health care system, suggesting that the federal government expects regional budgets to assume the bulk of expenditures associated with this.
Together with the federal budget, regions have also continued to discuss their budgets. In many cases, they reflect very conservative economic predictions and expectations of large deficits, especially in regions whose key industries are facing crises. The Sverdlovsk Region’s planned deficit for 2026 is almost 6% of planned expenditures. The Irkutsk Region is cutting expenditures on health care and education, two important functions of regional budgets, with the regional government facing backlash from municipalities and the regional prosecution. The Kemerovo Region will cut its planned fiscal receipts by 20%.
As originally planned, the tax laws raise the rate of value added tax from 20% to 22%, from which the government expects 1.2 trillion rubles of additional revenues in 2026. Small businesses will have to pay more in taxes but, after employers complained about the potential negative effects of this, the changes will be gradual: the ceiling for simplified taxation will be lowered from 60 to 20 million rubles of revenue next year, 15 million in 2027, and 10 million in 2028. Additionally, the government expects 218 billion rubles from a new tax on electronic devices that will be introduced in September. “Foreign agents” will be hit with a personal income tax rate of 30%, and bookmakers will face a 7% tax on the difference between bets and payouts. Higher VAT is expected to worsen inflation temporarily, and several cities have seen protests against higher taxes.
However, the most important takeaway from the new fiscal laws is that war and military production remain, for the foreseeable future, unquestionable priorities of the federal budget, even as Russia is facing the prospect of economic stagnation or a recession next year. Also, in spite of the significant revamp of the tax system last year that aimed to create predictability for employers and investors, the new rules of the domestic economy are far from being settled.
— Andras Toth-Czifra
Emergency rescue operations are ongoing in Ternopil, Ukraine, where at least 26 people were killed and dozens wounded in a Russian strike. The overnight attack hit two nine-story residential buildings, trapping inhabitants under rubble. “Every brazen attack against ordinary life proves that the pressure on Russia is still insufficient,” President Zelenskyy posted on X. Russia launched a total of 476 drones and 48 missiles at Ukraine on Wednesday, most of which were reportedly shot down by the Ukrainian Air Force. The Russian Defense Ministry claimed that Wednesday’s strike targeted “defense industry and energy facilities” and “long-range drone depots” in western Ukraine. “The objectives of the strike were achieved,” the Ministry posted on Telegram. (photo: Andriy Bodak / Suspilne Ukraine / JSC “UA:PBC” / Global Images Ukraine / Getty Images)
Sanctions-induced fire sales
Last week, the U.S. government extended a sanctions waiver for Lukoil until December 13 as the Russian company looks for a buyer to take over its international assets. (The company’s refinery in Bulgaria will be able to operate until April 2026, and the Bulgarian government appointed an official to oversee its management, including its potential sale.) U.S. sanctions on Rosneft and Lukoil would have come into full effect on November 21. However, their announcement in October led to distress in several Central and Eastern European countries that rely on Lukoil- or Rosneft-owned assets or Russian oil exports for their energy needs.
Meanwhile, more information has come to light about potential buyers. According to a Reuters newsflash, the American oil company Chevron is one of the potential buyers of Lukoil’s international assets. The U.S. government made it clear last week that it would not accept a takeover by the Swiss-based commodities trader Gunvor, which it regards as “the Kremlin’s puppet.” Chevron also has a stake in three oil industry projects in Kazakhstan that received a sanctions waiver from the U.S. government. Earlier, the Carlyle Group was also named as a potential buyer.
Last week, the Serbian magazine NIN reported that MOL, a Hungarian oil company, was interested in buying a 11.3% stake in Naftna Industrija Srbije (NIS) before the critically important Serbian energy company, under sanctions since October 9, runs out of oil. NIS is currently majority owned by units of the Russian gas giant Gazprom. Serbian President Aleksandar Vucic said that his government would also be interested in acquiring a majority stake in the company eventually, even if this meant overpaying for its shares. Hungarian Prime Minister Viktor Orban secured a one-year sanctions waiver on the import of Russian oil from the U.S. government last week, albeit his government has since claimed that the waiver will stand as long as Orban and Donald Trump are both in power.
NIS is reportedly not the only sanctions-affected asset in the region for which Hungarian business circles have expressed interest. The Austrian daily Der Standard also reported that Istvan Tiborcz, Orban’s son-in-law, is still one of the potential buyers of Raiffeisen Bank’s Russian assets, and that a potential takeover by Tiborcz has received support from Russian business circles. Tiborcz has consistently denied interest in Raiffeisenbank, and the bank has also denied considering the Hungarian businessman as a potential buyer. Tiborcz became a person of interest for the EU’s antifraud office OLAF following his enrichment from state contracts awarded by his father-in-law’s government.
— Andras Toth-Czifra
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Quickfire: Regions
Rusal will suspend the production of silicon in its Irkutsk Region plant, the largest in Russia, starting January 1. The decision was prompted by the fact that the price of imported silicon from China is now reliably below the domestically produced material. The company’s other plant, in the Sverdlovsk Region, will continue operating at a reduced level. The closure is just the latest example of a wider slowdown of industrial production in Russia across a number of sectors, which is affected by weaker export markets, problems with technological upgrade, and sanctions. Over the past months, several major plants have reduced working hours, a solution that is usually seen in Russia as preferable to layoffs. An uptick over the past months in the amount of unpaid or delayed wages in the construction and manufacturing sectors is also an indication of industrial producers facing cash flow problems, even as the issue itself is far from overwhelming.
А rare conflict has emerged over the past weeks between a Kremlin-appointed governor and federal and regional officials in the occupied Zaporizhzhia Region. Last month, Yevgeny Balitsky, the head of the occupation government, dismissed the head of the regional “electoral commission,” ostensibly due to suspicion of financial crimes. The decision, however, was disputed by Ella Pamfilova, the head of Russia’s Central Electoral Commission, and later by the regional prosecution. This week, Balitsky doubled down on his earlier decision and confirmed that he wanted the electoral official to go. He also drafted a regional law that would allow him to dissolve the regional electoral commission. The conflict highlights an emerging pattern of open disputes between regional elite groups, as well as between these groups and federal power brokers, over resources and control of institutions.
From January to October, container shipments on the Far Eastern Railway’s network were more than 11% lower than a year before and overall freight loading figures showed a 5.2% decline, according to new data reviewed by Kommersant. The shipment of metal products and non-ferrous metals declined especially sharply, underlining a growing crisis in the industry that has been developing for several months. The crisis is affected not only by international factors, but also by the end of a construction boom fueled by subsidized mortgages and a decline in car manufacturing. Earlier this month, a report in The Insider, an independent news site, warned that an overall decline in rail freight loading suggested a “sweeping, simultaneous decline” across several industries, such as coal mining, metallurgy, and machine manufacturing, in spite of continuing war production.
— Andras Toth-Czifra