Stock it to 'em
New U.S. sanctions include Russia's largest stock exchange, the Moscow Exchange
Hello from the Bear Market Brief.
This week in the news:
The U.S. adopted a new set of sanctions targeting Russian financial institutions, energy revenues, and access to technology.
President Putin gave a speech at the St. Petersburg International Economic Forum in which he praised Russia’s international trading partners and the resilience of the domestic economy.
A group of four Russian ships from the Northern Fleet, including a nuclear-powered submarine, arrived in Cuba on Wednesday.
— Sara Ashbaugh, Editor-in-Chief
New U.S. sanctions
The U.S. government adopted a new set of sanctions to limit Russia’s access to energy-related revenues, international financial instruments, and technology that can be used in the war against Ukraine. According to a press release from the U.S. Treasury Department, the new sanctions target more than 300 entities in and outside of Russia in order to further isolate Russia’s war economy. “Today's actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries,” U.S. Treasury Secretary Janet Yellen said. In addition to broadening sanctions against Russia’s domestic military industrial complex, the U.S. is also extending sanctions to third-country companies that aid this sector, including companies in China, Turkey, the United Arab Emirates, and several other countries that have been used as transit over the past few years.
The sanctions package includes several Russian financial institutions, such as the Moscow Exchange (MOEX) and its subsidiary, the National Clearing Center (NCC). “Putin has approved a series of measures to further attract capital through MOEX from both Russian and non-Russian persons from ‘friendly countries’—expanding opportunities for both Russians and non-Russians to profit from the Kremlin’s war machine,” the U.S. Treasury Department explained. As a result of the sanctions, Russia’s largest stock exchange was forced to suspend trading in dollars and euros on June 13. From now on, the Central Bank will set the exchange rate of the ruble to the dollar and euro using bank reports and data received from digital over-the-counter trading platforms. Although Russians should still be able to exchange currencies through lenders, as The Bell notes, the new measures will likely make imported products more expensive and may increase the volatility of the ruble.
The new sanctions also further target Russia’s LNG projects in the Arctic region. Building on the previously-adopted sanctions against the gas company Novatek’s Arctic LNG-2 project, which reportedly led to a halt of production at the plant in April, the U.S. is sanctioning Novatek’s other LNG projects: Arctic LNG 1 and 3, Obsky LNG, and Murmansk LNG. It is also sanctioning Novatek’s LNG vessels, the builders of the Ust-Luga gas liquefaction terminal, and the suppliers of Rosneft’s Vostok Oil (another key project in Russia’s Arctic), among others. Additionally, sanctions were adopted against companies in the Koulstar group (a vertically integrated coal mining and export group), the Elga coal complex, and the Seligdar gold and tin mining group, which is active in Russia’s Far East.
The sanctions against Arctic energy projects may further delay the industrial development of Russia’s Arctic coastline. This has been one of the government’s main development priorities in recent years; just this year, the federal government is planning to spend 392 billion rubles ($4.4 billion) from Russia’s National Welfare Fund on the Ust-Luga port. In order to further diminish energy-related revenues, the EU is reportedly discussing sanctions against Sovkomflot, a shipping giant involved in the transit of Russian maritime oil, as well as several ships that transfer defense products and technologies to Russia. Also this week, Germany’s Uniper won a major arbitration suit against Russian state-owned Gazprom, which allows the German company to cancel its (dormant) long-term gas purchase contracts with the Russian firm.
The new measures reflect a recognition that the Western coalition supporting Ukraine needs to periodically update sanctions, including with secondary sanctions, in order to invalidate workarounds that the Russian government has found. By decidedly targeting Russia’s Arctic development, the new sanctions also reflect a more strategic approach, which not only limits Russia’s energy revenues in the short term but also forces unpleasant policy choices on the Russian government and budget.
— Sara Ashbaugh & Andras Toth-Czifra
President Putin delivered a speech at the St. Petersburg International Economic Forum last week in which he touted Russia’s economic ties with its Asian, African, and South American partners. “Despite all the obstacles we are facing and the illegitimate sanctions imposed against us, Russia remains one of the key participants in global trade and is rapidly expanding the new logistics and geography of cooperation,” he said. He also touched on domestic economic issues, including the nationalization of businesses and the indexation of pensions. (photo: Press Service of the President of Russia)
Putin speaks at SPIEF
President Vladimir Putin gave a speech and participated in the plenary session at the St. Petersburg International Economic Forum (SPIEF) last week. It appeared that the primary purpose of speech, which was preceded by a video containing anti-colonialist messages, was to emphasize that Russia is successfully courting the so-called Global South to challenge the West’s political and economic dominance. Three days before, Putin specifically underlined the role of the BRICS countries at a meeting of the BRICS foreign ministers in Nizhny Novgorod. This was the group’s first meeting since it officially expanded last year to include Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the United Arab Emirates.
Apart from highlighting Russia’s overtures to developing nations, Putin focused mostly on the domestic resilience of the Russian economy due to increased state orders. He was interviewed by Sergey Karaganov, a hawkish foreign policy analyst who was likely specially selected by the Kremlin for this role. Putin also spoke at length about Russia’s options in its war against Ukraine. The President did not rule out amending Russia’s nuclear doctrine or supporting other countries with long-range weapons that are able to strike Western targets, albeit in neither case did he specify how or where. At the same time, Putin said that Russia would not need to use tactical nuclear weapons in Ukraine and ruled out further military mobilization, which is a fraught domestic political issue. The purpose of the interview was likely to highlight that Putin has a wide range of tools to increase pressure on countries in the Western coalition that support Ukraine. This remains the case even after the large far-right breakthrough that the Kremlin expected from European parliamentary elections on June 9 mostly did not materialize.
A notable statement by Putin, which underlines the domestic limitations of the production boom that Putin’s war strategy is based on, was his approval of the indexation of pensions for working pensioners. This is a move that has been on the political agenda for several years and is currently aimed to broaden Russia’s workforce while a number of sectors are struggling with labor shortages. (The issue was officially raised to Putin by St. Petersburg Governor Alexander Beglov, who had recently secured Putin’s approval for his re-election. Beglov even saw one of his main rivals, Andrei Turchak, sidelined, when the latter was appointed to govern the remote Altai Republic.)
When talking about regional development, Putin supported the idea that the headquarters of state-owned corporations should be relocated to regional cities, citing the Krasnoyarsk-based Rushydro as an example. This is also a suggestion that various members of Russia’s political elite have made several times over the past decade, but that has not materialized (mostly due to the fact that political and business decision-making takes place in Moscow and St. Petersburg). Putin also said that regional governors—many of whom were present at the Forum in search of investment deals—should utilize the budgetary funds that were freed up by the federal government forgiving two-thirds of budgetary loans to upgrade communal and transit infrastructure. (However, he also promised that from next year on, the government will increase the amount of available infrastructure loans too.)
In the forum’s plenary session, Putin also spoke about Russia’s ongoing nationalization of key enterprises, which has largely spooked investors and business owners. Once again he denied that there is a broader deprivatization campaign going on. Instead, he claimed that the state prosecution is simply targeting companies that were fraudulently acquired by private owners, often using loans from state-owned banks. Prosecutor General Ivan Krasnov gave a very similar explanation of the process in an interview with the business news site RBK. Finance Minister Anton Siluanov earlier mentioned that nationalized assets would be reprivatized, and Central Bank Governor Elvira Nabiullina criticized the practice of nationalization. However, the mere fact that Putin has had to repeatedly deny that a broader deprivatization campaign is going on signals that business owners may not trust these assurances.
— Andras Toth-Czifra
“Kazan,” a Russian nuclear-powered submarine, arrived in Havana Harbor on Wednesday. Kazan is part of a detachment of four ships from Russia’s Northern Fleet that are visiting Cuba following military exercises in the Atlantic. According to the Cuban government, during their five-day visit, Russian sailors will meet with the governor of Havana and tour sites of historical and cultural significance. Upon their arrival, the Russian vessels were greeted with a 21-gun salute. (photo: Adalberto Roque / AFP)
Russian ships arrive in Cuba
A group of ships from Russia’s Northern Fleet arrived in Havana this week after conducting military exercises in the Atlantic. The visit was first announced on June 6 by Cuba’s Ministry of the Revolutionary Armed Forces, which characterized it as part of “historically friendly relations between Cuba and the Russian Federation.” Naval visits to Cuba are not that unusual for Russian ships, which have docked in Havana a few times over the past decade. This detachment, however, is notable for containing the nuclear-powered submarine “Kazan,” capable of firing cruise missiles, and the modern frigate “Admiral Gorshkov.” It also includes supply tanker “Akademik Pashin” and rescue tug “Nikolai Chiker.” “None of the ships carry nuclear weapons, so their stopover in our country does not represent a threat to the region,” Cuban authorities emphasized.
The Russian Defense Ministry announced the departure of this detachment on a “long voyage” in mid-May. “The main objectives of the campaign are to demonstrate the flag and ensure a naval presence in operationally important areas of the far ocean zone,” it said in a statement. On Wednesday, the Ministry reported that prior to the group’s arrival in Cuba, the ships completed a military exercise on the use of high-precision missile systems. Crews used computer simulations to practice hitting mock targets without actually launching any missiles. “I rate the exercise as excellent,” the Captain of Admiral Gorshkov, Pavel Konov, said.
U.S. officials have said that they will closely monitor the Russian ships, but they do not consider them a threat to American national security. “This is not a surprise. We’ve seen them do these type of port calls before. We of course take it seriously, but these exercises don’t pose a threat to the United States,” Pentagon spokesperson Sabrina Singh said on Wednesday. However, CBS News reported that at least four American ships (two destroyers and two ships with sonar equipment) were following the Russian submarine. Additionally, AP noted that the USS Helena, an American nuclear-powered submarine, arrived at Guantanamo Bay on Thursday. According to the U.S. Southern Command, USS Helena’s trip to Cuba was part of a pre-planned “routine port visit.”
The four Russian ships will remain in Havana from June 12-17.
— Sara Ashbaugh
On the podcast
Russia has taken an increasingly authoritarian turn over the last decade, but is its political system fascist? Marlene Laruelle and Julian Waller join to discuss the blurry lines between politics, ideology, and terminology.
Quickfire: Regions
Former Minister of Energy Nikolay Shulginov will stand for a seat in the State Duma during a by-election to be held in the Republic of Khakassia in September. Although Shulginov will officially run as an independent candidate, he will be supported not only by the ruling United Russia party, which called off its regional primaries, but also by the Communist Party (KPRF). A Communist Party politician, Valentin Konovalov, has been governor of the region since 2018. Konovalov, supported by local elites, successfully beat back a challenge from Kremlin-backed Sergey Sokol in last year’s gubernatorial election. The political parties’ agreement on Shulginov likely reflects the continuation of an uneasy thaw between Konovalov’s backers and the Kremlin. This thaw started shortly after United Russia took control of the region’s legislature last year, forcing the two sides to look for a modus operandi. As a former minister, Shulginov is in a good position to receive an influential position in the Duma after his election.
German Gref, the chairman of state-owned banking giant Sber, faced attacks online after a video of him berating taxi drivers at the airport of Gorno-Altaisk in the Altai Republic went viral. Sber owns the airport and has a number of other business interests in the region, including in its booming tourist industry. While many agreed that the taxi service to and from the airport left much to be desired, a local activist posted videos of residents cutting up their Sber debit cards in protest. Nina Ostaning, a Communist Duma deputy, suggested that taxi drivers should refuse service to Gref. Activists earlier raised reservations about Sber’s growing influence over the resources of the Republic. Some also noted that the video featuring Gref was published shortly after he expressed his opinion at the St. Petersburg International Economic Forum, saying that Russia’s economy is dangerously overheating and current wage increases are unsustainable.
The legislative assembly of the Altai Territory demanded that the federal government ensure that all health-care workers, including paramedics, receive the additional payments promised by President Putin in February. The resolution and its supporters (who also raised this at a closed session of the State Duma) put the responsibility for the lack of payments on the federal government and not the President, however. The fact that a regional assembly raised the issue in this way suggests that officials regard this as a potentially risky issue that they do not have the means to resolve. Over the spring months, the representatives of several kinds of public employees, including paramedics, have protested against the failure of the authorities to raise their wages or transfer allowances to them.
— Andras Toth-Czifra