Taking from Peter to pay Paul
The G7 will loan Ukraine $50 billion to be repaid using frozen Russian assets
Hello from the Bear Market Brief.
This week in the news:
Leaders of G7 countries finalized an agreement to provide $50 billion in loans to Ukraine, which will be repaid using frozen Russian assets.
The Russian Federal Security Service arrested former Deputy Energy Minister Anatoly Yanovsky, his successor Sergey Mochalnikov, and three other unidentified people on suspicion of fraud.
The Finance Ministry published a list of 25 regions that will have part of their debt towards the federal budget written off.
Media reports emerged alleging that Ukraine secretly asked the U.S. for Tomahawk missiles as a part of the victory plan presented by President Zelenskyy.
According to the Financial Times, Ukraine and Russia are holding preliminary discussions about ceasing attacks on each other’s energy infrastructure.
— Sara Ashbaugh, Editor in Chief
G7 finalizes $50 billion loan for Ukraine
Last Friday, leaders of the G7 countries (France, Germany, Italy, Japan, Canada, the UK, and the U.S.) finalized a deal to provide $50 billion in loans to Ukraine. These Extraordinary Revenue Acceleration (ERA) loans will not be repaid by Ukraine, but by profits generated from frozen Russian assets abroad. This initiative has been in progress since this summer, when G7 leaders met for a summit in Apulia, Italy. Now, after a meeting of the G7 finance ministers in Washington, D.C., the alliance has obtained approval from the necessary jurisdictions to fulfill its commitment.
Following Russia’s full-scale invasion, around $250 billion in Russian assets were frozen across the G7 countries and their EU allies. These frozen assets generate roughly $3 billion a year in interest, which will be used to repay the $50 billion loan to Ukraine. “We will not tire in our resolve to give Ukraine the support it needs to prevail. Russia must end its illegal war of aggression and pay for the damage it has caused to Ukraine in line with international law,” the G7 Leaders’ Statement reads. The group aims to begin distributing the funds by the end of this year and continue through 2027. “Time is not on President Putin’s side,” the statement concludes.
On Wednesday, the U.S. announced that it would contribute $20 billion to the ERA loans. American officials aim to disperse at least half of the funds by December, before the next presidential administration takes office. “These loans will support the people of Ukraine as they defend and rebuild their country. And our efforts make it clear: tyrants will be responsible for the damages they cause,” U.S. President Joe Biden said. The EU will also contribute approximately €18 billion ($19.5 billion) to the ERA initiative in the form of a macro-financial assistance (MFA) loan, which is expected to be paid out in 2025. In total, EU leaders approved sending up to €35 billion ($38 billion) to Ukraine backed by frozen Russian assets. The remaining $10 billion pledged by the G7 will be split between the UK, Canada, and Japan.
— Sara Ashbaugh
A drone strike on Tuesday morning hit the Russian Special Forces University named after Vladimir Putin in Gudermes, Chechnya. Photos on social media showed the roof of a campus building on fire following the attack. According to Chechen leader Ramzan Kadyrov, the building was empty at the time, and no one was killed or injured. This is the first drone attack on the region since the beginning of the full-scale war. Kadyrov vowed revenge, saying, “They’ve bitten us, we will destroy them. In the near future we will show them the kind of retribution that they've never even dreamed of.” (photo: Mash, Baza / Telegram)
Arrests in the Energy Ministry
The Federal Security Service reportedly arrested former Deputy Energy Minister Anatoly Yanovsky, his successor Sergey Mochalnikov, and three other unidentified people on suspicion of fraud. Both Yanovsky and Mochalnikov oversaw policies related to the coal industry, in which Energy Minister Sergey Tsivilyov also has business interests. The arrests have to do with fraudulent public contracts, including one related to the closure of a mine in the Perm Region; the companies involved received payments for work that was never completed. According to RBC, the authorities arrested witnesses last year who testified against Yanovsky. They are likely the former Energy Ministry officials arrested in June.
The fact that the arrests happened relatively shortly after the appointment of Tsivilyov to head the Ministry of Energy has prompted rumors that the new Minister—also the husband of Deputy Defense Minister Anna Tsivilyova, Vladimir Putin’s first cousin once removed—is conducting a purge of the Ministry that will affect people with links to Rosneft head Vladimir Sechin. This conflict is plausible, but there is no conclusive evidence that the arrests are linked to it.
The arrests are also coming at a time when Russian coal producers are facing a crisis due to transportation bottlenecks and falling prices, which have made coal exports largely unprofitable. According to a recent paper, the aggregate pre-taxation losses of the coal industry will amount to 34 billion rubles ($348.2 million) in 2024. This follows two years of hefty profits, although the Russian government raised taxes and tariffs on coal producers and exporters during this time, and transportation costs have also risen. The government is now trying to address this by compelling ports and Russian Railways to guarantee coal export volumes at a lower rate. At the same time, coal companies are also hard pressed to invest more in order to maintain production as supply chains for equipment have become more complicated.
— Andras Toth-Czifra
Regional finances in a tighter spot
The Finance Ministry published a list of regions that will see part of their debt towards the federal budget written off due to their investments into infrastructure. The list contains 25 regions with write-offs totaling 25.9 billion rubles ($264.6 million), but most of it will benefit the Moscow Region and Tatarstan (14 billion and 9.5 billion rubles respectively), two of Russia’s wealthiest regions. In February this year, President Putin proposed writing off 200 billion rubles ($2 billion) of regional debt annually from 2025 to 2028 to alleviate growing pressure on regional finances. Regions would be obliged to spend the funds that they are not using to service this debt on developing infrastructure.
The suggestion came after the Finance Ministry replaced most of the regional debt held by banks with cheaper budgetary loans. However, this year, aggregate regional debt—including commercial loans—rose further, even as several municipalities and regions are struggling to raise funds on the market due to growing rates.
Regional budgets are facing increasing financial pressure. This year, regional governments have struggled to raise expenditures on social policies and housing even to match inflation. Federal transfers are going to be cut in 2025 as the federal budget is prioritizing the war and construction projects in the occupied territories of Ukraine. Several regions have drafted budgets with high deficits this week, and many are introducing a tourist tax in an attempt to raise further revenues. Regional budgets have so far benefited from a rise in salaries, which led to higher personal income tax receipts. However, there are doubts about the sustainability of the current rate of salary growth in 2025, and corporate tax receipts have not risen to a comparable degree.
— Andras Toth-Czifra
On Monday evening, Russia launched a missile strike on Kharkiv, Ukraine’s second largest city. Nine people were injured in the attack and seven buildings were damaged, including the historic Derzhprom building. Derzhprom, a Soviet-era skyscraper located in the city center, is almost 100 years old—it was completed in 1928. Today, the constructivist-style building contains administrative offices and is a beloved landmark of Kharkiv. According to Derzhprom Director Mykola Chekhunov, the recent bombing destroyed one of the walls of the 13-story building and ceilings above the third floor. On Wednesday, three people were killed and 35 injured in another missile strike on Kharkiv. (photo: Ivan Samoilov / AFP / Scanpix / LETA)
Secret part of Ukraine’s victory plan is leaked
On Tuesday, various media reports emerged alleging that Ukraine requested long-range Tomahawk missiles from the U.S. as a part of its victory plan presented by President Volodymyr Zelenskyy earlier this month. In response, Ukraine’s leader commented that this request was intended to remain confidential between Kyiv and the White House. “You can see what’s going on now in the media. They said that Ukraine wants or wanted a lot of missiles, like Tomahawk, etc. But it was confidential information between Ukraine and the White House. How to understand these messages? So, it means, between partners, there are no confidential things,” Zelenskyy stated.
An anonymous U.S. official indicated that Zelenskyy sought these missiles as part of a non-nuclear strategic deterrence package, but remarked that such a request is “totally unfeasible.” While Ukraine has been seeking permission to strike Russian territory with American missiles for several months, U.S. National Security Advisor Jake Sullivan confirmed last week that the White House’s position on allowing Ukraine to conduct long-range strikes deep into Russian territory had not changed, although discussions are ongoing.
Russian President Vladimir Putin responded by stating that any such permission from Ukraine's Western allies would be viewed as direct NATO involvement in the war and noted that Russia is exploring various options for retaliation.
— Lisa Noskova
Ukraine and Russia are negotiating to halt strikes on energy infrastructure
On Tuesday, the Financial Times reported that Ukraine and Russia are holding preliminary discussions about stopping attacks on each other’s energy infrastructure. Unnamed Ukrainian sources indicated that Kyiv sought to resume negotiations mediated by Qatar, which were reportedly close to an agreement in August but fell through due to the Kursk operation.
According to Ukrainian officials, Moscow and Kyiv have already reduced the frequency of attacks on each other's energy objects in recent weeks, based on an understanding reached by their intelligence agencies. Ukrainian sources told FT that Kyiv and Moscow reached a “tacit agreement” last fall not to attack each other’s energy facilities, which was intended to pave the way for an official agreement. However, Kyiv resumed drone attacks on Russian oil facilities in February and March 2024, prompting Russia to start targeting power plants across Ukraine. Additionally, a former high-ranking Kremlin official interviewed by FT believes that Putin is unlikely to agree to a deal while Ukrainian forces are still in the Kursk region.
Ukraine’s Ministry of Energy declined to comment on the information about possible negotiations, while Kremlin spokesperson Dmitry Peskov dismissed the reports as fake. “There is currently a lot of misinformation that is unrelated to reality. Even the most reputable publications are not above allowing such falsehoods to be circulated,” he stated.
— Lisa Noskova
On the podcast
Kyiv-based journalist Fabrice Deprez returns to the Brief for another update on the mood in Ukraine, including a report on his recent trip to the frontline city of Pokrovsk.
Quickfire: Regions
Accidents involving communal infrastructure have continued over the past week as temperatures are cooling across Russia. In Novosibirsk, close to 500 apartments were left without heating due to an accident involving a heating pipe, and another town in the region introduced a “high alert” due to problems with the heating system. In Murmansk, several buildings were left without hot water and heating due to unscheduled maintenance. There is widespread anxiety that regions might face a wave of breakdowns over the winter months similar to what happened at the end of 2023 and beginning of 2024. According to Deputy Prime Minister Marat Khusnullin, repairing communal infrastructure could take 5-6 years—that is, if the government’s plans are realized. Over the past week, the State Duma adopted in the first reading a bill granting heat and water supply concessionaires preferential rights to renew agreements with municipalities and regions in an attempt to ensure that repairs are carried out continuously. However, due to the federal budget’s focus on the war and the political risks associated with raising utility tariffs, it seems unlikely that the government’s timeline is tenable.
Viktor Vorobyov, a Communist deputy in the Regional Assembly of the Komi Republic, Boris Vishnevsky, the deputy head of the liberal Yabloko Party in the St. Petersburg City Assembly, and Sergey Ilyukhin, an independent deputy in the Assembly of Severodvinsk in the Arkhangelsk Region, were deprived of their mandates this week after the Ministry of Justice labeled them “foreign agents.” The moves were based on a law adopted by the State Duma in May, which also forbids “foreign agents” to stand for elected office. There are now only three elected deputies left in Russia with the “foreign agent” label; their mandates could soon be annulled too, as the Justice Ministry supports these moves and the Novosibirsk City Council—where two of them are sitting—has already adopted the necessary rules. Making this procedure quasi-automatic across the country could also mean that the Justice Ministry will be able to kneecap virtually any opposition movement or group challenging the Kremlin’s allies in regional or local assemblies simply by naming their members “foreign agents.”
Anti-Roma riots started in the Chelyabinsk Region after a taxi driver was murdered in the Korkino District and suspicion fell on two young Roma men. Investigators arrested a teenager, and, following the news, hundreds of local residents reportedly damaged the properties of local Roma families and clashed with riot police. Later, around 30 Roma residents were “preventively” arrested. The district’s head, Natalia Loshchinina, resigned following the riots, and the case was taken over by federal investigators of the Investigative Committee. The riots, which seem to have been localized, happened after months of steadily increasing anti-migrant rhetoric in Russia, albeit this rhetoric was directed primarily at Central Asian migrant workers. Nonetheless, anti-migrant rhetoric has often taken up racist undertones and is occurring amidst a growing shortage of police personnel in Russian regions.
— Andras Toth-Czifra