Hello from the Bear Market Brief.
This week in the news:
The social media company Meta banned several Russian state-run news outlets, including RT, from its platforms.
Russia announced its planned federal budget for 2025, which includes hefty military spending.
Ukrainian President Zelenskyy visited the U.S. to discuss his victory plan with President Biden and presidential candidates Harris and Trump.
The State Duma adopted a bill allowing criminal defendants to join the Russian military in its latest attempt to boost military mobilization.
The Ukrainian town of Vuhledar in the Donetsk region is under threat of being encircled by Russian troops.
— Sara Ashbaugh, Editor in Chief
Meta bans RT
Last week, the social media company Meta banned several Russian state-run news outlets from its platforms. “After careful consideration, we expanded our ongoing enforcement against Russian state media outlets. Rossiya Segodnya, RT, and other related entities are now banned from our apps globally for foreign interference activity,” Meta said in a statement on September 17. Meta’s apps include the major social media platforms Facebook, Instagram, WhatsApp, and Threads. Kremlin spokesperson Dmitry Peskov criticized the ban, calling Meta’s decision “unacceptable.” RT also spoke out against the ban. “Meta can ban us all it wants, but you can always find us here,” RT posted to X on September 18, along with a list of links to its other social media pages.
Meta’s ban came just days after U.S. Secretary of State Antony Blinken announced new sanctions against RT for alleged election interference. The U.S. sanctioned two individuals and three entities (RT and its parent companies, Rossiya Segodnya and TV-Novosti) for participating in Kremlin-backed covert influence operations. Blinken called the media group a “de facto arm of Russia's intelligence apparatus” and said it had been working to “undermine democracy in the United States.” Additionally, Blinken announced that the U.S. will be working with the UK and Canada on a joint diplomatic campaign to combat Russian disinformation globally. “We urge every ally, every partner, to start by treating RT's activities as they do other intelligence activities by Russia within their borders,” Blinken told reporters. RT denied the accusations, calling Blinken’s statement “the U.S.’s latest conspiracy theory.”
Earlier this month, the U.S. State, Treasury, and Justice Departments announced a series of coordinated actions against RT. This came in response to an alleged Russian scheme to use American influencers to promote Kremlin-backed content. RT and its employees are accused of paying a Tennessee-based firm almost $10 million to “create and distribute content to U.S. audiences with hidden Russian government messaging,” according to U.S. Attorney General Merrick Garland. As a result, the U.S. filed money laundering charges against two Moscow-based RT employees, Kostiantyn Kalashnikov and Elena Afanasyeva, and sanctioned RT Editor-in-Chief Margarita Simonyan, among others. The U.S. also designated Rossiya Segodnya and five of its subsidiaries (RIA Novosti, RT, TV-Novosti, Ruptly, and Sputnik) as foreign missions. RT denied any involvement, openly mocking the accusations. “2016 called and it wants its clichés back,” the outlet said in a statement to the BBC.
— Sara Ashbaugh
Last Thursday, President Putin made an unannounced visit to the Special Technological Center (STC), a drone manufacturing facility in St. Petersburg. According to the Kremlin press service, Putin was shown a variety of military technologies, including the facility’s unmanned aerial vehicles and communications systems. Later that day, Putin spoke about the importance of drones for Russia’s “special military operation” at a meeting of the Military-Industrial Commission. According to him, the Russian Armed Forces received about 140,000 unmanned vehicles in 2023, and the production of drones is expected to increase by “almost tenfold” this year. (photo: Valery Sharifulin / TASS)
Another war budget
Finance Minister Anton Siluanov presented the main figures associated with Russia’s planned federal budget for 2025 and the 2026-2027 planning period. The figures reflect a continued prioritization of war-related expenditures, which the government will have to execute amidst rising inflation and high interest rates. The State Duma will start discussing the government’s draft on Monday, September 30.
Defense spending, which was expected to drop to 8.5 trillion rubles in 2025 (according to plans adopted in 2023), will instead rise from the current (projected) 10.4 trillion to a whopping 13.2 trillion rubles (of a total of 41.5 trillion on the expenditure side), more than twice the pre-war amount. It will also drop slower in 2026-2027 than in the previous forecast. Together with funds allocated under the “national security” heading, around 40% of spending in the federal budget will serve military and security purposes. This suggests that while the Russian government expected 2024 to bring a decisive turning point in the war, it is now increasingly uncertain that this will happen before 2025.
Apart from war-related spending, the government also claims to have 10 trillion rubles to support families, 3 trillion rubles for interbudgetary transfers to regions (of which 1 trillion will be spent on co-financing development under National Projects defined by the federal government), and 200 billion rubles in tax breaks for oil companies to stimulate the production of refined oil products. All this would be in line with the practice of previous years, but it is unclear to what extent the budget will prioritize projects in the occupied regions of Ukraine. These projects have received heavy funding from federal and regional budgets in the past two years while development projects in Russia were deprioritized. However, the federal government will likely want regions to further prioritize recruitment and looking after returnees. Under a new proposal, for instance, regions will be able to spend federal transfers on covering the medical costs of military personnel.
When calculating transfers to regions, the government will also take into account the gradual write-off of two-thirds of regional debt towards the federal government itself. It is unlikely that proposals suggesting the rebalancing of tax receipt distribution between federal and regional budgets—such as a proposal by the Transbaikal Territory regional government to cede revenues to regions from mineral extraction tax receipts—will be adopted. As was decided earlier this year, the federal budget will keep all extra revenues from increased corporate and personal income taxes as well. A further proposal suggests raising the rate of tax on the sale of Russian assets by foreign investors from 15% to 40%.
The federal government seems confident that rising tax revenues will cover most of the gap opened by ramped-up spending. Federal fiscal deficit is predicted at a mere 0.5% of GDP. However, the plans also foresee borrowing rising: 4.8 trillion rubles in 2025, 5.1 trillion in 2026, and 5.3 trillion in 2027, all while—at least next year—the Central Bank’s key rate remains high (currently 19%, with the potential of further raises).
— Andras Toth-Czifra
Zelenskyy’s victory plan
This week, Ukrainian President Volodymyr Zelenskyy is visiting the U.S. to attend sessions at the UN General Assembly and present his victory plan to President Joe Biden and Vice President Kamala Harris. Zelenskyy also plans to meet with presidential candidate Donald Trump, though Trump initially seemed reluctant to schedule a meeting. Zelenskyy’s victory plan includes five key points, which are centered on Ukraine’s security and geopolitical position, foreign military aid (with the freedom to use it without restrictions), and economic support. Andriy Yermak, Head of the Office of the President of Ukraine, addressed the Council on Foreign Relations in New York, stating that the plan seeks an invitation to join NATO.
However, some Western officials who have reviewed the plan doubt its potential to lead to a significant breakthrough in the ongoing war with Russia, according to Bloomberg. One policymaker even referred to it as a “wishlist.” Additionally, there are suggestions for renewed outreach to the Kremlin, with allies considering contacting President Putin directly before the G20 meeting in Brazil scheduled for November. Overall, many Western officials interviewed by Bloomberg appear hesitant to provide further assistance to Ukraine, particularly regarding advanced weaponry and Kyiv’s request to use long-range missiles against targets in Russia. The White House and the Department of Defense have expressed that they have yet to receive a compelling rationale from Ukraine for how striking these targets would significantly impact Ukraine’s path to victory. Instead, they argue that targeting locations in Crimea has been a more effective strategy, as it has already compelled the Kremlin to withdraw some forces from the peninsula.
Zelenskyy previously commented that rejecting the victory plan would leave the world divided. “One side will support Ukraine, while the other will pretend to support negotiations between Russia and Ukraine,” he said. Zelenskyy gave an impassioned speech at the UN General Assembly on Wednesday and also spoke at a special UN Security Council session. “Russia can only be forced into peace, and that is exactly what's needed—forcing Russia into peace,” he said.
— Lisa Noskova
Russian dissident Vladimir Kara-Murza and his wife Evgenia participated in their first joint interview since Kara-Murza was released from Russian prison last month. He was sentenced to 25 years for high treason in April 2023 and experienced harsh treatment at the facility in Omsk where he was held. On August 1, he was one of 24 prisoners freed in a deal between the U.S., Russia, and several European countries. In their interview with the BBC, Kara-Murza and Evgenia described the morning of his release and their joyful reunion. However, Kara-Murza is confident that he will return to Russia. “I know that I’ll be back home in Russia, and it’s going to happen much sooner than you can imagine,” he said. (photo: BBC)
Crime without punishment
On September 24, the State Duma adopted a bill that will allow people undergoing a criminal process as defendants to sign a contract with the Russian military or to be mobilized for military service. At the same time, proceedings against them will be suspended and all restraints on their movement scrapped. If they are later demobilized or retire due to injuries or with a state award, their criminal records will be erased. While Russia has recruited felons to various fighting units, initially this practice was only used by the Wagner Group, and, under a law adopted in 2023, only suspects or convicted felons could sign contracts with the Ministry of Defense. The new law, which was presented in August and adopted remarkably quickly, aims to expand the number of potential recruits significantly. Together with steeply rising military spending in next year’s federal budget and the recent launch of a digital draft system, the measure likely also aims to suggest to Ukraine and its backers that Russia still has reserves—both in terms of equipment and bodies—that it can throw at the front in Ukraine.
The Russian government has been walking a manpower tightrope because of conflicting priorities resulting from the war. Due to heavy losses in Ukraine, the army needs a constant influx of contract soldiers or mobilized men, but mobilization has remained riddled with political risks ever since it was announced two years ago; relatives of mobilized soldiers commemorated the anniversary with a protest in Moscow. Mobilization is heavily opposed by the business community as well, as employers are already struggling with labor force issues amidst heavy state-induced demand in the military industrial complex, a demographic slump, and the effects of the previous round of mobilization. Over the summer, many regions steeply raised sign-up bonuses paid out to contract soldiers, indicating problems with recruitment.
Legal experts talking to the news site RBK noted the dangers of the new law to society as a whole, highlighting that even more violent criminals will likely escape without punishment (as many have already returned and committed further violent and criminal acts). They also noted that courts have already started to pass harsher verdicts for petty crimes, assuming that the accused would choose to sign a military contract anyway, making the legal process ultimately meaningless.
— Andras Toth-Czifra
Vuhledar is under threat of encirclement
Vuhledar is a town in the Donetsk region located about 30 miles south of Pokrovsk. Once home to 140,000 residents, it is now nearly destroyed, with only around 100 people remaining amid an ongoing Russian assault. In recent days, Russian troops have intensified their attacks on Vuhledar, with Ukrainian forces seemingly at risk of Russian encirclement. On Tuesday, the DeepState Telegram channel posted a video showing multiple explosions, claiming that Russian forces are systematically leveling Vuhledar with artillery and guided bombs. The map from DeepState, dated September 24, shows Russian forces attacking Vuhledar directly and from both flanks.
Vuhledar is a key logistics hub for Ukrainian forces defending the southern flank of Kurakhove. The loss of Vuhledar would also threaten the southern flank of Pokrovsk, another city that Ukraine is fighting to hold amid ongoing Russian assaults. Given the significant Russian advances toward Pokrovsk from the east in recent weeks, it is crucial for Ukrainian forces to prevent a similar situation from developing in the south to avoid the risk of encirclement.
Vuhledar and its surrounding areas are heavily urbanized and positioned on higher ground, making them challenging to capture. Since the onset of the full-scale invasion, Russia has made numerous attempts to seize the town, suffering significant losses along the way. Recently, however, Russian forces have shifted their strategy, opting to attack from the flanks rather than directly. “It's not a huge deal if the Russians manage to occupy a few high-rise buildings, but if they are able to seriously form an encirclement from the flanks, then that's a real issue,” says Emil Kastehelmi, an analyst at the Finland-based Black Bird Group.
— Lisa Noskova
Analysis: What Ukraine’s Kursk Incursion Tells Us About Putin’s Russia
Given that Ukraine's Kursk incursion was the first foreign invasion of Russia since World War II, Russia’s fierce retaliation should have followed. Instead, Russian authorities pretended that this was nothing but a local crisis and a temporary setback. The reality is more complex and the implications are more serious than the Kremlin would like to admit. Read more in an analysis by FPRI Fellow Olga Khvostunova.
Quickfire: Regions
The Yekaterinburg-based news site E1.ru published rumors—which quickly also appeared in more mainstream media—that Vladimir Putin will appoint Artyom Zhoga, a former military commander in the Russian-occupied part of Ukraine’s Donetsk region, to the position of Presidential Plenipotentiary in the Urals Federal District. The previous plenipotentiary, Vladimir Yakushev, was recently dismissed after he was appointed General Secretary of the United Russia party and elected Deputy Chair of the Federation Council. Zhoga, who rose from a Donetsk businessman to a separatist fighter and occupation official, became widely known last year when his rather clumsily-staged question to Putin about re-election plans was used to announce that Putin was running for a fifth term. If Putin indeed appoints Zhoga, which has not been confirmed at the time of this writing, he will be by far the most influential former war participant in the Russian officialdom, tasked, at least formally, with coordinating the work of some of Russia's most important oil, gas, and metal producing regions. While these regions have their own channels to the federal government, which they will likely try to use to circumvent an outsider, Zhoga’s appointment would be a further signal of the Kremlin’s commitment to elevate, at least symbolically, war participants to a “new elite” in spite of the reluctance of existing elite structures to give way to them.
One of the bills that will be discussed in the State Duma’s recently-started fall session is a bill on Lake Baikal. If passed, the bill would ease logging and construction restrictions around the world’s largest freshwater lake. The bill was approved in its first reading in 2023, but immediately triggered backlash from activists, scientists, and local residents, who protested the harmful effects that the bill might have on the lake and the proliferation of industrial and tourist infrastructure that is likely to be built as a result, benefitting the business structures linked to the bill’s sponsors (as identified by Kedr, a website tracking environmental damage resulting from industrial lobbying). Last week, 70 scientists penned an open letter to Duma Speaker Vyacheslav Volodin arguing against the law. The Presidential Commission for Human Rights also criticized the initiative, reacting to a recent documentary that argues the extension of logging will actually help local residents. The fact that even government mouthpiece Rossiiskaya Gazeta published the letter by the scientists suggests that the fate of the bill has not been decided in spite of the support it got from regional governments around Lake Baikal.
Yevgeny Belyaev, a local prosecutor, was named acting mayor of Petropavlovsk-Kamchatsky, the seat of the Kamchatka Territory. His predecessor, Konstantin Bryzgin, resigned last week. Belyaev has no experience in public administration; however, he is just the latest in a series of former Prosecution officials to receive political appointments in Russia’s Far East. Dmitry Demeshin, a former Deputy Prosecutor General, was appointed Governor of the Khabarovsk Territory earlier this year, and he brought several former colleagues with him to the region. Demeshin’s appointment is widely considered to be an attempt to rein in regional elites using a law-and-order agenda. It remains to be seen if the appointment of Prosecution officials to the Far East becomes a trend after Demeshin’s arrival.
— Andras Toth-Czifra