The Brothers Safarov
Two Azerbaijani nationals arrested in Yekaterinburg died in Russian custody
Hello from the Bear Market Brief.
This week in the news:
Two Azerbaijani nationals died in police custody in Yekaterinburg, sparking a diplomatic rift between Russia and Azerbaijan.
Economic indicators suggest that the Russian labor market may be starting to cool.
The White House announced that the U.S. will pause some munitions deliveries to Ukraine due to dwindling stockpiles.
— Sara Ashbaugh, Editor in Chief
Azerbaijan-Russia spat
The deaths of two Azerbaijani nationals in police custody in Yekaterinburg triggered a major and still escalating diplomatic spat between Russia and Azerbaijan. The Safarov brothers were rounded up on June 27 along with several other Azerbaijani citizens as part of an investigation into a series of murders in 2001-2011. Azerbaijan’s government claims that the brothers were likely tortured and murdered and that the Russian authorities violated international law.
The Azerbaijani Foreign Ministry summoned Russia’s ambassador in Baku to protest the arrests, cancelled a series of events in the country that involved the Russian state or private organizations, and called off a government visit to Moscow. The Azerbaijani authorities then raided the offices of Sputnik-Azerbaijan, a Russian state-owned media agency that had already lost its media accreditation in February, and jailed its (Russian) editors on charges of fraud and illegal business activities. They are also reportedly accused of espionage. In turn, Russia’s Ministry of Foreign Affairs protested these arrests and requested direct communication with the Azerbaijani government. The Azerbaijani authorities, however, continued to arrest Russian nationals; on July 1, eight Russians were arrested and charged with cybercrimes and smuggling narcotics from Iran. According to the investigative outlet iStories, three of the arrested Russians are tech workers.
The relationship between Azerbaijan and Russia has been tense since the crash of an Azerbaijani airliner in Kazakhstan in December 2024, which Azerbaijan suspects was hit by Russian air defense. Azerbaijan demanded an apology for this incident and the country’s leader, Ilham Aliyev, skipped Russia’s Victory Day parade. Russia’s influence in the South Caucasus had been weakening due to its focus on the war in Ukraine, which has allowed countries in the region—especially oil and gas-rich Azerbaijan (backed by the Turkish government) but also Armenia, formally a Russian military ally—to speak and act more forcefully in their relationship with Moscow. The Armenian government recently arrested a Russian-Armenian businessman, accusing him of backing an alleged coup attempt. Currently, the Kremlin does not seem to have the resources to prioritize this issue in its foreign relations, albeit Russia’s position as a key investment source and trading partner is still strong in Azerbaijan, especially as Russia is looking to expand the capacity of its North-South trade corridor as part of its pivot to Asian markets.
— Andras Toth-Czifra
Mourners formed a procession behind the coffins of Huseyn and Ziyaddin Safarov, the Azerbaijani nationals who died in Russian custody this week. Their deaths triggered a diplomatic rift between Moscow and Baku, including reciprocal arrests of Russian nationals living in Azerbaijan. According to Russian officials, Ziyaddin died of heart failure and Huseyn’s cause of death is undetermined. The Azerbaijani Health Ministry, however, reported that both brothers died of severe injuries resulting in blood loss and “post-traumatic shock.” The Prosecutor General's Office of Azerbaijan opened a criminal case into the brothers’ deaths on charges of torture and aggravated murder. (photo: Reuters TV / via Reuters)
Labor troubles
The situation in the Russian labor market continues to show signs of cooling. According to the Institute of Economic Forecasting at the Russian Academy of Sciences, employers do not plan to further raise salaries in real terms (another recent survey suggested that one in six companies would, in fact, reduce payroll over the next year). Among employers surveyed by the institute, the proportion of those expecting to expand hiring was also the lowest since 2022.
Over the past quarter, especially in the construction sector, the amount of delayed salary payments has also reached a 5-year maximum, according to the Confederation of Trade Unions (albeit the amount is still relatively small). Companies in several sectors have faced increasing interest payments on loans and have also had to deal with the phasing out of preferential loan programs.
This does not necessarily mean that the labor market crunch that has impacted the Russian economy over the past three years is easing—almost half of businesses are still worried about the lack of qualified employees, albeit down from 60% a month ago, according to another survey reviewed by Kommersant. However, it does suggest that, due to continued pressure on civilian sectors, a hawkish monetary policy, and uncertainty regarding economic prospects and property rights, employers are being increasingly cautious.
The absence of clear signs about the state of the real economy and continued war-related constraints have reportedly prevented the Central Bank from acquiescing to employer demands to drop its key rate. Leading government officials warned of a pending recession at last week’s St. Petersburg International Economic Forum, and the economic forecasters of the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP), a think tank associated with the government, warned of a risk of financial destabilization for companies in sectors such as coal mining, oil refining, and construction engineering. As long as the labor market remains tight and sanctions continue to put a limit on imports and exports, rate-lowering may lead to a “hard landing” of the economy.
— Andras Toth-Czifra
North Korean Supreme Leader Kim Jong Un hosted a ceremony in Pyongyang on Sunday to commemorate the one-year anniversary of the country’s mutual defense pact with Russia. Russian Culture Minister Olga Lyubimova attended the event, which featured a concert and a video of Kim laying flags on the coffins of North Korean soldiers who died fighting Ukraine. Of the 15,000 North Korean soldiers deployed to Ukraine, 600 have been killed and more than 4,000 wounded, South Korean lawmakers say. According to Ukrainian intelligence reviewed by CNN, 25,000 to 30,000 additional North Korean troops are expected to be deployed in the coming months, likely to the Russian-occupied regions. (photo: KRT / Reuters)
U.S. halts some munitions deliveries to Ukraine
The Pentagon has decided to halt some promised munitions deliveries to Ukraine, including anti-aircraft and anti-missile systems. The Trump administration made the announcement on Tuesday after a review of the Pentagon’s munitions stockpiles led to concerns that the U.S. was running too low, Pentagon insiders told Politico. The decision “was made to put America’s interests first,” White House Deputy Press Secretary Anna Kelly said in a statement, adding, “The strength of the United States Armed Forces remains unquestioned—just ask Iran.”
Although U.S. officials have not said exactly which shipments will be paused, they will likely include Patriot air defense interceptors, precision-guided artillery, Hellfire missiles, and munitions used by F-16 fighter jets. Patriot systems are particularly crucial for Ukrainian defense, and Ukraine has repeatedly asked for additional anti-aircraft missiles to repel Russian attacks. President Zelenskyy discussed buying them from the U.S. with President Trump during their meeting on the sidelines of the NATO Summit last week, after which Trump said he would “see if we can make some available” to sell to Ukraine.
The Ukrainian Defense Ministry said it had not been officially informed of any suspension or revision of weapons deliveries and asked the U.S. to clarify. The Foreign Ministry also summoned John Ginkel, the Deputy Chief of Mission at the U.S. Embassy in Kyiv, to meet with Deputy Foreign Minister Mariana Betsa. “Any delay or hesitation in supporting Ukraine's defense capabilities will only encourage Russia to continue war and terror, rather than pursue peace,” Betsa said in a statement.
The U.S. decision comes amid a new barrage of attacks from Russia, including its largest aerial attack since the beginning of the war. According to reporting by Bloomberg, European officials were “stunned” by the announcement, especially after Trump’s positive statements following his meeting with Zelenskyy last week. “In the short term, Ukraine cannot do without all the support it can get when it comes to ammunition and air defense systems,” NATO Secretary-General Mark Rutte told Fox News. Russia, however, welcomed the announcement. “The fewer number of weapons that are delivered to Ukraine, the closer the end of the special military operation,” Kremlin spokesperson Dmitry Peskov said.
— Sara Ashbaugh
On the podcast
From Russia with Risk
On this episode, geoeconomic and country risk expert Rachel Ziemba joins Aaron Schwartzbaum to delve in the discipline of Political Risk: how does one "do" the field?
Quickfire: Regions
According to Reuters, the Iranian company Nasim Bahr Kish offered to buy out the minority shareholders of the Astrakhan Port, including the Russian state, which currently owns 25% of the port on the Caspian Sea. The port is a key hub for the shipment of Russian grain to Iran, but also an important element of Russia’s North-South trade corridor, which the Russian government wants to expand. This is not the only example of Iran actively seeking to expand its influence in Russia’s Caspian regions. Recently, Iranian investors have also reportedly expressed interest in building a port in Kalmykia, near the city of Lagan, which would be connected to the northern Iranian ports of Amirabad, Anzali, and Fereydun-Karun, and supported by a logistical center in Elista, the region’s capital.
A court in Moscow sentenced former Deputy Defense Minister Timur Ivanov to 13 years in prison on corruption charges. Ivanov was accused of embezzling more than 4.3 billion rubles from various military construction projects, including in the occupied regions of Ukraine. His prison term is the longest ever for a current or former federal government official in Russia’s modern history, according to journalist Farida Rustamova. Ivanov was one of the first Defense Ministry officials arrested and imprisoned last year in the purge that accompanied the dismissal of then Defense Minister Sergey Shoigu (who is currently the Secretary of the Security Council) and his allies. Together with Ivanov, the court also sentenced Anton Filatov, the former head of Oboronlogistika, a Defense Ministry company, to 12.5 years. Shoigu’s successor, Andrey Belousov, was widely expected to focus on cleaning up corruption affecting military expenditures. Recently, corruption cases having to do with defensive structures were also opened in the Belgorod and Kursk Regions bordering Ukraine.
Last week’s lavish wedding of 17-year-old Adam Kadyrov, the third son of Chechnya’s leader Ramzan Kadyrov, again fueled rumors that a succession plan is being put into place for the Chechen leader (whose health is weakening). The guest list included several federal government officials (who may not have actually taken part) but, most importantly, President Vladimir Putin met with Adam Kadyrov in the Kremlin prior to the ceremony. The younger Kadyrov was, over the past year, first promoted to head his father’s security detail, then tasked with overseeing Chechnya’s police force, and, most recently, appointed to Secretary of the Republic’s Security Council. Еarlier, he became known across the country for beating up a young man in custody who was accused of disrespecting Islam by burning a Koran and of cooperating with the Security Service of Ukraine.
— Andras Toth-Czifra