Tightening the screws
The EU is considering new sanctions against Russia
Hello from the Bear Market Brief.
This week in the news:
The European Union is considering new sanctions against Russia, including removing more Russian banks from SWIFT, lowering the G7 oil price cap, and banning the use of the Nord Stream gas pipelines.
Russia proposed holding the next round of negotiations with Ukraine in Istanbul on Monday, June 2.
After his visit to the Kursk Region last week, President Putin authorized additional financial support for the border regions.
— Sara Ashbaugh, Editor in Chief
Potential new EU sanctions
The European Union is planning to further tighten both financial and sectoral sanctions on Russia. According to a Bloomberg report, the European Commission is consulting EU member state governments—which have the final say on the sanctions—on excluding a further 20 Russian banks from the SWIFT international payment system, lowering the G7 oil price cap to $45 per barrel (currently the cap is at $60), and adopting a ban on the non-functioning (but still existing) Nord Stream gas pipelines linking Russia and Germany.
The proposed sanctions can be viewed as the EU’s attempt to push the U.S. government to show its true colors on Russia after months of rhetorical back-and-forth in D.C. over whether the Trump administration is ready to push the Russian government to take ceasefire negotiations seriously. SWIFT, which is based in Belgium, is one of the EU’s most important means to maintain and increase the international isolation of the Russian economy, even without U.S. cooperation. Meanwhile, lowering the oil price cap—which would make sense given falling global oil prices—would require the cooperation of the U.S. government, especially when it comes to the enforcement of the cap, which has so far been patchy.
Sanctioning the Nord Stream pipelines is supported by the German government. At a press conference with Ukrainian President Volodymyr Zelenskyy this week, German Chancellor Friedrich Merz said he would keep Nord Stream 2 turned off. Merz underlined this after German politicians, including from the Chancellor’s Christian Democratic Union, proposed restarting gas deliveries to improve German-Russian relations. The U.S. government also hinted at the possibility of restarting the pipelines, even though Nord Stream 2 was sanctioned by the first Trump administration.
For all his previous threats of further sanctions, Trump has so far been reluctant to impose new restrictions on Russia, as his administration has been engaging in talks with the Kremlin to improve economic relationships and capitalize on investment opportunities. Indeed, the Russian government’s main goal in these negotiations has been to decouple economic relationships (including sanctions) from the war in Ukraine. However, news reports suggest that several Republican senators have been pushing the President to adopt a more hawkish stance and support legislation imposing 500% tariffs on any country buying fossil fuels from Russia. This, on the other hand, could further complicate relations with the EU, with which the U.S. is currently engaged in high-stakes trade talks.
In terms of sanctions enforcement, the German Foreign Ministry claimed in a classified report leaked to the German press that China is responsible for 80% of sanctions avoidance cases regarding Russia. Turkey, Kazakhstan, and the United Arab Emirates are also contributing to Russia’s ability to import sanctioned goods, and EU-based companies are complicit in these endeavors. The findings might inform the next EU sanctions package, its 18th, as the EU is also looking to enforce sanctions more effectively on its own territory.
— Andras Toth-Czifra
Ukrainian drones hit two apartment buildings in the Moscow region overnight on Thursday. According to Moscow Mayor Sergei Sobyanin, there were no serious damages or casualties, but flights from Vnukovo International Airport were temporarily suspended. The Russian Ministry of Defense reported downing 2,331 Ukrainian drones in total over the past week (between May 20 and May 27) and accused Ukraine of taking “provocative steps to thwart negotiations.” This came just days after Russia launched its largest-ever drone attack on Ukraine, involving around 298 drones and 69 missiles. The attack targeted multiple cities across Ukraine, killing 13 civilians and injuring at least 50 others. (photo: Yuri Kochetkov / EPA / Scanpix / LETA)
Next round of peace talks
Russia has proposed holding the next round of peace talks with Ukraine in Istanbul on June 2. “We hope that all those who are sincerely, and not just in words, interested in the success of the peace process will support holding a new round of direct Russian-Ukrainian negotiations,” Russian Foreign Minister Sergei Lavrov said. President Putin and President Zelenskyy are not expected to attend the talks. Instead, Foreign Ministry spokesperson Maria Zakharova confirmed that Russia will send the same delegation as the last round of talks on May 16, led by presidential aide Vladimir Medinskiy. Representatives from other countries will also take part; U.S. special envoy Keith Kellogg announced on Thursday that he would participate, as well as national security advisers from Germany, France, and the UK.
Ukraine has requested a draft of Moscow’s peace proposal before committing to the negotiations, according to Ukrainian Foreign Minister Andrii Sybiha. Both sides agreed to prepare a list of their peace terms after the last round of talks. On Tuesday, Ukraine shared its terms with the U.S. and Russia, which reportedly included an unconditional ceasefire. Sybiha emphasized that in order for the meeting to be “substantive and meaningful,” Ukraine needed to receive Russia’s document ahead of time as well, so the Ukrainian delegation would have “the authority to discuss the relevant positions.”
On Friday, Kremlin spokesperson Dmitry Peskov said that the memorandum is still in progress and would not be shared before the meeting. “A list of conditions for a temporary truce is being developed,” he told reporters, calling Ukraine’s demand for the memorandum “not constructive.” According to Reuters, one of Russia’s conditions is likely a pledge from the West to stop NATO expansion eastward—a concern that Kellogg recently called “fair.” Zelenskyy criticized Russia’s refusal to release its memorandum, going as far as to accuse Russia of intentionally stalling the negotiations. “Unfortunately, Russia is doing everything it can to ensure that the next potential meeting brings no results,” he posted on X.
Despite the prospect of talks, the two countries continue to target each other with a flurry of drone strikes. Russia launched its largest-ever drone attack against Ukraine overnight on Sunday, using 298 drones and 69 cruise and ballistic missiles. During his daily video address on Monday, Zelenskyy noted that Russia had attacked Ukraine with more than 900 drones over the last three days, describing the strikes as “increasingly brazen and large-scale.” He called on allies to put more pressure on Russia, posting to Telegram, “This cannot be ignored. America's silence, and the silence of others in the world, only encourages Putin.” On Wednesday, German Chancellor Friedrich Merz pledged to finance Ukrainian production of long-range weapons to help defend against Russia.
President Trump responded to the uptick in drone strikes by criticizing Putin on social media. In a series of posts on Truth Social, Trump called Putin “absolutely CRAZY” and accused him of “playing with fire.” “He’s killing a lot of people. What the hell happened to him?” Trump told reporters on Sunday, admitting that he was considering further sanctions against Russia. However, Trump also criticized Zelenskyy, writing, “Likewise, President Zelenskyy is doing his Country no favors by talking the way he does. Everything out of his mouth causes problems, I don’t like it, and it better stop.”
— Sara Ashbaugh
The Moscow metro installed a new monument to Joseph Stalin this month, sparking controversy. The monument is a replica of a bas-relief first unveiled at Taganskaya Station in 1950, titled “Gratitude of the People to the Leader and Commander.” The original sculpture was removed in 1966 during the Soviet Union’s “de-Stalinization” period and is believed to have been destroyed. Last week, two activists were arrested for placing framed quotes by Vladimir Putin and Dmitry Medvedev on the new monument. The quotes, which were critical of Stalin, were accompanied by the question, “Does the Moscow Transportation Department agree with Vladimir Putin/Dmitry Medvedev?” The activists were convicted of violating protest laws and fined 20,000 rubles ($250) each. (photo: @monumentalno)
Politics in the border regions
Following his trip to the Kursk Region last week, President Putin instructed the federal government to provide additional fiscal support to Russia’s border regions—Kursk, Bryansk, and Belgorod—in order to pay for reconstruction, compensation for lost property, and the demining of the regions. These issues have grown into a political risk for the Kremlin over the past months, as Kursk Region residents have repeatedly protested due to problems with the provision of aid.
Six months ago, the previous governor of the Kursk Region said that the price tag of the reconstruction of the region after last year’s Ukrainian incursion would be around 700 billion rubles. This is significantly larger than the region’s yearly budget (120 billion rubles for 2025). Belgorod Governor Vyacheslav Gladkov estimated the reconstruction costs of his region’s affected districts at 157 billion rubles (roughly equal to the region’s yearly spending). The federal government has significantly ramped up federal transfers to these regions’ budgets over the past two years, but the transfers have so far been an order of magnitude smaller than the figures named by the governors. Putin did not mention a specific figure to be allocated for reconstruction efforts, and, in similar cases, the federal government has often expected regional budgets and private capital to foot a considerable part of the bill.
Following Putin’s trip to Kursk, the Defense Ministry also claimed that the President’s helicopter was caught in a Ukrainian drone attack. The purpose of this, again, was likely symbolic; namely, to suggest that Putin—who is widely regarded as extremely risk-avoidant and who did not visit the region while the active phase of the Ukrainian incursion took place—was himself at danger and bravely withstood an attack. However, earlier Russian media reports suggested that Putin was traveling in the region by car, and there was no previous indication that there was a drone attack affecting the Kursk Region during Putin’s visit. The Ukrainian military also called the Russian Defense Ministry’s claims into question. On May 30, a report in The Moscow Times seemed to confirm this theory.
— Andras Toth-Czifra
Report in Short: The War’s Impact on Russia’s Regional Power Dynamics
This week on Report in Short, Aaron Schwartzbaum speaks with András Tóth-Czifra about his recent report, “The Kremlin’s Balancing Act: The War’s Impact On Regional Power Dynamics.” In the report, Tóth-Czifra explains the shift of government control, highlights instances of pushback, and identifies limitations on the Kremlin's strategy going forward.
Quickfire: Regions
The nationalization of privately owned companies has continued apace over the past weeks. A Vladivostok court took into state ownership the Petropavlovsk-Kamchatsky Sea Port and an associated shipping company from their previous owners, mostly former regional officials, due to alleged violations of privatization legislation. In a similar case, a Moscow court took into state ownership the Sayanskkhimplast Plant in the Irkutsk Region, which is Russia’s largest PVC manufacturer and was formerly owned by a speaker of the regional parliament. Last month, the shares of two large companies, the mining and ore processing company Dalpolimetall and the freight operator Vector Rail, were seized by the state due to accusations of corruption, as was the Salavat Catalyst and Adsorbent Plant. The nationalization of the Domodedovo Airport was scheduled to be discussed by a court in mid-May. The Prosecution’s argument most often quotes illegal privatization, but ownership by foreign or dual citizens has also been quoted as grounds for seizing assets.
According to a count by the Vyorstka news outlet, only 23 out of 58 potential war participant candidates (among them many former officials) won the “primaries” of the ruling United Russia party and will be able to stand as candidates for regional legislatures in the regional elections this September. These legislatures are important arenas of interest representation for local business elites. It seems that, similar to earlier years, established elites are still blocking the elevation of war participants into regional legislatures despite the Kremlin's active promotion of the war as a career elevator. United Russia itself highlighted that more war participants than ever would stand as candidates in the September elections, and while this is technically true (with 827 candidates with “war participant” credentials, more than twice last year’s number, albeit this is out of thousands of elections), most will stand for municipal offices with little influence. Local party elites can still decide to promote more “veterans” via United Russia’s party lists or by appointing them to unelected positions after the elections.
Members and supporters of the local chapter of the liberal Yabloko party held a protest in Ivanovo in support of Sergei Kustov, the editor-in-chief of the local television channel “Bars” and the IvanovoNews portal, who was accused of slander by the authorities after a raid on Bars’s offices the week prior. The case is likely connected to Kustov’s activism on behalf of the relatives of Russian soldiers who died or disappeared in Ukraine. In February, the editor was fined for “discrediting the Russian army”—a blanket article in the criminal code that is often used to harass those who publicly write or speak about the war in terms different from the official version of the government—after he published an appeal from soldiers’ relatives. He later accused the employees of the Interior Ministry’s Center for Combating Extremism (Center “E”) of initiating the case against him. IvanovoNews also published an article accusing Center “E” policemen of running an anonymous Telegram channel where they mock the relatives of disappeared soldiers. The case highlights that, in spite of the Kremlin’s attention to the issue of returning war participants, the fate of Russian soldiers in Ukraine remains a sensitive problem producing friction between the authorities and the population.
— Andras Toth-Czifra