The West's Apartheid
International Trading System
by Laurie Meadows
First published 8 June 2022 [0900 UTC]
Last edited 03 July 2022 [0930 UTC]
as a protection racket Destroying
Russia's economy Block
imports of Russian goods An Apartheid
International Trading System
gold and silver Agriculture Steel
Titanium Neon Defense Industry
Industry Shipping Industry Aviation industry
Electricity sector Service
Industries Urban rail Road transport
industry Fertiliser industry
Services industry Banking sector
Telecoms Foreign Direct
Investment into Russia Russia's
overseas investments Space industry Automotive industry
the Export of Goods to Russia Russia's
apartheid trade policy - unintended consequences for the West
Russian money transfers Destroy the
Purchasing Power of the Ruble Force
a sovereign debt default Mechanics of
by Bitcoin or similar cryptocurrencies
is the Russian economy doing?
Separate trade development - friendly trade
End of NATO?
foreign policy concept
Russian assessment of
the western enforced economic apartheid
These notes are mostly a commentary on the on-going consequences
of the emerging divided global trading systems. The cause and mechanics
of the emergent non-western system is covered in some detail in 'Beware
the Ides of March'.
is important to talk to Russia. [...] Because first it is
our neighbor, and also because it is important that we
have a stable relationship with this country,
(inaudible). And it is in the name of these principles that
we would like to maintain this dialogue. It does not prevent
us from standing firm, like we said earlier.
But of course, Europe, as well,
need to talk to Russia at a high level, and mainly because
there is a major issue, which is arms control.
And over the past few month, we
witnessed the de-organization – deconstruction of the
regulation system of weapons that – the system that was
put in place in – at the end of the ’90s on the strategic
armaments. And luckily, we have New START being extended,
but we also have the issue of the intermediate nuclear
And all of these regulations are
a matter of security to prevent any accident or
incidence, to provide some relative transparency. All
of that does not exist anymore, so this is what is
at stake – the interest to rebuild, to begin to
rebuild all of that.
It was discussed by President Biden and President Putin, and
this is what we will be working on together based on a common
So we need to talk to have a strategic
stability, to have relational stability between the
Europeans and the great neighbor. And all of the
initiatives aiming at talking with a willingness of
dialogue are there.
And they’re not – the Americans,
while they’re specialist in dialogue with Russia,
and the Europeans are special
experts in sanctions, we need both, and
this is what we’re doing.
French Foreign Minister Jean-Yves Le Drian at a joint press
conference with US Secretary of State Tony Blinken June
The US and West is trying to totally destroy the Russian economy.
While the West has multiple objectives, from the US point of view
the first 3 listed below are of paramount importance, the rest
1. Permit US (NATO) to occupy Ukraine in order to place US
sophisticated nuclear armed cruise missiles 6 minutes from Moscow,
with the aim of launching 'small' nuclear strikes that can fully
cripple Russia's missile defense systems and tactical nuclear weapon
deployment infrastructure. Long-arm economic occupation is easy
If this objective fails, the plan 'B' is to create a series
of reversible economic 'pain instruments'. The US wants to coerce
Russia into accepting US terms limiting deployment of Russian
hypersonic weapons offshore USA, and somehow restrict Russia's new
generation strategic nuclear missile.
The US cannot match Russia's defensive capabilities, it's '
battlefield dominance' via new AI drones, submarines, aviation, and
defensive/offensive hypersonic missiles. The US cannot match
Russia's unstoppable globe-encircling Sarmat massive tactical
nuclear missile, or its nuclear torpedos.
In other words, it cannot talk to Russia from a 'position of military
strength'. It hopes to talk to Russia from a position of economic
strength derived from an ability to destroy Russia's economy.
The Western hope is that an economically crippled Russia will
experience constant and deepening deprivation and daily misery,
stirring up fear and anger. The US hope is for popular unrest to
unseat the current government. Hoping, of course, for a new
government obedient to US dictates and favorable to US business. A
comprador government that would sign an arms control treaty
favorable to the USA, and create conditions for the US and West to
obtain a majority control of Russia's mineral wealth, banks, and any
But the US has miscalculated Russia's real-economy capacities, the
'real' economies width and depth, and Russia's 'good-enough'
resilience born of enduring real economic hardships over the years.
It has badly miscalculated Russia's fiscal and monetary discipline,
and Russia's determination to retain the enduring value of money by
grounding it in goods and balanced trade.
2. If destruction of Russia fails, the USA wants to block
Russia's further development across all dimensions of life -
economic, social, cultural, you name it. The most important
objective is to prevent co-operative business development with
Ukraine and Germany. The USA has had great success in promoting race
hatred against Russia in Ukraine and Germany. It's not an
'achievement' any decent country could feel pride in.
3. USA wants to force Russia into a path of dependence on China
for import of otherwise unavailable goods and as the major gas
export market (and maybe oil). Once US has secured a source of rare
earths (from Australia), and started manufacturing its own
antibiotics and high end semiconductors (5 -10 years), the US will
severely restrict China's trade, impose so-called 'secondary
sanctions' on any country daring to trade with China, attempt to
collapse the Chinese economy, cause massive social unrest, and
severely curtail China's exports and imports - including imported
Russian gas. This will create conditions for a weak China to sign
favorable missile control treaties with USA. It will also make US
're-shored' domestic industries competitive again.
4. USA sub-goal: Seriously impair Russia's oil and gas
exports. US wants to export it's higher priced gas to Europe, but
Russia's cheap gas is an obstacle.
5. USA sub-goal: Cripple Europe's manufacturing export
industries (and Germany's, in particular) in the interests of
exports from USA manufacturers. This requires Europe to have
expensive and unreliable gas supplies, as well as social unrest from
both price rises and refugees (including armed white supremacist
gangs) spilling over from a doomed-from-the-start military
'solution' to Ukraines civil war.
"We have for years promoted relations [with the EU], doing
this in a sincere and pragmatic manner. These relations were
aimed at integrating things, minimising costs, engaging in
mutually beneficial cooperation in a number of areas.
Regrettably, this largely fruitful work was stymied by the
West, by the Brussels elite, who are fully at Washington’s
beck and call. European nations, citizens of European
countries have nothing to do with this blockade.
Why did this happen? Because peaceful, mutually
beneficial and effective coexistence on the European
continent is a nightmare for the United States! Because it
means they will be unable to find competitive advantages or
fish in troubled waters. No! Any kind of US domination
will be out of the question.
As of today, “divide and rule” is the sinister, frightful
21st-century logic, with its conscious intention to sow
chaos and attempt to rule.
were proceeding from pragmatic decisions that were necessary
for our national interests. Let me remind you that the
EU was created as the European Coal and Steel Community;
integration in other areas was launched later, with the ECSC
transformed into the European Economic Community and
subsequently the European Union with a common currency. It
all seemed well and good until it dawned on someone in
Washington that Europe acquiring its own strong currency and
a totally independent energy system was unheard-of
Can you imagine what it means for the US
“deep state” to understand that Europe is energy
independent and has its own mineral resources and
technologies to produce and deliver these to any location
in Europe and neighbouring regions.
It means leaving the United States out in the
cold. Obviously, they could not afford it, because they have
no competitive advantage left to them other than the
capacity to wreak havoc.
So, everything was done, as we understand now, to transform
the EU from an independent economic integration system into an
economic division of NATO, to destroy ties, and deal a blow to
the entire edifice of European unity, which we observed."
Foreign Ministry Spokeswoman Maria Zakharova 8
International Trading System
Even if all the above objectives fail, the USA and West have at
least introduced the idea of two trading systems in the world, one
dictated by the West, and the other (larger) system relying on
International law and the norms and customs of mutually beneficial
trade. Trade rules not invented by a clique,
but rules rooted in thousands of years of trading history between
nations. The US wants to impose a false choice between the West's
new 'trademark' apartheid system™ and the existing system
used by rest of the world; 'sanctioning', blockading, bullying,
cajoling, lecturing, ridiculing, and blackmailing countries into
choosing exclusively one or the other. And in another Western
'trademark' move, rudely suppressing countries sovereign right to
"We lost faith in our Western colleagues’ negotiation
skills and dependability after 2014, when Crimea-related sanctions
were imposed on us...Since then, we have been relying on ourselves
and our contacts and connections with dependable partners. As a
result of the measures we had taken, we became an agricultural
powerhouse. For many years before that, we had been importing
large amounts of food."
Russian Foreign Minister Sergey Lavrov 4 June
Russia is currently the main target of 'expulsion' from the new
western construct of what 'global' trade is. Such a new
construct only became possible once USA crippled the functioning of
the World Trade Organisation.
The USA de-recognised
Russia's 'favoured nation' status as a World Trade Organisation
member. The Americans, who have wrecked the functioning of the WTO
because the US didn't like some unfavorable rulings, now seem intent
on scrapping it entirely.
Apparently the agreed rules of WTO no longer suits the American
corner of the world community because the WTO allegedly doesn't
follow Western democratic ideals.
"Even before Russia's invasion of Ukraine, all the U.S.' major
Western trading partners agreed that there must be significant
systemic reforms to the WTO's structure and rules to make it a
China and to a lesser degree Russia's presence in the WTO, along
with the WTO's own rules, however, make reforming the
institution virtually impossible.
Therefore, any consideration of real reform must include eliminating
the institution and starting over...By
withdrawing PNTR status for certain WTO members, the U.S. is
recognizing that it can no longer remain shackled to a framework
that no longer functions properly. If the institution is unable
to force reform because of the gridlock created by its own
rules, then it is time to consider abandoning the institution.
Withdrawing PNTR is a first step in creating a system for
countries that adhere to Western democratic ideals."
Robert DeFrancesco, American
Well, the WTO is neutered, and the US can impose illegal sanctions
on Russia without being called to account. But Russia is one of only
2 countries in the world that are largely self-sufficient in
economic conditions and materials - from favorable climate,
favorable soils, to large deposits of essential minerals, including
oil and gas. Therefore, Russia has everything it needs for the
comfort of its people, and is largely immune to sanctions.
The rest of the world has to import at least something from someone
else. And export something to pay for it.
Russia will trade with anyone, including the USA. It does not 'sulk'
or 'punish'. It does whatever is in the interests of the Russian
people. Russia did not invite trade restrictions. Just the opposite.
But those imposing this new system need little excuse - or no excuse
"We drew a lesson from all this, which is to never
again rely on these people.
This does not mean that we will stop talking to them. We’ll see
what they have to tell us when they get over the current insanity.
Under no circumstances, from here to eternity,
will we ever let any critical sphere of our country or our
people’s lives depend on Western investment or technology."
Russian Foreign Minister Sergey Lavrov 4 June
"Why, by interweaving our destiny with that of any part of
Europe, entangle our peace and prosperity in the toils of
European ambition, rivalship, interest, humor or caprice?"
George Washington, Farewell Address, 17
In the meantime, Russia could thank the USA for accelerating
Russia's move to create a trading system impervious to loss from the
duplicity of the west. Not just a trading system, but a state
controlled foreign exchange system, a trade-goods backed domestic
currency, and flexible and open bank payment systems that are beyond
anyones interference. The other result is a 'case hardened' Russia
when it comes to strategically important goods and services.
They will now come exclusively from Russian domestic providers, from
within Russia's borders.
Russia will still welcome investment by foreigners in Russia, and
Russia will still invest in foreign countries. But the terms will be
such that Russia cannot lose anything if restrictions, embargoes, or
blockades are introduced by anyone.
The west is unilaterally forcing 'separate development' (akin to
South Africa's odious apartheid sytem). The result will be two
trading zones with differing rules.
Two currency valuation and foreign exchange systems.
One system, the western one, is not connected to the other. The
other system, in contrast, can use one or both, depending on
One system, the western one, is brittle. The other is flexible.
One system, the western one, relies on constant expansion of
government debt. In the other system, Russia, at least, emits no
debt beyond a percentage of its assets.
The currency in the western system is linked only to 'faith'.
Russia, and (in future) perhaps other members of the adaptable
system link currency to hard assets of value.
Ironically, the USA machinations were supposed to be about 'let's
make America great again', but will only succeed in accelerating
Russia's movement to autonomy and 'greatness', painful though it may
be. I believe the objectives listed above will fail. Even number 5
(in spite of the stupidity of European politicians). But what the
western devious projects will ultimately achieve is a Russia
with a very high level of self reliance. In other words, what the
USA wants for itself. Only done by Russia better, faster, and with
massive public support. (see 'Beware
the Ides of March' for more details)
- Russia is uniquely able to run a sovereign currency that is
indexed to the value of real commodities.
- The Central bank of Russia uses gold (in part) to regulate
the supply and value of the ruble.
- The 'illiquid' ruble means that foreign speculators cannot
influence its value.
- Import substitution by new domestic producers, or from
suppliers in friendly countries means Russia will import fewer
and fewer goods from the west. Therefore western commercial bank
treasuries will only be able to hold limited ruble reserves.
They will have to come to Russia with gold or acceptable foreign
currency if they want more.
- Friendly countries will likely export more goods to Russia,
and have better access to ruble reserves. The gross domestic
product (based on purchasing power parity) of the eight
countries that either refused to apply western 'sanctions' plus
'sanctioned' countries - China, India, Russia, Indonesia,
Brazil, Mexico, Iran, and Turkey – is greater than the G7
nations (US, UK, Japan, Germany, France, Italy, and Canada).
- If a Eurasian Monetary Fund is created, 'friendly country'
currencies will gain some resilience.
- Russia is creating a very stable, carefully controlled
currency, with enduring purchasing power - but a currency that
is only spent domestically and regionally.
Bad choices, bad outcomes
With good leadership, a self-reliant America, able to supply
essential goods and services from internal resources, may well
eventually emerge. But some strategic resources, such as rare
earths, will still have to coming from so-called 'allies'. (I have
covered this concept here)
And the US will have seriously declining domestic oil resources from
about 2030. As will many other countries of the world. Russia can
limit oil exports to favor domestic consumption as Russia's cheap
oil resources decline - most other countries can't.
Which is better - spend US taxpayers money on nurturing hatred and
destructive conflicts, or spend that money on building a
self-reliant US domestic 'real' economy?
Current temporary oil shortages in USA will revert to normal
(admittedly, a new normal of generally higher gasoline prices, due
to refinery issues amongst other things), but before that happens,
the USA will experience first hand the same ill that it wished on
Russia. Economic pain. High prices. Eroding purchasing power of
money. Shortages of some goods.
An angry and embittered population. It didn't have to happen.
Whoever sows injustice
will reap calamity, and the rod of his fury will
So-called 'sanctions' are in reality a US protection racket,
"We always want to make sure that any sanctions that we put in place
can at some point - if behavior changes - be reversed in order to
make sure that threat actor knows that once sanctions are put in
place, the goal is behavioral change ultimately"
Deputy Treasury Secretary Wally Adeyemo 17 April 2022
This is a clear statement. Russia - according to the US government -
is being 'trained' to do exactly what the US wants. It will be
beaten until it 'learns' to 'perform' the US tricks. Well, the
unselfconscious arrogance aside, Wally Adeyemo's premise - that
economic restrictions will cause Russia to capitulate to US wishes
Historically, Russia capitulated to the west in the Yeltsin era and
the the result was deep social deprivation and misery. That is what
US domination brought. The current government has made massive
strides in reversing the damage done from being a subordinate of
USA. Why would it allow itself to lose its independence again?
"5,787 new restrictions have been imposed against
Russian legal entities and individuals since February 22, and
their number has reached more than
8,500 in total. No other country has ever had so many restrictions
imposed on it. Even Iran, which has been under sanctions for more
than 40 years, comes in a distant second, with only 3,600."
- RT, 12 April 2022
The West knows that it can do the most harm to Russians by severely
restricting both the import of goods and services, and at the same
time restricting the sale of Russia's goods and services. And, of
course, imported raw material and manufactured goods and components
are often critical to extract raw materials (sophisticated oil
extraction technologies, for example), and to manufacture items such
as machinery for export to friendly countries.
This article will run through the techniques the USA and EU is using
to destroy Russia, and comment, as far as possible, on how effective
they are so far. It ends with Russia's own assessment
of the effectiveness of the blockades. (It is so early in the
process of splitting that most of Russia's statements are defiant
and predictive, rather than reflecting on what actually went right,
what went wrong. I will update their remarks in 2023, when the
effects start to bite.)
First, what are the techniques?
Whether the US and EU are trying to destroy Russia, Iran, Syria,
Venezuela, or any other 'disobedient' country that won't give up
their sovereignty in return for not being punched in the
face, the techniques of the protection racket are generally the same
(there are other creative embellishments, but they are of minor
1. Prevent the targeted country from buying and selling goods on the
2. Destroy the purchasing power of the targeted countries currency
so that the people of the country slide into poverty.
OK, those are the techniques, now let's see how they are going.
1. Prevent Russia from buying and selling goods
on the world market
Here are the 3 main techniques:
1. Prohibit or physically block the import of Russian goods
2. Prohibit the export of goods and services to Russia
3. Block banks from doing international money transfers with Russia
or physically block the import of Russian goods
On the 8th of March 2022, President Biden made
"(i) the importation into the United States of the following
products of Russian Federation origin: crude oil; petroleum;
petroleum fuels, oils, and products of their distillation; liquefied
natural gas; coal; and coal products;" illegal when done by any US
person or entity. The order came into effect on April 2022.
It's a little hard to keep up with Europe's trade restrictions on
Russia, as they cover a wide range of goods and services, and they
have been going on for nearly ten years. The fifth 'tranche' of
trade restrictions was 8 April 2022 (but implementation delayed
until August 2022). The sixth tranche of 'sanctions' was 2 june
2022, mainly targeting oil, but not really taking effect until the
end of 2022 and beyond.
In 2021 the USD value of all Russian exports was $491.6
billion. (This puts the $300 billion Russian of reserves frozen by
the west into perspective.)
Russia had a very healthy $198.2
billion trade surplus in 2021, about 88% larger than 2020 (the year
of the covid slump).
Oil and gas sector
one export is oil (including oil products) and natural gas,
with oil and gas together making up 43% of Russia's total export
Russia uses about half it's oil production domestically (it
is self-sufficient in gasoline, diesel, and fuel oil). This is a
very important fact, and a point that people constantly overlook.
Russia's domestic oil and gas production immunises Russian people
against gasoline and diesel shortages. It immunises against
interruptions in gas supply for industry. And it provides
reasonably priced gas to support both the Russian industrial
economy and peoples comfort.
The other about half of it's production (roughly 5 million barrels a
exported (2020). Russia produces about 10 million barrels of
oil a day as at early June 2022. This is down about a million
barrels a day on last year. The Russian summer 'driving season'
spike in demand aside, Russian oil industry projects
average 2022 oil production will end up being about 9.64 million barrels
In 2021 Russia produced an average of about 10.5 million barrels a
day of crude and condensates, with 81% of the crude oil and gas
condensate coming from Russia's Rosneft, Surgutneftegas, Tatneft, Lukoil,
and Gazprom (including Gazpromneft subsidiary), oil and gas majors.
Only 2.2 million barrels of oil a day are exported to Europe, but
Europe is Russia's major market for gas. The 2021 value of these oil
and gas exports was 211.5 billion USD.
The massive Gazprom and Rosneft companies are majority state
controlled, as is Taftneft; Lukoil and Surgutneft have been tightly
controlled since Soviet times by a few majority private Russian
shareholders who have kept the companies out of the hands of
opportunistic 'oligarchs' that had a free hand under the
western-owned Yeltsin government of the 1990's. Vagit Alekperov
(former Soviet deputy oil minister), the controlling shareholder of
Lukoil, has recently resigned. As of 31 March 2022 his ~ 28%
shareholding is said
to now be reduced to 8.55%, with only 3.1% of the shares
having voting rights. Who now controls the company is obscure.
Rosneft would be a fair guess. Surgutneftegas
is the fourth largest Russian oil company. It has many strategically
important competencies (especially in horizontal drilling), has
resisted joint ventures with foreigners, and therefore, in my
opinion, is 'ripe' for some accommodation with state majority
control, if that is Russia's strategic direction (and it looks to me
like it is).
As with so many Russian strategic industries, it's my impression
that major Russian oil and gas production, refining and distribution
will be run primarily for the benefit of the development of the
Russian economy and social well-being, via government directive. Any
remaining strategically important private facilities will, I
suspect, end up in majority Russian government control, one way or
"In September 2014...Restrictive measures forbade the US
export of commodities, services and technologies to support
deep-water, Arctic and shale projects of Gazprom, Gazprom Neft,
LUKOIL, Rosneft and Surgutneftegas (Forbes 2014). The new US
sanctions introduced in August 2017 applied to these five
companies and forbade American citizens and companies from
participating in their new projects both within and outside Russia
(RBC 2017). However, Bogdanov commented that the sanctions would
have little effect on Surgutneftegas since it did not have any
debt denominated in foreign currencies, did not have any
deep-water or (offshore) Arctic projects and had limited
dependence on foreign technology (Neftegaz.ru 2014a)."
US restrictions may to some extent hamper Russia's very large oil
companies when it comes to drilling technologies, but Russia is a
country of engineers, and I have no doubt they will continue to
develop their own locally-resourced oil operation capabilities to
levels more than sufficient to achieve their goals.
Oil Companies in an Evolving World' Indra
Overland and Nina Poussenkova
US takes very little Russian oil (about 1% of its requirements), so
has prohibited import of Russian oil with very few consequences.
'European' OECD countries import about 50% of Russia's total
oil exports (crude + oil product).This amounts
to about 2.7 million barrels a day of crude and about 1.5 million
barrels a day of oil products (the bulk of which is diesel and
gasoil, including VGO,
a diesel precursor).
About 17% of Europe's oil imports from Russia come down the massive
Soviet era 'friendship' pipeline, the rest comes (mainly) by tanker.
Europe needs more diesel for transport than USA, and their oil
refineries produce more gasoline than they can sell in Europe. As a
result, Europe has usually sold the excess
gasoline to USA (but domestic light shale oil now largely
meets USA needs) and imported diesel, mainly from Russia (80%
of it's Russian imports in 2019). As a result, Russia supplies
of Europe's diesel demand. Unsurprisingly, the Europeans did not
sanction Russian oil (although they threaten to).
They can't comprehensively prohibit oil imports from Russia, in
spite of brave talk along that line, as Hungary and Slovakia (at
least) will veto
it (58% of Hungary's oil comes from Russia, 50% of the Czech
Republic's, 83% of Lithuania's, and 96% of Slovakia's). There is no
alternative, because global oil supply is tight
at the moment - which is shown by oil prices before the recent war.
Spot market Brent crude was about $99 a barrel the day before the
Russian military operation. It spiked on February 24, but by May 1
Brent spot was back down to $107. The $8 higher price is as likely a
reflection of inflationary trends (inflation is effectively dollar
devaluation) as any supposed effect of the 'sanctions'.
Roughly 38% of Russian exports go to Asia Pacific nations.
The vast bulk of this goes to China (1.6
million barrels a day), and this trend may increase. Oil,
natural gas and coal make up roughly 70% of the Russian exports to
China (Russia is China's second largest oil supplier - Saudi Arabia
The International Maritime Organisation will be introducing carbon
emissions limits for ships on 1
January 2023. Russia's oil refineries have been hurrying to
upgrade their refineries to reduce or end the production of
oil for ships before this date. It looks like some of the big
refineries won't achieve upgrades until at least 2028, probably
longer. The delay is attributed to the West's ban
on exporting refinery 'coking' technology. The upgrades 'coke'
low value fuel oil to produce gasoline, diesel, and solid carbon
steps can steam reformat petcoke and heavy fuel oil to produce
hydrogen. With carbon capture and storage, this seems like an
attractive proposition, and a way to avoid triggering future EU
carbon taxes. In time, Russia will work around this problem. But in
this case, time is not on Russia's side.
There is still demand for fuel oil, but it is somewhat seasonal. The
best grade of fuel oils are similar to diesel, and used in home
heating, boilers, industrial processes and the like, while the
bottom of the barrel grade, bunker fuel is what is left after
gasoline, No. 1 and 2 fuel oils have been split out. It contains
various 'refinery residues' including various metals such as
vanadium and nickel. It can be blended to make it usable as as heavy
fuel oil or simply made into asphalt. However, at 40 million tonnes
a year out of 480 million tonnes, it is a relatively minor problem.
Shipping and insurance has been difficult for the Russians to find,
partly because the EU has restricted access by Russian ships to
their ports, but also because companies are worried cargoes and
ships may be seized, or further measures enacted in transit that
might affect them adversely.
The Greeks, who run around a quarter of the available oil tankers,
have so far managed to keep EU trade restrictions at bay. Even so,
the uncertainty of geopolitical risk from the west's caprices weighs
heavily against doing business. A Russian-crewed Liberian-flagged
ship carrying Iranian crude - which is not embargoed by the EU - was
by the Greek government when told to by the government of the United
States. Russia has to discount prices - by as much as 30%
below spot some claim - to make up for the risk. But even at a
discounted price, Russian oil sales remain profitable.
The methods for shipping companies in unfriendly countries to ship
Russian crude while avoiding western reprisals are well known - ship
to ship transfers of oil and false certificates of origin, switching
off automatic location signalling so movements can't easily be
tracked, apparent 'selling' of Russian ships to ownership in
non-sanctioned nations. Some Russian crude will be blended with
other oil sources to the level it is technically 'not Russian oil',
some will be chain-link sold, stored, blended, re-shipped,
transferred and so on until it is no longer recognisable as of
Russian origin.A group of 'dedicated route' Russian and other
friendly country ships that ply the 'friendly seas' and 'friendly
ports' (only) will probably emerge. 'Friendly only' insurers will
probably emerge with them.These ships already carry Iran and
Venezuelan oil, so Russia is a major new customer.
However, shipping pundits say Russia will need many more 'dedicated'
ships (up to 70) if oil movement by sea to Europe really is
blockaded at the end of 2022. Very large crude carriers (VLCCs) will
be needed by Russia's customers for the longer route to (presumably)
new or expanded markets in China, India, South East Asia and the
Middle East. But the largest fleet, Euronavs 45 VLCCs will be needed
to take oil from the distant Middle East sources, given Europe
foregoes oil from just up the coast in Russia - which Russia usually
delivers to European ports anyway. What they forget is that if
Russia can't ship oil it creates a global oil deficit, and the price
of oil goes up. Russia may have to close in some fields. Even if
they restart, that takes time. Shortages drive up prices. So the
reduced amount of oil Russia is able to ship might bring in as much
money as it did before the start of the logistics difficulties.
Insurance is hard to obtain. European insurers and re-insurers
(international group of protection and indemnity clubs) consider the
geopolitical risk high, and are reluctant to insure cargoes out of
Russia. Someone will insure the cargoes - at a price. This will also
drive up the price of oil.
As of April 2022, Russian exports were down
by a million barrels a day to a bit over 10 million barrels a day,
but by June 1 production seems to be slowly recovering.
The combined effect of trade restrictions by the US 'scaring off'
oil buyers and the expiry of existing longer term contracts with
European oil trading houses might possibly reduce Russian oil
exports by as much a 2 -
3 million barrels per day some time after May.
There is brave talk by some of the European politicians of fairly
extensive oil sanctions to be applied by the end of 2022. This would
drop oil imports from Russia from about 4.2 million barrels a day to
about 0.75 to 0.8 million barrels a day (pipeline oil will be
excluded). Around 3.4 million barrels a day will have to be imported
from 'somewhere else'. Finding reliable suppliers of this amount of
diesel will take time, and once again, it won't be cheap.
My belief is that discounted Russian oil will always find a market.
There are rumors China is thinking to buy it to fill their strategic
reserves. As of early May 2022, Russia and India were working on a
bilateral deal for oil supply, with payment in rupees. Up until now
India has been a very minor market for Russian oil, (around 2% of
Russian oil exports), but India is a major oil importing country, so
this could easily change - in spite of US overt threats to the
Indian government. By early June, there are unconfirmed rumours that
India has increased its purchase of Russian oil - to 800,000 barrels
a day. According to an Indian "senior government official" cited
on June 24 2022, India's oil imports from Russia have increased from
0.2% before the operation in Ukraine to 10% of India's oil imports.
Allegedly, not only are Russian oil traders offering India a
discounted price, they are accepting payment in both rupees and
United Arab Emirates Dirham (the UAE has some big investments
in Russia). As at June 2022, Russia's oil exports to India have so
far increased by five times - from 12 million barrels a year (nearly
33,000 barrels a day) in all 2021, to 60
million barrels in the first half of 2022. This is very
roughly 10% of Russia's oil exports, and it has to come out of
either European or South East Asian exports (or a bit of both). It
is worth keeping in mind that India is the world's third largest oil
consumer, and even at increased levels, Russia's share of the Indian
oil market is extremely small - so far.
Another option - which would make any bilateral deal with India and
China very attractive - would be a Russian oil embargo.
"Why should Russia maintain oil production of 10 million
bpd if we can (more) effectively consume and export 7 million-8
million bpd without losses to the state budget, domestic
consumption? Which is better - to sell 10 barrels of crude for $50
or 7, but for $80?"
Leonid Fedun, Vice President Lukoil 30
On the 3rd of June 2022, the EU went ahead with it's brain-dead
scheme to replace 3.4 million barrels a day Russian oil imports.
"Today's package contains a complete import ban on all
Russian seaborne crude oil and petroleum products. This covers 90%
of our current oil imports from Russia. The ban is subject to
certain transition periods to allow the sector and global markets
to adapt, and a temporary exemption for pipeline crude oil to
ensure that Russian oil is phased out in an orderly fashion. This
will allow the EU and its partners to secure alternative supplies
and minimises the impact on global oil prices."
In 2021, the EU imported €48 billion worth of crude oil and €23
billion of refined oil products from Russia, a total of €71 billion
European Union press release 3
When the EU's June 3 trade restrictions are fully implemented (3
December 2022 for crude, 3 April 2023 for petroleum products such as
gasoline, diesel and gasoil), nearly 64 billion of fully ruble
convertible euros (at early 2022 prices) will stop flowing into
Russia. Quite frankly, so what?
"Member States who have a particular pipeline dependency
on Russia can benefit from a temporary exemption and continue to
receive crude oil delivered by pipeline, until the Council decides
First, EU countries "who have a particular pipeline dependency on
Russia can benefit from a temporary exemption and continue to
receive crude oil delivered by pipeline, until the Council decides
otherwise." Translated, all the landlocked former Soviet States
connected to the Soviet era Druzhba pipeline will be allowed
to receive Russian oil without restriction for the foreseeable
future (but won't be allowed to re-sell it).
European Union press release 3
The pipeline connects to refineries built specifically to handle
Russian Urals oil. For example, Slovakia's only oil refinery is
configured for Russian heavy crude. Re-configuring
it for lighter crudes would take 5 years and at least €250 million.
So the refineries in Hungary, Poland, Slovakia, the Czech Republic,
as well as those in East Germany will continue to pay Russia. They
will pay for around 750,000 to 800,000 barrels of oil a day,
probably at around the USD 90 a barrel mark. This is at least USD
24.6 billion a year to Russia. The Bulgarians will also be allowed
to buy Russian Black Sea shipped oil, at least until 2024. Croatia
can bring in sea cargoes of Russian vacuum distillates (which the
Croation refinery is designed for) until 2023.
Second, the same or similar amount of money (USD 76.3 billion) will
come to Russia from diversion of this oil to other markets, whether
priced in rupee, yuan, ruble, dollar, yen, pound, won, franc, rand,
shilling, rial, afghani, real, dong, dinar, or euro.
"Croatian President Zoran Milanovic said that the
sanctions didn’t work because they cut energy purchases from
Russia, but global prices for energy are on the rise. As a result,
Russia is receiving even more revenue than last year. Let them
draw their conclusions. Clearly, they have finally started
crunching the numbers and trying to figure out what they are doing
and what are the consequences"
Russian Foreign Minister Sergey Lavrov 1 June
Sanctions apply as of 3 June 2022, but won't come into force until 3
December 2022. It's a fair bet the EU will have reversed course by
then. It's a fair bet Russian oil and oil products won't be
available at cheap prices. And, if the Russians find reliable trade
partners, the volumes available to Europe may be significantly
Russia will have to either sell those barrels elsewhere, probably at
a discount, or, as Leonid Fedun suggests, do nothing. Leave the oil
in place and reap higher prices. You can imagine what even higher
prices - and perhaps shortages - will do to the public opinion of
the European politicians. At that point, it would be uncertain just
who the European politicians would really be working for - because
they would be in effect 'embargoing' their own voters. The Russian
public, in the meantime, would have a plentiful supply of reasonably
If Russia embargoed Europe, OPEC is unlikely to make up the
difference. Russia promised to increase oil production under the
OPEC+ scheme. The idea was to keep oil prices within a reasonable
range so that global oil demand wasn't crushed by price. Russia can
no longer fulfill its promise, and OPEC fears demand destruction. At
the upcoming (June) meeting, the mood is to lift the
production caps for OPEC members in order to bring adequate supplies
to market, bring the price of oil down to the $US65 + range, and
reinvigorate global economic expansion. Whether or not OPEC as
a whole has the capacity to increase global oil supply to historic
levels is highly debatable.
There are some dangers for Russia if they cut production. Older oil
wells may have to be 'shut in', a process that often results in
reduced production when they are re-started (if they are re-started
at all). The overall medium term situation for Russian oil
production isn't wonderful. Old mature fields have declining
production, and enhanced extraction methods, while effective, tend
to be expensive. And when even these methods reach their limits,
production drops like a rock. New fields must be found and brought
into production. That takes time and money.
Promising Caspian sea deposits will take some time to come on line,
and new plays in the Arctic are very challenging and expensive, in
spite of government tax incentives. Specialised pipes for oil
drilling are undergoing a price explosion. Costs increase. Oil
companies are reluctant to drill in the face of uncertainties in
future demand. Oil will never be 'cheap' again. And increased energy
in the storm systems are always a 'wild card' for ocean-based oil
fields. Arctic drilling platforms will have to be massively
re-inforced against icebergs.
There is always the prospect of disruptions, whether due to stupid
US or Saudi games affecting the security of the Persian Gulf, or due
to weather events. Recall the effect of hurricane Katrina on the US
oil supply. The US should be holding its breath every June to
December (the hurricane season).
"Limited spare capacity in the global refining system, together
with reduced exports of Russian fuel oil, diesel and naphtha have
aggravated the tightness in product markets, which have now seen
seven consecutive quarters of stock draws. While a first tranche
of SPR releases halted the precipitous decline in OECD industry
stocks in March, crude made up the majority of it and product
stocks have continued to fall. Notably, middle distillate reserves
reached their lowest levels since April 2008."
It seems to me the current post-covid global shortage of oil and oil
products (especially diesel) will drive oil prices higher and
more-than compensate Russia for any drop in production. Canadian oil
sands and US shale oil will likely make up for declining
conventional oil supply, at least until 2030 or so, but, once again,
these more expensive technologies put a floor under oil prices, to
the advantage of the conventional oil producers (such as Russia).
Looking ahead, Russia is likely to re-orient its oil sales towards
the East, cement in long term contracts, and continue to diversify
pipeline oil as geopolitical insurance (a long term effort).
All the oil Russia brings to the market will be sold profitably,
one way or the other. New markets will be found. But all of
these devices will come at a cost, a cost paid by the consumer.
Once Russia has 'weathered the storm' of Western 'sanctions', it is
reasonable to guess Russians will have a slowly improving standard
of living. Given the West's air travel and currency exchange
restrictions, Russia's domestic driving may increase, driving up
domestic oil consumption at a time when major old fields are
maturing and declining in production. The amount of oil available
for export will fall. Unless they are subsidised, Russia's domestic
oil prices must increase, with all the so-called 'inflationary'
consequences that brings. A middle path will have to be found. This
implies electrified public transport and electric vehicles, at
The West is making brave new rules to phase out internal combustion
engine cars. The UK has announced a policy to be introduced in 6
years time that 50% of all new cars sold must be electric. The UK
has decided to ban new petrol driven cars in 2035. Other countries
are introducing similar aspirational policies. It's unclear if the
average person will be in any position to buy a new vehicle of any
sort, electric or ICE in 2035. 'Slightly used' petrol driven Russian
ladas may become in high demand. Parts will be no problem, but may
have to be laundered.
Only a high-cost environment will cause a drop in oil prices -
people won't be able to afford it. Therefore demand will drop, and
price will drop. This is a major boon for public transport and
reconfiguration of how and where people live and work - essential to
lowering fossil fuel use.
Hybrid cars, such as Toyotas Prius, will probably be essential in
In the very long run oil will largely 'play out'. From now to then,
Russia will probably run a profitable oil trade, in spite of the
machinations of the EU and USA.
Russian gas is strictly speaking, not prohibited, but the Western
banking restrictions prevented payments from being received by
Russia. Europe wanted to receive Russian gas, but not pay for it. By
early June this problem has been largely solved, and all but a few
countries have been forced to pay in rubles (and within Russia's
borders) before they will receive gas. Bulgaria says it will end
Russian gas purchases this year, swapping to Azerbaijani gas for
Russia is exempt from sanctions because Europe, and especially
Germany, is dependent on Russian gas. Around 40% of Europe's total
gas needs (155
billion cubic meters) are supplied by Russia. On the other
side of the coin, Russia is extremely dependent on Europe as it's
major gas market. Nearly 90%
of Russia's 2020 natural gas exports were to Europe. The immediate
term prospects for sale of Russian gas are very good, especially as
Ukraine has threatened to cut Russian gas transiting its territory.
Ukraine has a contract with Gazprom to transit Russian gas, but
wants to unilaterally change some conditions. Prices have
skyrocketed, and these higher prices will be reflected in contracts
as they are renewed. It will take 4 or 5 years for Europe to build
new terminals for natural gas - given it can find additional supply.
In the meantime, Russia will continue to supply gas to Germany, and,
as all existing German contracts signed with Gazprom Germania have
become null (Gazprom have liquidated its German-based subsidiary),
they will doubtless have to be re-negotiated - at a much higher
price. Gazprom's German gas storage assets cannot be sold as part of
the Gazprom Germania liquidation because the German government has
in effect seized them. Russia responded by sanctioning
Gazprom Germania (in liquidation), which means Russia will
miss out on the income derived from filling them for the coming
winter season. Higher gas prices will likely offset this.
Belarus now pays for its gas in rubles, not dollars. Russia and
Belarus have agreed a fixed conversion rate of 75 rubles to the
dollar, which will save
Belarus an estimated half a billion dollars in 2022 over what
it would have otherwise had to pay.These savings, relative to the
EU, will continue in the years ahead.
According to the 'International' Energy Association World Energy
Outlook 2021, absent concrete steps by countries to actually
implement substantial roll-out of renewable energy production,
global natural gas demand will continues to rise after 2025 and will
be about 15% higher in 2030 than it was in 2020.
Even so, in the medium term, the prospects for Russian gas sales to
Europe might fade somewhat, and especially for LNG. Nearly 14
million tonnes of LNG was exported to Europe (about 14% of
Europe's LNG imports) from the Yamal Peninsular on Russia's Arctic
coast. Russia has 15 LNG carriers designed to operate in Arctic
conditions (Barents sea). These specialised ships travel to Belgium,
where the LNG is transferred to normal LNG carriers for on-shipment
mainly to the Middle East and Asia Pacific. Russia relies on selling
this gas in Europe when the Arctic route to the Asian market is
blocked by heavy sea ice for part of the year. Medium term, this
seasonal European trade could possibly be replaced by new gas
volumes coming on stream, but bottlenecks will slow this down.
'...the REPowerEU strategy appears to be the most
feasible.The plan suggests cutting Russian natural gas imports
to 101.5 bcm from 155 bcm ( 2021) – in theory, by increasing
non-Russian gas supply by 63.5 bcm, and reducing gas demand by 38
bcm.The EU plan to cut two-thirds of its Russian gas imports and
replace it elsewhere – by the end of 2022 – is very
optimistic...to attract more LNG cargoes, spot prices in Europe
should be $2-3/MMBtu higher than the Asian markets. This is
leveling now at $35/MMbtu for the rest of 2022 which is more than
five times their five-year average.
The bottom line is that it will be impossible for the
EU to increase their LNG imports by the crucial 50 bcm
milestone. Even if the EU overcomes the technical issues
represented by the regasification capacities and the
interconnections between the EU countries and Britain, the
supply in the global LNG market simply cannot meet the demand.
Although Europe may receive an extra 25 bcm of LNG, it will come
attached to a very high price tag, while prices in North America
will be largely unaffected. The US is the big winner in this
scenario...Europe will have to acknowledge that it will be neither
an energy independent or politically independent continent for the
Europe: switching cheap Russian gas for expensive American LNG'
The Cradle, Daoud Baalbaki 15 June
"More than ever, getting rid of Russian fossil fuels and of fossil
fuels in general, is essential. What is at stake is both the
need to accelerate the fight against climate change, and, as
we can see now, the short-term energy security of the European
Barbara Pompili, EU President
3 March 2022
Whatever Europe does to reduce gas use, it will take time. In the
meantime, Russia is turning east.The 3,000 km-long Power of Siberia
pipeline from West Siberia to China was opened in 2019. At the
moment around the capacity is 10
billion cubic meters, but in time this will be expanded to 38
billion cubic meters. Another pipeline, the Power of Siberia-2
pipeline, will bring 50 billion cubic meters a year to China, but at
this stage, agreements have not been signed.
Russia has a plan to be able to produce 110-190
bcm/year of LNG exports by 2025. Russia is already the
world's fourth largest LNG exporter at 40 bcm/y LNG exports. There
is likely to be strong competition.
Qatar is expected to increase production at it's 'North Field' (=
South Pars for Iran) natural gas wells by 10% (about 2 billion cubic
feet per day). All this is destined for sale as LNG.
LNG tends to be traded strongly at times of oversupply of natural
gas. For example when the covid crisis hit, gas demand in europe
fell, and Gazprom ended up selling gas at a loss. LNG has a certain
amount of flexibility as it can be supplied from anywhere in the
world that has LNG compressing facilities, so there is a certain
amount of competition driving down the price.
The long term prospect for Russian natural gas to Europe may not be
that good. Iran's South Pars gas field is mature, but the Iranian
North Pars field has not yet been brought into production. Once
fully drilled it is expected
to produce 3.6 billion cubic
feet of gas per day (although gas from the first phase will all be
used internally in Iran). This will be sold as LNG. And Qatar's
North Field expansion will add another 6 LNG trains
that will bring Qatar's liquification capacity to 126 million tons
a year (nearly 168 billion cubic meters a year). China, which has
a 10% stake in the expansion, will take gas on long term contract.
How much gas, I don't know. But China will probably have
constantly increasing capacity to 'absorb' gas to replace coal as
a transition fuel. (China will also be aware of the EU intention
to bring in a carbon tax, which will punish goods produced with
There are large gas fields in the Mediterranean and the Caspian
Sea that will also come on line in time (although Russia has a
very large stake in the massive Caspian Sea field). On the bright
side, China's massive investment in solar and wind power in it's
desert regions (570 Gigawatts of wind and solar by 2025) so far
still relies on dirty coal for baseload power when the sun doesn't
shine and the wind doesn't blow. Nuclear power will likely
eventually take over the major role of baseload power, but in the
interim, Russian gas, a cleaner alternative to coal, could
possibly be used for base load (and Qatari LNG exports to China
are likely to increase).
In the longest term, gas might be run through regional carbon
stripping plant for capture and re-injection into old expired gas
wells, and the resultant 'clean' hydrogen displace the natural
gas. Hydrogen gas may be the gas future for Russia as it will be
in high demand in all global markets to meet climate mitigation
Russia's Novatek, which operates the Yamal gas plays is already
said to be considering changing its planned Obsky project to
're-form' natural gas to produce ammonia,
hydrogen, and methanol. Hydrogen gas must be transported with
natural gas to avoid metal pipelines becoming brittle, but ammonia
is a liquid and so far easier to transport. The hydrogen in
ammonia can be 'stripped out' at destination, releasing the
nitrogen back into the atmosphere. Methanol (methyl alcohol) can
be used as a liquid fuel (including in transport), or as a
feedstock for a wide variety of chemicals. Once again, much easier
The Novatek project in the Arctic Ob Gulf may be one of the first
in the world to pivot from being a natural gas producer to being a
methanol, hydrogen gas, and ammonia producer. The carbon dioxide
stripped out during the process has relatively low sequestration
costs (usually re-injection deep underground into exhausted
natural gas reservoirs). Other countries are actively working on
on re-formatting natural gas to make 'green' hydrogen based fuels
- Saudi Arabia has a natural gas re-formatting project that is
hoped to be in place by
In short, Russia may be able to leverage it's very strong
engineering skills to become a major 'green gas' producer. The
long range future for gas looks bright.
precious metals (gold, silver)
This is the second largest ticket on the export list - but makes up
only 6.4% of exports (by value). Russia produces diamonds, gold and
silver. Russia produces about 26% of global gem - quality diamonds,
and about 30% of the global industrial grade diamonds.
Russia is the second largest gold producer in the world (China is
largest, producing 332 tonnes a year). Russia produces about 331
tonnes of gold a year, although production is slowly falling.
It produces 1,300 tonnes of silver. 331 tonnes of gold is worth
roughly 20 billion USD (as at early May 2022). For perspective, gold
value is only 8.6% of the value of oil and gas. Even then, most of
the domestic gold is not exported, but sold to the Russian Central
bank (or not, depending on the Banks current policy). The west no
longer accepts Russian certification of gold bars and other products
produced in Russia's (previously certified) refineries. I have no
doubt they will be considered 'good', as before, in the rest of the
Russia does not have to sell gold, and largely doesn't, but rather
supports the ruble with gold, in effect controlling, to some extent,
the ruble exchange rate (this is highly important as Russia alone
controls the 'going rate' at which foreign currencies are exchanged
for into rubles). Russia is therefore able to put a 'floor' under
the price of gold, at least in it's own domestic gold dealings - if
not further into Eastern exchanges.
Gold is 'good' money, and it could well be used in payment between
Russia and other countries, by a variety of mechanisms. I have
written about this here.
“US persons are prohibited from engaging in any
transaction – including gold-related transactions – involving the
Central Bank of the Russian Federation, the National Wealth Fund
of the Russian Federation or the Ministry of Finance of the
This ruling only affects US persons (US considers companies to also
be people). Those involved in the gold trading world, retail or
wholesale, cannot touch Russian gold where there is an American bank
or person involved somewhere in the sale or purchase process. There
is, of course, a ready market for gold in Asia, southeast Asia, the
Middle East and other non-western countries. If necessary, Russian
gold could be used as a raw material, melted down and re-minted.
US Treasury 2022
In late June 2022 the USA, UK, Canada, and Japan formally banned the
import of Russian gold - a redundant move of little significance.
Food is strategic. Russia does not shy away from government
direction to make sure that food security is guaranteed, both now
and in the future.
"Together with the State Council Commission
on Agriculture, the Government has been instructed
to amend the Agriculture and Fishing Development
Strategy until 2030 to set forth a growth rate
of at least 3 percent for agricultural output; set
annual performance indicators for the import
substitution of critical agricultural products as well
as products used by the agriculture industry
and fisheries; state support measures for these sectors,
including to promote new export opportunities
for finished products and increasing funding
for the state programme to rehabilitate
and reclaim farm land."
Planting of the 2022 spring crop started before trade restrictions
began. The government allocated
419 million USD to subsidize short term credit for planting, and
later another about 374 million USD in subsidized credit for similar
purposes. The large American agricultural machinery company John
Deere has pulled out of Russia, and spares will no longer be
available. Modern agricultural machinery is heavily computerised,
and repairs become all but impossible without access to the
companies diagnostic software. No doubt Russia will develop its own
high tech ag machinery in time (or Belarus will), and in the interim
may turn to suppliers such as China. On April 26 2022 the President
directed the government to ensure the increase in production of
agricultural machinery and to remove import duties on any ag
machinery that Russia does not produce.
Presidential Instructions following meeting on agricultural
industry, fisheries and related sectors’ development April 26,
said to import about half the seed it needs for sowing, in
spite of recent efforts to develop it's own seed industry. An
additional 74.8 USD has been
thrown into the government budget for 2022 to support "seed-growing
and genetic selection centres." While this is in line with the
declaration of the decade 2022 to 2031 as the "Decade
of Science and Technology" as well as the national
development plans, it may also be a move to secure Russia's ability
to access crop seeds without relying on other countries. The fact
that in March Russia allowed
grain seed to be imported from 11 countries, mainly Eurasian, that
have a questionable phytosanitary (crop disease) status could
perhaps suggest the west is throttling seed supply to Russia.
Certainly, Scotland 'throttled' the supply of seed potatoes to
Russia. In late March 2022, 2,000 tonnes of high health (free of the
'potato cyst nematode' pest) Scottish
seed potatoes bound for Russia was cancelled at the insistence
of Scottish politicians. These potatoes varieties are very important
for the fast food industry - a major employer.
Russia's agricultural exports in 2021 were said
to be about 38 million USD. As of early May 2022 there are no
foreign trade restrictions on Russia's agricultural exports. But
there restrictions on Russian vessels - including bulk grain
carriers - entering european ports.
"In addition, there is also a problem with Russian grain
exports. Although the West loudly proclaims that grain is not
covered by the sanctions, it coyly remains silent about the
sanctions on vessels carrying Russian grain. They are not accepted
in European ports and are denied insurance. All
logistics and financial chains linked with grain supplies to the
world markets are under Western sanctions."
Russian Foreign Minister Sergey Lavrov 1 June
"Western countries, which have artificially created several
problems by closing their ports to Russian ships and disrupting
supply and financial chains, should seriously think about what is
more important to them: to use food security as a media stunt or
to overcome the challenge with concrete steps. It's up to them."
Russian Foreign Minister Sergey Lavrov 31 May
Russian wheat and sunflower exports are doing very well. Most wheat
is sold in the Middle East, and demand is very high. Russia's
current season crop is expected to be larger than last year. Forward
prices are rising around the world, as North America, India, Europe,
and China are expected to have average to lower harvests, primarily
due to unfavorable weather at sowing and harvest.
"...volatile weather results from ‘the combination of a
high continental weather pattern, with the occasional blocking in
the seasonal paths of cyclones’ (ibid., p. 3), producing ‘dry hot
east winds’ which blow all the way ‘from Central Asia across the
Volga, Northern Caucasus and the Ukraine’ (ibid.). These hot winds
from the deserts bring high temperatures and virtually no
rainfall, causing serious droughts across the whole chernozem
'Persistent farmland imaginaries: celebration of fertile soil and
the recurrent ignorance of climate' Oane Visser 2020
Russia (and Ukraine) have some superb deep black soils. But these
areas are somewhat drier (especially in spring) than comparable
grain producing areas of the North American grain belt. More
importantly, they are subject to volatile weather conditions,
meaning some years will have good harvests, some bad harvests. As we
see already in both NorthAmerican and Eurasian inland zones, there
can be periods of extended drought, which may be amplified by more
heat retained in the climatic system. Russia (and Ukraine)
cannot 'expect' good harvests every year, no matter how deep the
soil or how modern the farming practice. And this has consequences
for export income as well as world food supply.
Kazakhstan, part of the Eurasian Economic Union buys Russian wheat
for domestic use at favorable prices, and is able to export
part of its own crop. Barring drought, it will probably be able to
export 6 or 7 million tonnes a year, mainly to neighbouring Central
Asian countries, but also China and, recently, Iran. If the USA had
not incited Ukraine to attempt a military solution to the civil war
with the Russian speaking eastern provinces, then Russia, Ukraine,
and Kazakhstan together could have held a commanding position in the
global wheat export market. No doubt USA was aware of this prospect,
and determined to destroy the potential. As it turns out, Russia
will almost certainly take the coastal strip by the Black Sea. After
all, thanks to the west, they have nothing left to lose. I suspect
that in time Ukraine, realising it has to work with Russia to have
port access, will cut a deal. Work with Kazakhstan and Russia
to maximise the value of their wheat exports.
In that case, Ukraine would join the Eurasian Economic Union, and
have a foot in both camps - the ideal market play.
Insurance rates on Russia's exports of grains are now very high, but
the general shortage of grains raises prices, which offsets
increased insurance and fertiliser costs. Russia also applies a
'floating' duty on the export of grains, which is designed to make
the local market as profitable as the export market. Rising global
prices has meant the duty went over 100 USD in April 2022. Russia's
2022 harvest of all grains was estimated at around 127 million
tonnes. This includes wheat, maize, oats, barley, millet, buckwheat
Ukraine sunflower crop is down, and next year will be much worse,
due to the current conflict (there is a lack of diesel for
machinery, and likely some agricultural workers will have been
Worse, the export port on the Black sea has been mined by Ukraine,
and Ukraine refuses to allow foreign ships currently in port to
leave. About 76% of global sunflower oil exports go via the black
sea. This situation will probably resolve in the coming months, but,
as of April 2022, a rather severe price and supply disruption is
currently flowing into the markets.
India is buying Russian sunflower to make up for shortfalls in
supply of Ukrainian sunflower. No doubt they bought it at a
The knock-on effect is a global increase in edible oil price. This
in turn makes edible oils unaffordable in poor Asian countries. This
happened in Indonesia. So the Indonesian President banned the
export of palm oil, starting 28 April. This will flood the domestic
market, collapsing the price. Once domestic oil prices reach
reasonable levels again, some oil capacity will be available for
Indonesia produces over a third of global vegetable oil supplies -
and there is no spare capacity in global markets to replace it.
Worse, severe drought and rising population in parts of Africa have
caused rising hunger, set to worsen. Around 14 African countries
import half their wheat requirements from Russia and Ukraine.
(Locally grown staples like maize, sorhum, millet and teff may also
be drought affected, and imported wheat has usually contributed
heavily to making up a shortfall.) The west's sanctions - SWIFT
restrictions on Russia, inability to obtain insurance for cargoes -
has made sale and shipping grain to Africa very difficult.
Russia is in the top
5 global steel producers. In March 2022, the EU banned
the import of most Russian steel products. This is a loss of about
3.3 billion euros to the Russian economy. This will hit hard, not
only because of the value involved, but because long standing
customers are lost.
"Our foreign customers and partners have always
seen and continue to see cooperation with Russian
metallurgists as predictable and mutually beneficial.
have imposed illegal restrictions on Russian companies.
This includes a ban on shipping ready-made products,
as well as the purchase of certain
components for manufacturing - rolled metal products, steel
sheets, rods, etc."
Vladimir Putin April 20, 2022
The EU ban will be fully phased in by June 2022. Expect shortages
and price increases in Europe and beyond. The Soviet-era
subterranean fortress deep under the Azovstal Steel works in Ukraine
was used by the Ukrainian military, and as a consequence is
Iron ore pellet production in Ukraine is disrupted, and so is
Ukrainian rail transport to European steel mills. Iron ore from
is banned. The Russian and Ukrainian iron ore is - or rather, was -
supplied under long term contracts. Now the Europeans will have to
buy the ore on the spot market. The only country that could supply a
grade of ore suitable for the European mills is USA. Did the US know
that before setting off this chain of events? Of
course they did.
The USA is a nett iron ore exporter (about 10 million metric tonnes
in 2020). USA does import some iron ore, but most of that comes from
Brazil and Canada.
The US imports around 6 millions tonnes of pig iron a year, and of
that about 2 million tonnes is from Russia and roughly 1.7 million
tonnes from Ukraine. Brazil is the major source of US pig iron, but
it has production constraints and increasing local demand. Pig iron
is the first 'rough' refined product from refining iron ore. It is
mostly used in electric-arc furnaces and is the raw material for
many different kinds of steel products, especially high end steel
products. The Trump 2018 tariffs on steel products made US steel
products competitive with imports, which has resulted in a steady
increase in US productive capacity.
The US remains reliant imports to meet all its pig iron needs. And
Russia is the largest
global pig iron producer. If the global economy recovers, there
will be more competition for pig iron on the world markets. If
conditions are recessionary, governments may use infrastructures
projects to stimulate the economy.I suspect that if Russian pig iron
is needed, it will find its way to America one way or another.
There are, however, some bottlenecks - possibly temporary - in some
manufactured steel products.
The big hole in Ukrainian wire rod supply, coupled with reduced flow
from Russia and Belarus, mean that wire rod exports could drop by
180,000-200,000 metric tonnes globally by the end of 2022. The major
use for wire rod is in manufacturing reinforcing rods and mesh for
concrete. Some EU iron mills are said to be having problems
manufacturing wire rod. If this is true, an estimated 200,000 metric
tonnes a year. will be removed from the EU market.
Steel prices had dropped dramatically due to the economic slump
caused by covid. It is only now that they have returned to more
But steel prices are driven by demand. Demand falls away in
difficult economic conditions. All countries have had to expand
their money supply to support people. Businesses saw their income
plummet and debt skyrocket. Shedding staff reduced costs.
The recovery phase - if there is one - sees a surge in business
activity. Governments may subsidise businesses to soak up the
unemployed. Another favorite is government funded infrastructure
expansion, especially where it might facilitate economic activity in
the long run. New bridges, rail lines, pipelines, roads, that sort
of thing. All these projects require steel.
But Russia is 'locked out' of the global boom by western
'sanctions'. How Russia will respond was set out by the Russian
president on April 20th this year:
"...these unfriendly steps towards Russian metallurgists
are only serving momentary political interests...they have
suspended ties that took years to establish and that
hinged on reasonable parameters like business reputation,
mutual interest and economic efficiency.
no place for these key concepts, which are crucial
to businesses, in the political games
of Europe’s bureaucrats...there is no reason
to believe that there will be any essential change
in our partners' behaviour. We have to take this
into account when implementing our metallurgy development
strategy at the corporate and state levels.
are already rebuilding their logistics and production
chains and looking for new suppliers and clients
in order to keep enterprises working and protect
the interests of their staff.
should not forget about the long-term development
of the metallurgy industry, the implementation
of its future plans, and seek not only
to ensure the steady operation
of the entire metallurgical complex
and to maintain production volumes but to boost
production capacity and expand the range
of goods produced domestically.
that we discuss a potential industry development model
with the business representatives here, based
on the current state of affairs and thinking
to stress the importance of domestic demand,
which needs to be supported and stimulated –
primarily, by expanding the scope of residential,
infrastructure, commercial and industrial construction,
and by producing more metal-based goods.
to repeat that long-term projects
and programmes are necessary to support
the demand for Russian metals. The impact
of such projects and programmes will serve
the entire economy. It will benefit the Russian
regions and their residents."
Obviously, new clients have to be found from amongst the
'friendly' countries. But Russia may be a price taker.
International conditions are unfavorable to Russia. Domestic
demand is key to the survival of the Russian steel industry. As
always, the government has to pay for this by subsidising or
funding new projects. As it happens, infrastructure development is
the Russian governments main priority. Russia is the largest
country in the world, with vast distances between towns. The
eastern and northern regions are poorly served with road and rail.
New industries in the near arctic are hampered by poor roading,
poor communication, poor water, poor housing, and poor public
The government brought in a regime of tax breaks for foreign
investors - an important source of capital. Westerners will no
longer be able to invest in Russia. But other countries, such as
China, the UAE, Saudi Arabia will.
A combination of private domestic and foreign investment. plus
Russian government investment, funded from budget surplus and
cheap loans from the Central bank might make up for losses of
longstanding steel contracts with the west.
Russian steel products are likely to be sold at discounted
prices, if that is what it takes to keep the industry alive.
Better prices also help cement in long term relationships.
And Russia plans ahead for the long term. It has a plan for an
economy that improves its citizen lives (the number one priority
of government, according to President Putin). That plan involves a
lot of coordination of private and public investment, and involves
a lot of logistics planning. And involves a lot of steel.
Russia is the world's 4th largest titanium exporter, valued at
USD$471 million in 2020. Main export markets 2 years ago
(millions) were Germany $148, US $132, China ~$29, UK ~$27,
Ukraine $22.5. It's imports in 2020 were modest (millions),
Kazakhstan ~$19, China ~$9, Estonia $10.7, US ~$7, Ukraine ~ $6.
Most of the world titanium dioxide concentrate produced in the
world is for the bright white pigment used in white paint and in
plastics. Only a small percentage of the mined ore is used to
smelt into titanium metal, an energy intensive and technically
complex process. Russia has 3 large titanium mines. Russia's
largest titanium mine is Ruchar, with 3 billion tonnes of ore
containing 15% titanium. The Pudozhsky
mine in the Republic of Karelia.has 516.7 million tonnes of ore
(8.1% titanium). This mine also contains resources of about 1
million oz of platinum and 2.4 million oz of gold.The Yugo-Vostochnaya
Gremyakha mine in Murmansk Oblast.has 585.3 million tonnes
of titanium ore grading out at 8.51% titanium.
Russia is not listed in the US Geological Survey data on tonnage
of titanium production. The UGS gives its data in weight of
titanium dioxide, rather than ore containing a certain percentage
of titanium oxide. Perhaps Russia's reserves are simply being
air-brushed out. Even so, Russia is the worlds third largest
producer of 'smelted' (sintered) titanium 'sponge',
33,000 metric tonnes per year. China is the worlds largest
producer (110, 000 tonnes). Japan is second largest titanium
sponge producer (50,000 tonnes).
The Russian State owns the world's largest titanium producing
Corporation, which is a subsidiary of state-owned Rostec
corporation. While titanium is a not uncommon mineral, it is, of
course, a strategic mineral, important in aircraft and spacecraft
manufacture. Russia produces about a third of global
titanium used in the aviation sector. In addition to
titanium, VSMPO-AVISMA produces aluminum, magnesium and steel
alloys, and exports products to 50 countries around the world.
VSMPO-AVISMA has facilities in USA, Ukraine, Germany, England, and
Switzerland. Boeing USA has invested heavily in a joint
50:50 venture with VSMPO-AVISMA created in 2007, 'Ural Boeing
Manufacturing'. The joint venture makes titanium components for
Boeing finishing in Boeings USA factories, as well as parts for
Airbus. VSMPO-AVISMA also supplies
manufactured parts for Embraer, Safran, and Rolls-Royce.
"In an interview
with Design News, Boeing’s chief
materials maven Alan Miller brushed off concerns about relying
on a Russian source for titanium. Miller said that Boeing has
done a lot of collaborative work in developing new high-strength
alloys in collaboration with Russian titanium experts.
Boeing’s alliance with the Russian titanium
industry has been growing since the early 1990s. As of 2008,
VSMPO-Avisma will become Boeing’s biggest titanium supplier,
moving ahead of US companies TIMET and RMI
Titanium. As part of the deal, Boeing is helping develop
Russia’s aircraft production capabilities."
Design News July
A second production line was launched in 2018. This highly
million dollar expansion, located in a special economic zone
called 'Titanium Valley' machines parts for Boeings new civilian
airliners. The 'titanium valley' special
economic zone has special tax concessions and customs
fast-tracking for investing companies, as well as guaranteed
Ironically, while Russia has been the reliable partner, the US
has not. The Boeing officials should have been more concerned with
their own politicians de-stabilising a mutually beneficial
partnership with their 'sanctions'.
last November’s Dubai Airshow, the company and Boeing announced an
extension of Ural Boeing Manufacturing joint-venture “for
years to come.” A Memorandum of Understanding covered the
supply of titanium of current and future commercial aircraft
programs, including the 737/MAX, 767, 777/777X, and 787,
making the Russian company the largest supplier of titanium
parts to Boeing. The two companies would also work together on
new alloys and technologies. In a press statement at the time,
Boeing Commercial Airplanes CEO Stan Deal described
VSMPO-AVISMA as “a reliable and valuable partner to
Boeing for almost 25 years.”"
The 'sanctions' means that Boeing 'suspended' buying titanium
from Russia. Boeing had been diversifying titanium sources in
recent years, and while it still relies on Russia for
30% of its overall titanium metal supply, Boeing believes it can
increase its supplies from domestic US suppliers, China, Japan and
Kazakhstan in sufficient quantity to replace Russia.The US
produces about 100,000 tonnes of titanium dioxide a year, but has
to import a further 1,000 000 tonnes of TiO2 a year,
mostly for use as a white pigment. It is discretely quiet about
the machined parts it obtains from its Ural Boeing Manufacturing
joint venture. According to various industry internet resources
these parts are still delivered by roundabout means that comply
with the letter, but not the 'spirit' of the so-called
'sanctions'. It seems there is a certain amount of 'don't ask,
don't tell' going on.
Boeing has suspended the supply
of aircraft parts to Russian airlines, and suspended training in
Russia. The EU banned the sale and trade in aircraft and aircraft
parts in February
Will the American and European aircraft part manufacturing trade
return? That is really 'will the American and EU 'sanctions' end'?
If you 'tool up' to make specific parts for specific airline
models, as Boeing did, it is a big financial blow if you have to
walk a way from it. If Boeing walks away from their Russian
investment, they might lose the Russian specialist titanium
metallurgic expertise as well as the modern bespoke production
capacity. Or they may pay a huge salary for the experts to
emigrate to America. America's loss may end up as Russia's gain.
USA mainly imports titanium ore from South Africa (27%)
Madagascar (18%), Australia (15%) and Mozambique (15%). China,
which has the worlds largest titanium ore reserves (230 million
metric tonnes titanium dioxide) - is also a massive titanium ore
consumer. Not only did it consume all the ore it produced, China
also imported 3.6 million tonnes of titanium mineral concentrate
in 2021, mainly from Mozambique (32%), Australia (14%), Vietnam
(13%), and Kenya (9%) (U.S. Geological Survey, Mineral Commodity
Summaries, January 2022). While China exported titanium-based
manufactured products it remains a nett importer of its own
resource. No doubt it met its own needs for titanium metal first.
Australia has the worlds second largest titanium ore reserves,
with 160 million metric tonnes of titanium dioxide. India has the
worlds third largest titanium ore resource, at 85 million metric
tonnes, but has relatively little mine production.
Russia’s Rosatom exports fuel for Brazilian nuclear
power plants and radioisotopes for medical purposes.
Rosatom is also interested in participating
in the construction of new power units
in Brazil, including low-capacity nuclear power plants, both
land and floating plants, because it has unique
and extensive experience, and technologies that are not
available elsewhere in the world.
Russia Press Statement 16
Russia is an important supplier of nuclear fuel assemblies
(including to Ukrainian nuclear power plants), and is also
involved in building nuclear power plants in Turkey and Brazil.
"A lot has been done over 2021. Our consolidated revenue
grew by almost 10 percent and amounted to 2.06
trillion rubles. We have crossed the important
psychological milestone of two trillion. We have been
trying to achieve this for a long time and,
finally, last year we surpassed this barrier, this milestone.
consolidated net profit increased by almost 47 percent
and constituted 163.5 billion rubles. EBITDA increased
by 18 percent to 335 billion. The total market
value of our assets is a new indicator that we
introduced last year. It is 980.5 billion rubles, which is 50
percent higher than in 2020; this means that the value
of our assets is constantly growing.
of civilian products in the consolidated net profit
amounted to 45.5 percent."
Sergey Chemezov, CEO of Rostec State Corporation 18
The Russian Government-owned Rostec Corporation
('State Corporation for Assistance to Development, Production and
Export of Advanced Technology Industrial Product') is the largest
player in the Russian defense industry. The Russian government has
wanted to see civilian product spin-offs from defense technology,
as has happened in the west. The President set Rostec a target of
a civilian market segment of "50 percent by 2030". As Sergey
Chemezov noted, they have already achieved 45.5%, and, 'thanks' to
both covid-19 and western sanctions, it is almost certain this
target will be met much earlier than expected.
The western sanctions have created a strong imperative for Russia
to innovate across many industries. The Russian military has been
a major source of innovation since the earliest times, and the
pace seems to have accelerated under external pressure. While the
most advanced hypersonic missiles are unlikely to be exported, the
various track-decision-launch integrated layered defense systems
are exported. They are already competitively priced, fairly
efficient, and are likely to become a popular option for countries
needing a defensive posture as a major part of homeland security.
The updating of the strategic defense system, including the
massive liquid fueled Sarmat ICBM, has allowed Russia to design
and build an unbeatable nuclear strike missile. The Sarmat can
reach into space, has a range that allows attack from any
direction (including via the South Pole), has an ability to
accelerate, and a degree of maneuverability.
Advances in satellite-based
electronic intelligence for military operational purposes,
including sophisticated integrated optical and radar technology,
is not usually 'for sale'. But again, there are spin-offs in
commercial space vehicle satellite deliveries, as well as other
Sergey Chemezov outlined some of the accomplishments of Rostec in
the military sphere in 2021 and projects for the future -
- Rostec will use its experience in the special military operation
in Ukraine to develop 'pocket-sized' drones that are all but
invisible. They will be used for fire control and real-time
military intelligence, especially useful in urban warfare.
- Total redesign and equipment refit of the 1980's Tu-160M missile
carrier, fitted with Rostec's new NK-32 engine ("We have actually
created a totally new aircraft. It looks like
the previous model on the outside, but
in fact, everything is new")
- The Checkmate
fifth generation light tactical 'stealth' fighter with a modified
Su-57 engine. Flight testing is due in 2023 and production is due
in 2027. (This aircraft was designed mostly for export)
- Okhotnik UCAV drone with an innovative flat jet nozzle
that makes it less visible to radar with production due in
- the first Russian-made diesel gas-turbine engine (the M55R), to
be used in Russian frigates
Russia is a nett energy exporter.
Russia's Electricity exports in year end January 2022 were $179M
and imports were $2.11M, a nett export value of $177M. Russia
exports electricity mainly to Finland ($116M, 9 terawatt-hours
nett), about 10% of demand, China ($22.2M), and Lithuania
($20.1M), with smaller amounts to Kazakhstan and Latvia. In May
2022 Finland refused
to pay Russia for the electricity Russia had already
supplied, Fingrid saying "Due to these restrictions payments for
sold Russian electricity can no longer be made." As a result,
Russia cut off power to Finland until Finland had paid its debt.
sector - civilian aircraft
Quite apart from the EU banning all business jets, and passenger
and cargo airliners in the EU airspace, the EU has banned the
sale, trading and leasing of aircraft to Russia. Aircraft parts,
vital to repairs and airworthiness certification, are also
it's own passenger aircraft, the UMC-21, the TU-214 and the
SSJ-100. Because of the sanctions affecting component
availability, the united Aircraft Corporation can only deliver
two MC-21's in 2022, rather than the 4 initially planned. A
fully import-substituted version should be built by 2023, and
certified with the substitute components for sale in 2024. The
Sukhoi SSJ's contain foreign parts, and 19 have already been
built, and will be delivered. Work on an
import-part free version of the SSJ regional jet started in
2018, and a fully import-free version is expected to be
available in 2024. This seems very optimistic, as the engine for
the SSJ-100 is produced by a French-Russian
joint venture, and the French components have stopped being
delivered. The Russian side is toying with the idea popular with
the Germans, that is, some form of 'tempory' control of the local
assets of the French company in order to ensure a supply of spare
parts from stock on hand.
"To prevent disruptions, the Ministry of Industry and Trade
reportedly proposed an idea to legalize the transfer of foreign
companies’ property to Russia-registered enterprises. The move
could ensure that the property of foreign companies, that
terminated their business in Russia due to the international
sanctions, would be temporarily managed by Russian entities and
resources such as spare parts for SaM146 engines could be seized
to secure the maintenance of SSJ100 jets"
Gabriele Petrauskaite 31
At the moment, only 2 or 3 of the longer range narrow body TU-214
aircraft are produced per year. Russia will build additional
construction capacity and increase this to up to 10 per year. They
will replace the Airbus and Boeing planes Russia has used up until
produces a wide body passenger plane, the Ilyushin-IL96 long
range aircraft, as well as the Soviet-era Ilyushin Il-76, a
four-engine turbofan airlifter used for cargo.
Spare parts will
be made for all the domestically produced planes at a
proposed new manufacturing center in Kazan, capital of the
Republic of Tatarstan. Russia hopes to have it up and running by
the end of 2023. Its focus will be on parts fofr domestically
had relied heavily on Ukraine for helicopter parts, at least.
But following the 2014 coup in Ukraine, Russia has joined China
production of aviation products - engines, helicopters,
parts, specialised cockpit glass. A China-Russia joint company
has already been buying Russia's Ka-32A11BC
on contract to the Shanghai Ministry of Public Security. China
uses the twin engine multi-purpose mi-8 and the newer mi-17
helicopters in various versions, both military and civilian.
used the various helicopters produced by Russian
Helicopter manufacturers for many years.
plant in Ulan-Ude produces helicopters at a 'state of the
art' modern facility, producing for customers all over the
world. As well as high tech versions of the Mi-171, the 'Russian
Helicopters' Rostec subsidiary is producing an advanced fully
digital single engine civilian light helicopter, the VRT-500
for release about 2023.However, the engine was expected
to be from Pratt & Whitney Canada - there is no chance for
that now. Where an engine might come from is unclear at this
point, but it is very likely it will be either Russian designed
and built, or it will be from a reliable partner.
The prohibition on the import of foreign civilian airplanes has
given the domestic civilian aviation industry a massive boost. Russia's
United Aircraft Corporation (UAC) is now producing
civil aircraft "in large quantities: not large enough yet,
but we are striving towards this" - Sergey Chemezov, Rostec, May
Russia produced the world's first covid 19 vaccine, showing it
was fully capable of meeting the needs for technically advanced
immunilogical products domestically.
Rostec's Natsimbio (National Immunobiological Company) subsidiary
supplied over 100
million sets of all kinds of vaccines "from
the coronavirus to flu, and various other diseases"
to domestic customers in Russia. Most were domestically
Russia's Direct Investment Fund financed ChemRar to develop the
world's first anti-coronavirus drug, Avifavir. It is currently
sold in at least 15 countries. The Russia's Direct Investment Fund
is also backing a project to localise production of the Sputnik V
vaccine in Brazil.
In 2010 Prime Minister Vladimir Putin announced the Russian
government plan to 'onshore' the pharmaceutical sector of the
economy. This seems realistic with regard to antibiotics, as
generic (off patent) antibiotics can in principle be manufactured
by anyone from various precursor chemicals. China dominates the
manufacture and global supply of these chemicals because it has
low labor costs, government subsidies, and lower environmental
standards. Given their global dominance, China has economies of
The antibiotics made from these precursors are immensely
important. The broad spectrum fluoroquinolone antibiotic Ciprofloxacin
for example, is highly important in treating bacterial sepsis
within the body cavity, bone and joint infections, respiratory
infections, anthrax, typhoid, urinary tract infections and so on.
China has the intention of becoming the 'pharmacy of the world',
and will achieve this goal for medium and smaller countries. Large
technically advanced countries could make the precursor chemicals,
but will need government subsidies to do so.
"Today, China is the main source of the key ingredients for both
penicillin and another class of antibiotics, cephalosporins.
Together these drugs comprise two-thirds of the antibiotics used
in the U.S. each day...when a giant cargo ship ran aground in
the Suez Canal, global trade was snarled. More than 200 vessels
carrying billions of dollars’ worth of goods were left waiting
to get through the canal. Such a bottleneck could pale in
comparison to potential antibiotic shortages. If U.S.-China
tensions were to escalate over Taiwan, trade corridors and
supply chains would be at risk of massive disruption—including
the freighters expected to bring antibiotics to America’s
hospitals and pharmacies."
It is clear to me that the US intends
to manufacture critically important medininces domestically in
future for strategic reasons (90% of the drugs consumed in
USA are generics, most finished generics are imported - mostly
from India - and the 3 major US resident generic drug
manufacturers Mylan, Sandoz and Teva have relocated generic drug
production to China. Western domestic single batch preparation of
generic antibiotics precursors and intermediates is low profit
margin, inefficient, and can't compete with slowly emerging
continuous flow production [CFM]).
"Continuous manufacturing is best described as a series of
processes that optimize drug production to a continued flow of
drugs. This is in contrast to the widely used batch
manufacturing, which consists of complex processes rendered
across the world where materials are made in large batches,
rather than in a consistent flow.
Denoted as one of the top 10 emerging technologies, a November
2021 World Economic Forum (WEF) report stated that CFM could
effectively “revolutionize” the process of drug manufacturing by
allowing greater personalization of each medicine made on-demand
that would not need to be shipped across multiple locations. Yet
adopting CFM will likely be a long process, particularly while
producing complicated assets like biologics.
...As of now, Baxendale says that some aspects of CFM are
appearing in the pharmaceutical industry rather than a wholesale
transfer to flow chemistry. New tools and new processes still
need to be created, and many companies consider CFM at a
proof-of-principle stage, says Baxendale. Although CFM could
play an increasingly more visible role in the industry, Kappe
anticipates seeing the use of both batch manufacturing and CFM
in a hybrid system in the years to come."
Pharmaceutical Technology May
India has a massive trade imbalance with China, and is very
dependent on China for the active ingredients for medicine
manufacture. Strategically, India is likely to produce at least
the more important active ingredients locally in the future.
Russia is somewhat dependent on imports from India at this stage.
I suspect Russia will indeed slowly move to re-shore manufacture
of critical medicines. In principle Russia can import active
ingredients from China at very favorable prices, but once again,
they would be wise to expand their domestic active ingredient
production facilities, at least for medicines of critical
importance. And if they have the capital to further build the
sector, Russia certainly has the educational-technical capacity to
develop continuous flow techniques right from the very start -
driving down costs.
Russia already subsidises strategically important industries. It
already takes a 51% shareholding in industries that are
strategically important. Expending and subsidising a chemical
precursor industry for domestic insurance would be fully in line
with their current strategic practice.
"Ravi Uday Bhaskar: Sanctions
do not apply to medicines and agriculture. So, even
discontinuation of supply in the shadow of western sanctions
may not have a serious impact because Russia possesses its own
capabilities to manufacture active pharmaceutical ingredients
as well as formulations.
In fact, Russia's domestic market is
good, and they are capable of getting things done.
Sputnik: China is a major
supplier of active pharmaceutical ingredients (APIs) which
are the raw materials for medicine. If Beijing tries to fill
the void in the Russian market created by European countries
ceasing to supply medicines, do you fear any disruption in
the supply of basic materials?
Ravi Uday Bhaskar: I
do not think so. China is one of the most prominent suppliers
of APIs, intermediates, and basic chemicals. That's why it
will not have any serious effect on supply of raw materials
Europe also imports APIs and other
raw materials from China. Ukraine may face problems with raw
materials but Russia will not face any disruption as it has
good relations with China. And Russia itself is capable of
tackling challenges resulting from western sanctions.
Sputnik International 11
The 'Pharma-2020' and 'Pharma-2030' initiatives required Western
pharmaceutical companies locate their production in Russia.
Abbott, Johnson & Johnson, Novartis, GlaxoSmithKline, and
Pfizer are among the large Western drug companies producing
vaccines, generic medicines, or Russian branded products.Russia
remains a lucrative market for western (mainly European) pharma
Russia sold out Veropharm, its major medical products company, in
2014 to the US owned Abbott Laboratories. The pharmaceutical
industry in general is exempt from the western illegal trade
restrictions, and Abbott intend to remain
operating in Russia, as are most US major drug companies.
The Russian government has partnered with US venture capital firms
through it's own high-tech 'angel investor' fund Rusnano
to develop a Russian pharmaceutical business enterprise.
Rusnano has run through it's capital, and has to be bailed out by
the Russian government, or sell some of the most promising start-ups
(at a loss). Given the current circumstances, its seems likely to be
given a government loan.
"We remain committed to providing essential health products to
those in need in Ukraine, Russia, and the region, in compliance
with current sanctions and while adapting to the rapidly
changing situation on the ground.”
Johnson and Johnson spokesperson March
Russia already buys about $590
million in pharmaceuticals from India (it is India's fourth
largest customer) in an overall pharma and medical equipment market
of about $20 billion. The west's trade restrictions have meant some
essential medicines and ingredients for medicine manufacture have
become unavailable. Russia is exploring
sourcing these items from India, and also the idea of co-setting up
more Indian manufacturing plants in Russia (India has operated in
the Russian market for many years). Russian-Indian start-ups will
find registration in Russia easier as India is already familiar with
Russian regulatory requirements.
Domestically domiciled production would also solve the problem of
cost rises due to logistics. Logistics are a problem - sending
pharmaceuticals from India overland through Iran takes over 2 months
at the moment (although this may speed up in the long run as the
north-south route from Russia's port city of Astrakhan to Iran's
Caspian sea cities and then rail across Iran is streamlined).
Pharmaceuticals come by air, via Emirati, Qatari, and Turkish
airlines, and, of course, Aeroflot, but freight rates can be double
normal rates as there is not a regular airfreight run. One port in
Gujarat is used for shipping, but the freight rates are again very
high. A container normally costing $2,500 now costs $9,000 to
$12,000. The price of active ingredients for manufacturing generic
drugs sourced from China jumped 50% to 200% last year. This is an
added incentive to domestic manufacture.
These are a major employer.
"...major opportunities will open up if they leave, and
the market will accommodate new players. I am 100 percent
confident that the substitution of foreign owners and
manufacturers will improve the quality of services for Russian
citizens. I am 100 percent confident."
Vladimir Putin April 20, 2022
Fast food chains from unfriendly countries said they would leave
Russia, but as it turns out, while several big brands have gone (Mc
Donalds, Starbucks) many others haven't. There is a lot of valuable
commercial real estate locked up in these businesses. The value of
that real estate has probably dropped due to sanctions. It is a bad
time to sell up. So maybe they are just waiting for the situation to
stabilise and property values rise again before they sell. Or maybe
they are hoping to stay, and are just giving lip service to the US
demands. This seems to be the case with McDonalds, now renamed
‘Vkusno i Tochka’, or ‘Just
Tasty’, as McDonalds has retained the right to buy back it's
restaurants within 15 years. The new owner will have all the outlets
back open by the end of August - and will expand from 850 locations
The government is supporting eateries by suspending value added tax
and providing additional tax benefits to these businesses. It has
also slashed compliance costs.
Import businesses, smaller 'branded' manufacturing and similar
Existing Trade with 'unfriendly' countries
“We take good care of those foreign businessmen who
stay [in Russia]. We have extremely great respect and the same
care for those businessmen who, under pressure, are now forced
to wait it out, but who have already said that they will resume
their activities here as soon as possible"
Dmitry Peskov, Kremlin spokesman, 12
Trends here are mixed. Some have left, some are on 'pause', simply
'suspending' operations, others have created new re-branded
businesses that are actually owned by the foreign parent. Those that
have stayed, whether re-branded or not, face the same materials and
parts supply problems as Russian owned businesses. Like the Russian
businesses, they may be able to find local supplies, or import from
'friendly' countries via local trade houses.
Service industries typically make up around 60% or so of any
developed economy, and are a major employer. But they are not
strategic in nature. There is a constant 'churn' in the service
area, with brands and businesses coming and going. It is relatively
easy to replace foreign ownership, and cheap government loans will
likely help local entrepreneurs try their luck. And the Russian
government is likely to give support for quite a long time before
finally withdrawing the trainer wheels.
Soon after the start of the operation to expel Ukrainian forces
from the newly declared breakaway republics, the EU and US
closed it's airspace to Russian flights. This effectively
ended most Russian overseas tourism, putting Russia's Aeroflot's
fleet of aircraft almost out of work.
On 13th May 2022, Siemens, which has traded in Russia for almost 170
it would wind up its business there. Siemens are best known for their advanced gas turbine engines, control systems,
but in Russia, Siemens was responsible for developing urban and
intercity rapid train transport. Their 'Desiro'
type trains were joint venture produced in Russia, and Siemens had a
50 year 1.2 billion euro contract to maintain the rolling stock for
a period of 50 years. Siemens built a major headquarters in Russia
in 2011, and their decision to pull out came as a surprise.
The Desiro trains have about an 80% local content, so perhaps
maintenance will not be that much of a problem. Russia has been
working on developing its own turbine production capacity - probably
sparked by the difficulties obtaining gas turbines from Siemens in
2017. Russia expects to have locally made 65-MW and 170-MW
high-capacity turbines available to upgrade its thermal power
stations by the end of 2024. Other electrical control equipment
might be able to be parallel imported.
Russia has a merchant fleet of 2,873 ships. Russia's ship yards
produce a range of ships, mainly military, but also some civilian.
For example Rostec Corp. is producing a new
cruise liner ('Peter the Great') for both the Volga river and
On April 8th 2022 the EU banned Russian owned or operated ships from
EU ports. The USA did the same on April 21. The bans also apply to
Russian ships that try to avoid the ban by re-flagging as a ship
from a different country.
Businesses that together control around 40%
of global shipping are refusing to charter ships to Russia or
carry its cargo. This is a very serious problem for Russia, and
ultimately, for the world.
The cost of chartering ships has increased markedly due to increased
commercial risk, especially for oil tankers. There is pressure from
some oil company officials for Russia to obtain more of it's own oil
tankers, especially as Russia might be visiting friendly ports in
the Middle East and Asia Pacific more frequently in future.
The import of Russian and Belorussian agricultural and food
products, energy products, "certain metals", medical and
pharmaceutical products, "certain fertilizers", and nuclear fuel for
civil nuclear facilities are exempt
from the EU ship ban.
In the greatest part of the Black Sea the risk of Ukrainian mines
floating free (from snapped cables) is relatively low. Black Sea
nations are actively hunting for them. Russia has cleared a few
areas of mines and defined safe corridors In the dangerous
northwest, but NATO rightly considers overall the risk is high
(as is risk from GPS jamming, and electronic interference). If ships
owners and charters can't get insurance, they won't ship. The West
doesn't need to formally 'sanction' Russian owned or chartered ships
- the reluctance of insurers will do it for them by not writing
insurance for some 'territories', which, of course includes Russia,
"Since the London Market’s Joint War Committee (JWC) listed the
Black Sea a week before the conflict began, much has
happened...Apart from the physical damage to ships and many
vessels being trapped, underwriters have been faced with a
variety of challenges from the ever expanding sanctions regimes
which failed to deter the attack, have failed to stop the
conflict and have not yet changed the political path adopted by
For insurers whose reason for existence is to support trade, it
is difficult to thrive in an environment where they are being
compelled to stop themselves and others from trading. Having put
expensive compliance teams in place and embedded due diligence,
they are under intense pressure. This is further evidenced
in the advent of self-sanctioning where entities take
a policy decision not to broke or write any new or renewal
business in certain countries. The situation is legally
constricted as running risks cannot simply be cancelled unless
there is contractual reason to do so.
Problems have arisen from the speed and number of measures as
well as the difference between sanctions and asset freezes, plus
variations between different national measures. These can
leave clients at least partially without cover and
underwriters similarly without reinsurance. Additionally,
the reinsurance market has felt the need to utilise territorial
exclusions, so many underwriters are now significantly and
unexpectedly exposed without the protection they had expected
The situation remains very fluid, with new developments daily, so
underwriters will proceed with great caution, if at all, as the
penalties for errors are high."
Neil Roberts, Head of Marine and Aviation at Lloyd’s Market
The EU's 2nd June 2022 6th set of trade restrictions on Russia
banned the issuing of insurance to any european vessel carrying
Russian oil. Greece, in particular, as a major oil carrier in the
Eurozone, will be badly affected by this. The ban won't start until
3 December 2022. This give Russia time to develop solutions. It
seems to me that it will be almost inevitable that new insurers in
the East, Middle East, Asia, Eurasia and Russia will emerge, either
singly or in consortium. It is entirely possible that national
governments could insure cargoes of hydrocarbons.
On April 8th 2022 the EU banned road transport through EU
Russian and Belorussian agricultural and food products, energy,
"certain metals", pharmaceutical products, the functioning of
diplomatic missions, mail services, and "goods in transit between
Kaliningrad and Russia" are all exempt.
and wood product industry
Russia supplies about
11% of global supplies of softwood lumber (sawn timber). Over
50% is sold to China. Russia raised the export tax on 'green lumber'
(more or less unprocessed timber) to 10% in 2021. This had two
objectives: first, help fill domestic supply by making the export of
lumber more expensive. Second, make further processing profitable so
that Russia extracts more value from the raw material. Processing
includes kiln drying, cutting to a finished surface, manufacturing
common finished wood components etc.
On April 19 2022 Japan banned the import of 'selected' Russian wood
In June 2021 the EU banned
certain types of potash fertilizers. Two months later, the United
States also banned Belarusian potash fertilizer producer. But the EU
allowed the volumes and types of fertilisers that the EU needs.
In February 2022 Lithuania banned the transhipment of Belarusian
potassium from its port of Klaipeda. Almost all Belarusian potash
(10-11 million tonnes per year) was exported from there. A new
facility is being built at St. Petersgurg to export the Belarus
In April 2022 the EU banned Belarus potassium chloride
Canada, Belarus and Russia are the three major potash producers
globally, with Belarus 20% of the worlds potash, and Russia the
same. This quantity can't be sourced from the other potash producers
as there is insufficient production capacity. It takes at least 2
years to bring additional capacity to the point of production.
The US imports 90% of its potash. In 2015-2018, at least, 81%
of US imports were from Canada, Russia 8%, and Belarus 5%. Only
907,184 kilograms comes from Russia.
Canada has half the worlds potash resources, and supplies about a third
of the world market. As USA it adjacent to Canada, potash transport
costs are relatively lower.
Russia produced about
25 million tonnes of fertilizer in 2021, and about 16 million
tonnes of this was exported. In April 2022 the Russian Government restricted
the quantity of "specific fertilizer varieties" that could be sold
to countries not members of the Eurasian Economic Union (until
August 31, 2022).
It is almost certain that Russian and Belarusian potash will go to
friendly countries, maybe displacing potash from existing suppliers.
1.38 million tons of potassium chloride from Belarus in 2020, which
is 16% of its annual needs. China has a relatively small domestic
potash resource base. Russian and Belarusian potash is likely to be
sold at prices favorable to the buyer. China has provided loans for
a potash mining and processing plant (Slavkaliy) co-funded with a
Russian businessman. The 2 billion dollar project is due to open in
2022, and has a guaranteed market, as the plant's total production
will be sold to China for the next 25
Ultimately, Russia and Belarus dependence on friendly countries for
their market might mean lower prices globally, at least for
potassium chloride. But first, the Europeans will have to find new
suppliers. They will, but the suppliers will be further away and
therefore the product more expensive.
In March 2022 Russia’s ministry of trade recommended ceasing
fertilizer exports. In 2021 Russia produced almost 25 million tonnes
of chemical fertilizer, of which about 65 percent was exported.
"The EU has indeed avoided a direct and comprehensive
ban on the import of Russian agricultural products.
All this sounds a bit 'whiny'. Fertilisers are in high demand
globally.Ships and insurance will be found in 'friendly
countries.The cost of Customs inspections is paid for by the
importer. Those governments that seize Russian businesses will end
up in court - and under Russian embargo. Russia can increase the
price to the EU to fully recover the cost of obstructions - and
then some. Because it is a sellers market.
...despite prohibiting the import of certain types of Russian
fertilizers, the EU has introduced exemptions to fulfill its own
The import of fertilizers from Russia into the EU this and the
following seasons (until 9 July 2023) is permitted in an amount
equal to the average annual volume of imports of these products
(imports of potassium chloride are allowed in the amount of
837,570 tonnes, other restricted fertilizers - in the amount of
EU Member States are also authorised to grant, at their own
discretion, access to EU ports of vessels flying the Russian flag,
as well as entry to the EU of Russian road carriers for the
purposes of importing or transporting agricultural products,
including fertilizers and wheat, that are not subject to
...What the EU fails to mention is that anti-Russian unilateral
sanctions are still distinctly detrimental for key Russian
producers and exporters of agricultural products. They affect
directly or indirectly the export, financial and transport
capabilities of Russia, including in the food sector. The ultimate
goal of these actions is obvious - to undermine the Russian
economy, including the agro-industrial complex.
...Stringent measures are being introduced or proposed to police
the proper implementation of the anti-Russian sanctions regime,
including criminal liability for either circumventing or assisting
in circumventing unilateral sanctions, which, according to
instigators of these measures, should induce economic operators in
EU Member States to terminate their cooperation with Russian
partners. Consequently, cargo transports, as well financial and
insurance services are seriously hindered and logistics chains are
disrupted, also due to total customs inspection of all goods
imported into the EU from Russia. Western financial and commercial
entities, intimidated by the prospect of penalties for violating
the sanctions regime, are either delaying or frequently annulling
Furthermore, individual restrictions have been imposed against the
owners and chief executives of leading Russian producers and
exporters of fertilizers - Uralchem, Eurochem, PhosAgro,
Akron...The future of factories that belong to them in some EU
Member States also hangs in the balance.
Evidently, the European Union is engaged in a deliberate campaign
to obstruct the export of Russian food products and fertilizers,
including to prevent Russia's access to third markets. Behind the
smoke-screen of its habitual hypocritical rhetoric the EU is busy
aggravating what is already a precarious situation in terms of
global food security."
Russian Foreign Ministry press release 3
The Moscow Exchange deals with stocks, bonds, derivatives,
money markets, currency exchange, and precious metals. On the 24th
of February the Moscow Exchange suspended all trade.
On the 1st of March, the Exchange froze all interest payments on
securities (such as bonds) owned by foreigners.
The Russian stock market has restricted foreigners from transacting
on Russian stockmarkets (presumably a response to Russians not being
able to transact on western stock markets). Norways sovereign wealth
fund had about 3 billion dollars invested in Russian listed
companies, but after the military operation started, it decided to
pull out of Russian equities, but ran into the transaction ban
before it could complete the sell-down.
Trading resumed on 24 March, but only involving Russian Government
Russia's clearinghouse service, the National Settlement Depository
(NSD), stands between buyer and seller of all securities. It also
ensures interest paid on debt is passed on to the owners of the
securities, including foreign owners. The major European
counterparty clearing houses (Euroclear and Clearstream) blocked
transactions with Russian NSD and froze all money in the NSD
Euroclear and Clearstream accounts. In response, on March 18,2022,
reciprocated. It blocked all transaction (including interest
payments) to foreign security holders in unfriendly countries and
froze all money in the reciprocal clearinghouse accounts with NSD.
Russia's stock markets are 'uninvestable' to western investors - but
not to investors from friendly countries.
Funds that included Russian businesses in their portfolios have
their Russian assets stranded. Funds of all kinds - Pension funds,
hedge funds, funds of all stripes - are stuck. They can't sell their
assets, and can't easily value them. Most have simply given their
Russian assets a book value of zero, and hoping for eventual
The Russian National Settlement Depository (NSD) was blocked by its
corresponding European security depository businesses, Euroclear and
Clearstream. Depositoroes are central to 'squaring up' transactions
in securities such as equities. They the transfer of money and
ownership of securities is prompt and accurate. But now the
dividends from shares & interest from bonds are frozen - well,
for the west, anyway.
"Sanctions' prevent Russian banks from transferring foreign bond
holders interest payments to the western banking system for payment.
Sberbank, for example,
was unable to complete transfer interest due on 3 billion dollars
worth of dollar-denominated Eurobond. It paid in rubles (in line
with Executive Order No. 95 on a Temporary Procedure for Meeting
Obligations to Certain Foreign Creditors dated March 5, 2022), as
far down the financial chain as possible. In this case, as far as
Russia's National Settlement Depository...and there they sit.
Further Eurobond payments are due in June 2022, and the US
has withdrawn permission for US investors to receive the
payments (denominateed in US dollars) through the usual channels.
The Western ratings agency claim that even if the money is sitting
in rubles in Russia's National Settlement Depository and available
for pickup and conversion, it will be regarded as a default, and
Russia's credit rating will be down graded accordingly.
Why would Russia care? It has little foreign debt, and Asian and
Middle East investors seem ready to invest in Russian businesses, at
least. The ruble is on its way to becoming a very stable 'hard'
currency backed by both gold and demand for Russian commodities, a
demand that will continue far into the future. This makes investment
attractive from the forex aspect. The western rating agencies
disgraced themselves in 2008, and westerners are unable to invest in
Russian government debt (such as it is) even if they wanted to.
Western 'ratings' have made themselves irrelevant, and that is
unlikely to change.
See Freeze Russian bank
accounts in the US and EU
The VTB bank is about 70% Russian government owned. Gazprombank is
effectively majority Russian government owned and is essentially
unsanctionable in Europe because the Europeans need it to buy
Russian gas. However, it is sanctioned in America.
Russia has developed its own 'secure'
domestic smartphone, the AYYA. It is based on based on a
domestic operating system (Aurora) and on the android system. It
will be available in late 2022.
direct investment into Russia
There are/were 311 foreign companies invested in various enterprises
Sverdlovsk region, which is a key Industrial region and
Russia's third largest transport hub. Over half of the industries
focus on metallurgy - titanium, copper, steel, uranium.
The most important vehicle for foreign direct investment has been
the Russian sovereign wealth fund, the Russian Direct Investment
Fund. This fund has been running since 2011. It actively
combines government equity with international investors from over 18
countries to invest (mostly) in Russian businesses and start-up
ventures. It has over 80 successful joint-venture projects with
foreign investing partners, with over 2.1trillion rubles
invested in the Russian economy. RDIF portfolio companies are major
employers and generate revenues equivalent to about 6% of Russia’s
The United Arab Enterprises Mubadala sovereign wealth fund has
billion in Russia, in the energy, banking, logistics, and
technology sectors, as well as in Russian real estate and
infrastructure. The ubadala Fund has quite substantial investments
in Russian hydrocarbons,
including a joint investment with the Russian Direct Investment Fund
of a 49% stake in West Siberian Gazpromneft-Vostok
fields. Mubadala's investments are said to produce 'strong financial
returns', but as of 22 June 2022 are "on pause". What is being
paused? Mubadala and the Russian Direct Investment Fund plan to
double the size of their current reserves. Later.
In March 2022 Russia blocked all foreign investors from 'unfriendly'
countries from selling or buying bonds, stocks, real estate, and
other 'immovable' assets in Russia. The purpose of 'decree
81' was to prevent capital flight, and in particular, the
large scale sale of rubles as assets were converted back to foreign
currencies. Unusually large ruble sales would have weakened the
Russian currency at the very time it needed to remain firm. 'Decree
81' required all transactions between Russians and foreigners from
'unfriendly states' to first obtain a permit from Russia’s
Government Commission for Control of Foreign Investment. In
addition, all foreigners as well as Russian residents wanting to
send more than USD 10,000 in cash out of Russia must obtain a
permit. The application must fully disclose who the beneficiaries of
the sale (purchase) are, and any beneficial owners.
It seems to me friendly countries are likely to receive a permit;
but why would a permit be issued to foreigners from a country
attempting to destroy the Russian economy? That said, Russia is not
interested in 'scaring off' capital investment in Russia, and Russia
will be as keen as anyone else to give co-investors their just
So some foreign assets remain stuck in Russia until conditions
normalise, whenever that may be.
Yale University has produced a 'love it or leave it?' list
of foreign businesses in Russia, as part of the US 'maximum
direct investment in Russian oil and gas
Foreign companies with projects in Russia have been 'running
scared'. They are afraid that first, they can't continue to meet
their share of contributions to the project (as money transfers are
blocked), and second that any operating profits made when the
project is completed will remain frozen in Russia.
The Shell oil company has - or had
- a 27.5% stake in the Sakhalin-2 liquefied natural gas project in
Russia's far east.
In March 2022, Shell announced it would pull out of its joint
venture with Gazprom. It estimated it would have to 'write off'
about 5 billion dollars in assets. Shell also announced its intention
to quit its 50% stake in the Salym Petroleum Development and the
Gydan energy venture. Shell France's Total, the UK’s BP, and
Norway’s Equinor also announced pullouts.
Business abhors a vacuum when money is to be made. Over the first
half of 2022 Shell was said to be in discussion with various
parties, including the three Chinese oil and gas majors -
CNOOC, CNPC, and Sinopec Group - to sell Shell's stake. You can bet
it would be at a discount. But the Russian Government had early on
stated that companies must either commit to continuing their
investment (in spite of profits being frozen by their own western
governments) or disinvest. On 30th June 2022 the Russian Government
brought in the 'Executive Order on special economic measures in fuel
and energy sector in connection with unfriendly actions of certain
foreign states and international organisations'.
'This Executive Order was signed to protect
the national interests of the Russian Federation
in response to unfriendly actions, which contradict
international law, undertaken by the United States
and joined by other foreign states
and international organisations, aimed at introducing
restrictions against Russian citizens and legal entities.
resolved that in light of the risk
of natural disasters and man-made emergency situations
endangering the life and safety of people
and threatening the national interests
and economic security of the Russian Federation,
arising due to the violation by certain foreign
entities and individuals of their obligations under
the Agreement of the Development
of the Piltun-Askokhskoye and Lunskoye Oil
and Gas Fields on the Basis of Production
Sharing, signed on June 22, 1994, special economic
measures shall be applied to these foreign entities
and private individuals under their jurisdiction.
the Government of the Russian Federation is
to establish a Russian Limited Liability Company,
which will take over the rights and obligations
of Sakhalin Energy Investment Company
in accordance with this Executive Order. The ownership
of the company’s property, created within
the framework of the above Agreement, shall be
transferred forthwith to the Russian Federation.'
Russian Executive Order June 30 2022
Until June 30 2022 the Sakhalin Energy Investment Company was owned
by a consortium, with Gazprom owning 50% plus one share, Shell
27.5% minus 1 share, with Japan's Mitsui and Mitsubishi
holding 22.5% between them. The 'unfriendly' countries don't get to
'slow walk' their supposed divestment. Nor do they get to choose who
the buyer will be. The Netherlands and Japan have one month to find
a buyer, and that buyer must be approved by the Russian government.
Presumably, if they haven't found a buyer that suits the Russian
government by the end of July, the Russian government will take the
assets itself, at a price it decides. In any event, as there is new
ownership, there will be new contract prices, as the entity that
signed the previous contracts no longer exists.
Sakhalin-2 oil and gas fields provide Japan, in particular, with
very cheap gas (LNG), partly due to its close proximity. Bizarrely,
Japan has joined the illegal trade restrictions on Russia, yet
continues to import Russias gas. Perhaps they will still be able to.
At a new and much higher price.
Poland, which with Gazprom owns the 4,000 kilometer Yamal - Europe
gas pipeline, refused to pay for its gas in rubles. As a result
Gazprom stopped gas supply. Poland bought Russian gas sold
to Germany to put into its state owned supply companies, but a
sanctioned Russian company,
Novatek, owned pipeline infrastructure in some areas of Poland.
The Polish govt demanded the company allow the Russian pipeline to
be used for its companies gas, or risk seizure. We'll see how this
mini drama plays out.
Major oil and gas industry support companies have pulled out of
Russia. However Russia is developing its own specialist company
capable of both drilling oil gas and geothermal wells and
designing and manufacturing well-drilling equipment such as
diamond drill bits. The oil and gas industries are strategic
industries, so it is no surprise that Rostec's
Polyus Institute (which works on quantum electronics,
amongst other things) is deeply involved, along with the company
direct investment in the Russian Automotive
Automotive industries are major employers. But parts are
manufactured all over the world, and a break in supply of even one
small part, such as a semiconducter, can stop the production line.
The US experienced this itself when they ran out of semiconductors
due to covid lockdown restrictions in China.
Arguably, Russia is experiencing enforced on-shoring of its supply
lines. It may not even be possible to replace 'unobtainable
parts'. This may be a lesson for everyone.
Renault car company 'decided' in late March it would quit its
Russian joint-venture car manufacturing business. Renault’s 51%
stake in Lada Auto Holding Avtovaz, a joint venture car enterprise
with Russia's Rostec has a book value of around 2.4 billion
dollars. This may have to be written
off unless a buyer can be found. As Rostec, is a Russian
company, Renault cannot sell its share to its joint venture
partner (money can't be transferred to France). It will have to be
sold to a foreign country such as China, India, or Saudi Arabia
that has normal trade with Russia.
About 358,000 Ladas were sold on the Russian domestic market in
2021. Lada has about 22% of the Russian market. In late April the
price of the cheapest Lada model, the Granata, went
up by 316 US dollars to 6,394 US dollars.
In late June 2022 Nissan suspended operations at its St Petersburg
plant for the rest of 2022. Toyota also suspended
production, claiming difficulty in importing parts.
The disrupted supply chain for parts theme was cited by the French
Michelin tyre manufacturer on 28 June 2022 when it announced that
it was "technically impossible to resume production" of its
suspended Russian operation. The Michelin Group will "transfer"
all of its operations to a 'new entity' which would have a
structure (cough, cough) 'independent' from
Michelin. The Finnish Nokian Tyre company has 1,600 employees
and "many long-standing customer and supplier relations built
over the past 17 years". It too will cease operations in Russia,
but hasn't yet decided what to do with its Russian business.
One of Russia's most famous brands is KAMAZ, producers of the
famous KAMAZ trucks, and around 44,000 vehicles, including buses
(and electric buses) are produced per year. KAMAZ supplied 44% of the
heavy trucks bought by Russian 2021. Considering the
'sanctions', this percentage is likely to go much higher in
future. KAMAZ is owned by a consortium of Rostec, Daimler and
commercial banks. Rostec hopes to buy out Daimler's 15% holding.
6 cylinder engine is attracting demand from other Russian
truck builders, as well as agricultural machinery manufacturers.
The newest KAMAZ truck series, the K5, will be entirely Russian
built. It is expected to be released in 2023.
Russia is planning to produce electric cars for the domestic
market, with an aim of producing
71,000 electric vehicles by 2026 and 217,000 by 2030.
Lithium ion battery packs will be will be manufactured by a
Rostatom Corporation subsidiary Renera at a huge new plant in
Kalingrad. The first stage of production (expected in 2025) Will
produce battery capacity the equivalent of 4 GWh, enough to power
50,000 electric vehicles. Final capacity will be 14GWh. The
technology will be co-developed with Enertech International
of South Korea (49% owned by Renera). About 64% of the funding
will be from loans, 19% from the Kalingrad local government
budget, and the rest from Rostatom and another unnamed investor.
The batteries will be for both commercial and passenger vehicles
Russia direct investment overseas
There has been talk of countries seizing Russian overseas business
assets, but such action will fall afoul of international commercial
law. The money flowing back to Russia from its overseas investments
may be frozen in the western banking system, but in most cases
businesses may wait it out. It is unclear how all this will play
The closest the West has got to seizing assets is the German
government de facto 'seizure' of Gazprom Germania, which is
in voluntary liquidation. Gazprom owns - or owned - gas
storage facilities in Germany (including Germany's largest gas
storage facility), run by its German subsidiary Gazprom Germania.
to force Gazprom to have its German storage facilities 65%
full by August 1st or Gaprom would be forced by law to sell its
utillities to a government owned entity. Once parliament designated
it 'critical infrastructure' it would be safe from commercial law
(as it turned out, the parliament got cold feet). Partly in response
to this threat, and partly as a response to German 'sanctions' on
payments to Gazprom, on April 1st (April fools day) Gazprom sold its
Gazprom Germania company (and it's assets) through a series of
companies, the last of which put Gazprom Germania into voluntary
liquidation. This would end the long-term contracts the Germans had
with Gazprom Germania. Germany had intended to force Gazprom to
consent to German 'certification' of Gazprom's gas storage assets,
with those not being certified by a certain date being subject to
seizure by the German state (a re-play of the non-certification of
the Nordstream 2 pipeline).
In response, on May 11th, Russia
sanctioned the now German-controlled Gazprom Germania.
Russia's sanctions affect 29 Gazprom Germania subsidiaries in
Switzerland, Hungary, Britain, France, Bulgaria, the Benelux region,
the US, Romania and Singapore. They also affect Poland's EuRoPol Gaz
gas pipeline. Russia also sanctioned 31 European gas storage and
trading utilities (as well as Wingas, the Gazgas Germania trading
subsidiary). The gas transmission grid of pipelines and pumping
stations was left unsanctioned.
"Should the executives at Gazprom Germania “carry out the
procedure of the voluntary liquidation” as ordained, the
long-term gas contract held by German companies with the
German subsidiary as their partner was at risk.
These long-term contracts are highly lucrative,
as they were agreed upon before the record spike in gas prices
and are usually hedged against massive price swings to allow for
stable business planning.
As per German law, any transfer of ownership in “critical”
infrastructure requires the go-ahead of Habeck’s ministry, which
was not given. Fearful of additional attempts to interfere with
the subsidiary, the German government did something it had never
“I’ve lived to see Germany nationalise Russian companies
operating in Deutschland, what a time to be alive,” commented legal
scholar Jakub Jaraczweski.
Gazprom Germania will be steered by the federal network agency
until 30 September 2022, although the government has yet to
comment on what will be done with the subsidiary of the Russian
state company afterwards."
Euractiv.com 5 April 2022
All transactions with the named companies are now prohibited by
Russian law. Long term storage of Russian gas on German territory is
This means the Germans will have to use any spare Russian
winter-storage capacity that may exist (if any), or import LNG from
other countries to fill the sanctioned storage in Germany. Russia
has also banned any ships from the sanctioned companies calling into
any Russian port . Small amounts of Russian LNG are exported from Vysotsk
on the Gulf of Finland to the Netherlands, Finland, Sweden,
Lithuania. If LNG from Vysotsk is required at all, it will have to
be transported on Russian LNG carriers.
Russia's Lukoil owns three European refineries - in Italy, Romania,
and Bulgaria. Lukoil also owns 45% of a Dutch refinery. Rosneft owns
a refinery in Germany (Schwedt). Will these countries dare seize
Like the American
space industry, the Russian space industry services both the
aerospace force of the Russian military and commercial projects
for customers worldwide. To date, the west's export restrictions -
heavily focused on advanced technology that might have both
civilian and military applications - has not stalled the
implementation of scheduled projects. In fact, on the 18th of May
2022 the Soyuz-2.1 carrier rocket carried a Russian
Defense Ministry spacecraft (probably an intel and
networking asset) into orbit.
Roscosmos, the Russia state-owned space
corporation, is installing a series of measuring stations to
enhance the accuracy and operation of the GLONASS measuring
stations of the SM-Glonass satellite navigation system. GLONASS is
the alternative to the US Global Positioning Satellite (GPS) system.
Like the GPS system, it gives real-time position and speed data for
objects moving on land, sea, and in the air. There are already
3 measuring stations in Brazil, and a further
2 are to be installed. Another 4 are to be installed, one each
in China, Indonesia, India and Angola
Precision Instrument-Making Systems
research and production corporation (a subsidiary of
Roscosmos) and the Brazilian Space Agency have a
cooperative agreement on the BRICS Remote Sensing
Satellite Constellation. An electronic optical orbital
debris spotter is also part of the agreement.
The EU introduced prohibitions censoring various Russian media
outlets on 3 June 2022. The ability of media outlets Rossiya RTR/RTR
Planeta, Rossiya 24/Russia 24, and TV Centre Internationalhave been
"suspended", presumably by suspending their licence to broadcast in
Europe. France has already censored RT. Anyone wishing to find the
Russian point of view in Europe will now have to use a VPN (virtual
private network). Te content of these networks will be censored on
cable TV. censored on satellite distributions, censored on the
internet (presumably european service providers will be ordered to
block the sites) and censored on smartphone software (apps). In
addition, Europeans are prohibited from placing ads on these
censored news media sites. Presumably this is aimed at the media
being broadcast in free countries.
There is not much Russia can do to stop censorship, other than to
appeal to the OSCE about the breach of freedom of media which Europe
touts as one of their 'values'. Such appeals are invariably
ineffective, as the OSCE is highly politicized and is both
hypocritical and useless in upholding it's own rules in this area.
The danger of path
We are entirely clear on how to proceed. The main
conclusion is not to rely in our plans on the West as a
negotiating partner. It has proved ...it is ready to violate its
own principles and resort to outright theft and robbery. The
sanctity of private property and the presumption of
innocence...have been upended and crudely violated.
The former 'golden
billion' are the wealthy Western highly industrialised
developed nations ('former' because the purchasing power of the
income of the middle class in the west is shrinking). At the same
time as the purchasing power of a large number of people in parts of
Asia, particularly China, increases due to rapidly increasing
industrialisation and innovation.
already made our conclusions. We will rely only on ourselves and
our trustworthy partners, the overwhelming majority of which are
not part of the former “golden billion.”
enough buyers of our energy resources. We will work with them.
Let the West pay much more than it paid to the Russian
Federation and let them explain to their own people why they
have to be made poorer.
China and Russia have taken a strategic path that implies a certain
degree of mutual dependence. Is this wise? After all, governments
change, policies change, the global economic environment can change.
But a future government in Russia or China is hardly likely to apply
a trade embargo on their partner, simply because Russia has the raw
materials that China needs. And China has the massive global
economic engine that Russia needs.
The rise of the European west was accelerated by a cheap and
reliable supply of Russian raw materials, particularly energy. There
is no prospect of an oil and gas free Europe at this time. Oil and
gas must still come, and come from somewhere, but 'somewhere' won't
be as cheap and absolutely reliable as Russia. European politicians
assure each other that their communal hysterically inflamed
political ideology is so worthy it cannot risk being contaminated by
any association with the lowly Russian raw materials that helped
build their nations. The reliable supply of Russian raw materials
will flow east.
Even if 'the west' comes to its senses, and realises the enormity of
the mistake it has made, all trust is lost. It will take decades to
rebuild some part of it. Those decades will be decades of crisis
induced by extreme weather events and cheap liquid transport fuel
depletion. Under these conditions Russia and China are likely to
intensify work as strategic partners. This is about mutual
insurance, mutual long term self interest. It is not driven by
sentiment or ideology - although mutual respect certainly comes into
China and Russia are in a degree of co-dependence because objective
analysis of the present political and resource conditions logically
demand it. Future western political conditions may change, but even
if political sentiment in the west does become positive, how long
will that last? Any future US election may turn from the fragrant
flower of rapprochment back once more into the sewer stench of
xenophobia and repression. Overnight.
trade development - friendly trade
This is a huge topic, and deserves a separate article (I won't
be writing it). Broad brush, it is trade with the world minus the
West. It is trade with China, in particular, and, continuing the
strategic trade flow idea, with the Eurasian countries, Turkey,
India, Pakistan, Iran, Afghanistan, Middle East, Africa, and South
East Asia. This is where the markets are, the trade routes, the
materials, the destinations. In many of these countries a balanced
bilateral trade using national currencies is possible. These are
where the vast trans-Eurasian rail systems will be. This is where
sea and rail routes can meet, and trading ports develop. This is
also one of the most roiled and turbulent areas of the world.
Working here requires enormous diplomatic skills and strategic
patience. Russia has these skills. Don't ask the West if this is
true. Ask Eurasia, ask the Middle East.
"China is our biggest trade and economic partner
among foreign countries, with more than $100 billion
in mutual trade.
China, like India, is a great trading nation. Developing trade
between countries with language, cultural, and legal differences is
not easy. It is an area where expertise and experience counts.
Businesses 'lubricating' trade between the countries will expand,
and with it, further business opportunities. Small and medium sized
businesses are the major employers in virtually all countries of the
world. The west's sanctions have accelerated China - Russia trade
contacts, the build up of trust-based relationships.
And that does not include major projects related
to oil, gas, aviation, machine engineering, nuclear energy
and other industries.
But in today’s conditions, small and medium-sized
businesses have many opportunities to join a great
variety of projects, on both sides."
Vladimir Putin April 20, 2022
According to China's Customs 2022 data, the first 4 months of
bilateral trade with Russia (by value) increased by nearly 26%.
Russia imported about USD 20 billion of Chinese goods, and China
imported nearly USD 31 bilion of Russian commodities, for a total of
about USD 51 billion in bilateral trade in a 4 month period. The
course seems set to exceed the previous USD100 billion in mutual
That said, China's export trade with Russia is very small - only
of China's global trade. This underscores the massive trade
imbalance between the two countries, making a bilateral ruble-yuan
trade of limited use.
The west has demonstrated to businesses everywhere in the world that
painstakingly built foreign enterprises can be crippled overnight.
Not due to inflation, a depression, natural disaster, or anything
like that. Simply by the whim of a politician. What are the
"It is clear that all kinds of restrictions imposed at
the height of the anti-Russia frenzy have led to spikes in energy
prices and have destroyed the existing logistics chains, which has
affected the economy and foreign trade of regional countries. The
situation is completely different in those regional states which
opted to maintain normal relations with Russia and refused to
join the sanctions war, despite unprecedented pressure by
dynamics was reported in the first quarter of 2022 in Vietnam,
Malaysia, Indonesia (GDP growth over 5 percent) and the
Philippines (over 8 percent). Cambodia expects to report similar
yearend figures in 2022. Export-import transactions went up in
Indonesia (38 percent), Malaysia (23 percent) and Vietnam (15.6
taken notice of our ASEAN partners’ growing interest in Russian
oil, fertilisers and food. Statistics show that Russian exports
to these countries have grown in January-March 2022. For
example, our exports to Vietnam reached $971 million (up 48.2
percent year on year).
The delivery of our chemical and foods products to Thailand has
increased by 54 percent and 185 percent, respectively. We can
report an increase of bilateral trade with Indonesia (up 89
percent), Malaysia (up 38.5 percent), Myanmar (up 128 percent)
and Laos (up 50 percent). Draw your own conclusions.
Foreign Ministry Spokeswoman Maria Zakharova 8
Russia has learned that contracts with western companies must be
bullet proof. They must be built on the assumption that the western
company will try to renege on the deal, or be forced to by western
politicians. Commercial contracts are already full of contingency
clauses, but Russia will have to take commercial law to a new level.
But that does not mean that 'friendly countries' can be trusted.
Even the friendliest of countries can have a very unfriendly
government put in place overnight. This almost happened in Belarus.
So contracts with friendly countries will have to be as bullet proof
as for unfriendly countries. That's business, nothing personal.
New 'unblockable' trade routes will open up. Iran and India will
play increasingly important roles in transit to the Middle East, and
the Asia-Pacific. In June Russia and Iran opened up the
https://thecradle.co/Article/news/11810 the International
North-South Transport Corridor (INSTC), a shipping route from
Southern Russia, across the Caspian Sea to the Iranian Caspian port
of Anzali, then railed across Iran to the Iranian Indian Ocean port
of Bandar Abbas, then the short hop across to India.
I include a few examples of how Russia's business with friendly
countries is going, simply to illustrate both the difficulties and
"True, there have been some good shifts [authors note -
in international cooperation against covid]. One of them is the
United States’ return to the World Health Organisation (WHO). Some
hotheads in Washington believe that, now that they have returned,
they will make others do their bidding.
There are fewer than 50 Chinese people in the WHO Secretariat, 25
Russians, over 200 Americans, and more than 2,000 NATO
representatives. The past US administration said China was
manipulating the WHO. That is not true. Otherwise, we are
admitting the complete helplessness of 2,000 NATO members who
should be the majority in the WHO Secretariat.
Nevertheless, there are some positive results though. This problem
has been recently considered at the UN General Assembly and the
Security Council. It is important now to focus on equitable
collaboration within the WHO. Besides the attempts at carrying out
“soft coups” and establishing their own rules in the organisation,
hardly based on consensus, an idea has been suggested to move the
main decision-making on global health policies outside the
Sergey Lavrov 19
Russia seems to have competent and innovative pharmaceutical
institutes. Its ability to produce has been proven by the covid
crisis. It is worth remembering that it was Russia that developed
and registered the world's first covid vaccine Sputnik V (Gam-COVID-Vac)
on 8th August 2020. The WHO is still deliberately 'slow walking' its
registration (it initially 'lost' Russias application papers for
some months), because the WHO official designated to check on the
corrective action on some previously identified minor non-compliance
can't be done due to difficulty booking a flight to Russia. Due to
western so-called 'sanctions' on Russian airlines...In the meantime,
the vaccine has received emergency registration in about 70
countries, because it is relatively cheap, easy to transport,
and is as efficacious
as competing vaccines. But because the vaccine has not
received the final WHO check, many western countries refuse to
accept the Russian vaccine passport that allows air travel. This is
an important disincentive to the sales of the Sputnik vaccine. As
the west effectively controls the process, I expect the Russian
vaccine WHO registration to be blocked for months more, if not
years. And if the west gets its way, the WHO (western dominated)
will dictate rules to the rest of the world on how vaccines etc may
be treated. We can be certain to the disadvantage of Russia, China,
and Cuba at least.
Russia has also developed a nasal spray covid vaccine and has made
various claims about it. You can bet that it, too will mysteriously
be unregisterable until the west has caught up and made their own.
"April 1, 2022, '“Sputnik nasal vaccine, world’s 1st
registered СOVID vaccine in nasal form, is especially effective
vs. highly transmissible Omicron & other emerging variants not
only in terms of protection from infection but alsо at preventing
transmission." According to the document published on the state
register of medicines, the nasal spray version of the Sputnik
V vaccine is to be applied in two doses according to the
document published on the state register of medicines, reported CNA on October
Obviously, if this 'no needle' technology proves out, this will
prove a popular vaccination choice, for it's protective quality as
well as ease of administration, especially for children. Whether it
is able to pass WHO is a very different matter, considering the
politicised nature of the organisation.
Russia's pharma industry offshore for the most part centers on
'friendly' countries that are more difficult for the US to
intimidate. The sputnik vaccine is now partnership-produced in 14
countries, including India, China, South Korea, Argentina, and
Mexico. Russia has a biopharmaceutical plant, the Latin American
Institute of Biotechnology (MECHNIKOV) capital of Managua,
Nicaragua. It initially focussed on development and production of
influenza vaccines (and more lately insulin) for Latin America, but
is now working to produce Russia's third coronavirus vaccine,
CoviVac at the plant. MECHNIKOV will be Central Americas first
COVID-19 vaccine manufacturer. Venezuela bought 5 million doses of
flu vaccine from the MECHNIKOV plant for the 2022 flu season.
There is great potential in Central America, and particularly in
Venezuela for further vaccines purchases for vaccine-preventable
diseases (such as polio, diptheria, and measles). As the Venezuelan
civilian population are suffering under the US and EU blockade,
there is limited money for public healthcare. But Russia and
Venezuela can likely do a bilateral trade, perhaps using oil or
Turkey is the top
destination for Russian tourists (about 4 million in 2021). While
you could hardly say that Turkey is a friendly country when it comes
to Russia, Turkey certainly has a major trading relationship with
Russia. It is also a transit country for Russian gas going to
southern europe, and Russia is essentially funding the construction
of a nuclear power plant in Turkey. Turkey sells a lot of citrus to
Russia, as well as dried fruits. Vehicle parts are also a major
export. Turkeys exports to Russia in 2020 amounted to USD 4.5
billion. In turn, Russia is a major provider of wheat,
petroleum products and coal. Turkey has the potential to be one of
the key trading pivot points between West Eurasia (europe) and
Central Eurasia and the Middle East. This is not the sort of trading
relationship you wreck for the interests of some other countries
Turkey is putting up USD 302 million for loans to Russian tourist
operators to bring Russian tourists to Turkey this year. In
addition, two Turkish airlines and a low-cost charter company are
offering a total of 3 million seats in direct flights between Russia
and Turkey. Many of these flights will service regional centers in
Russia. So much for the west's 'no flights' to Russia blockade.
Most importantly, 3 Turkish banks accept the Russian MIR credit
card. The 'unfriendly' countries won't allow VISA etc credit card
transactions carried out outside Russia, making international travel
even more difficult.
In contrast, Greece, an increasingly popular destination for Russian
tourists (bringing in over USD
115 million in 2021) has banned Russian flights. Russian
tourists abruptly stopped coming. The trajectory for Russian tourism
in Greece was one of rapid rise.
Turkey has built
a major new hub-airport in Istanbul for the national carrier, the
partly government-owned Turkish Airlines. The loans to Turkish
Airlines, Pegasus and charter airlines will pick up tourists who
would otherwise have gone to Greece. If Russian tourists have a
pleasant and affordable holiday experience in Turkey, they may well
come back in years ahead, all thanks to the western sanctions, and
due to Turkey acting in its own interests as a sovereign country,
rather than in the interests of the west.
the export of goods and services to Russia
Covid 19 taught us that most manufacturing enterprises depend on
China (mainly), Vietnam or India for some crucial component. Without
that component, the whole production line stops.
The west is trying block the supply of crucial components for
Russia's manufacturing businesses. The Russian governments
1. Support companies that employ a lot of people.
2. Support strategic industries, such as agriculture and the arms
3. Create conditions for local industries to manufacture previously
4. Find parallel imported parts
5. Import the needed parts from 'friendly' countries if they are
The EU announced (8
April 2022) prohibitions on the export of certain goods to
Russia. The idea was to "target" items critical to Russian industry,
but the list of materials covered all sorts of manufactured and and
raw materials. Chief among them was semiconductors and advanced
computing technology. Amongst the prohibited exports are hydrogen,
nitrogen, oxygen, silicon, arsenic and many chemicals.
"I would like to emphasise that only domestic
parts and components were used in creating
the Sarmat missile. This will, of course, facilitate its
production by defence industry enterprises and expedite
its use in the Strategic Missile Forces."
Vladimir Putin, April 18 2022
In March 2022 the EU and USA banned exports to any business
connected to Russia's military-industrial sector. Russia has to work
hard to be self reliant in arms manufacture. One of the many arms of
the Russian military is a school of logistics and supply. No armed
conflict can continue without a reliable flow of munitions, oil,
spare parts, and a thousand and one other lesser, but
An active military is an economy within itself, and to be both
efficient and effective, it must be centrally planned.
Russia's limited special operation to evict the Ukrainian army from
the Republics of Lugansk and Donetsk, and to limit Ukraines ability
to conduct war, has continued without supply issues slowing it down.
In contrast, Ukraine has run low on munitions, and has had to import
more from USA, a country thousands of kilometers away.
You could argue that Russia's use of sophisticated missiles to blow
up ammunition dumps is part of the reason Ukraine found itself with
limited munitions. That's true of course, but it is also true that
Russia is running 3 shifts to produce more missiles. You can't do
that for long if you rely on other countries for critical
That said, Russia and China work together on joint projects in the
aviation sector (for one) which could have dual use. This speaks to
a high level of trust between the two countries - but perhaps not
Aviation sector - civilian and dual purpose
Quite apart from the EU banning all business jets, and
passenger and cargo airliners in the EU airspace, the EU has banned
the sale, trading and leasing of aircraft to Russia. Aircraft parts,
vital to repairs and airworthiness certification, are also banned.
As at February 2022 Boeing had 34 aircraft on its order books
sold to various Russian airlines (UTAir Aviation, Volga-Dnepr UK,
Airlines, Nordstar Airlines, Ural Airlines). Some of these planes
are on order via various aircraft leasing businesses, who
presumably are the actual owners. Or would have been. But, as at
31 March 2022 Boeing has over 4,000
aircraft ordered (mostly 737's) and yet to be built, so the loss
of 34 orders is inconsequential.
Russia had relied heavily on Ukraine for helicopter parts, at
least. But following the 2014 coup in Ukraine, Russia has joined
China in joint
production of aviation products - engines, helicopters,
parts, specialised cockpit glass. A China-Russia joint company has
already been buying Russia's Ka-32A11BC
on contract to the Shanghai Ministry of Public Security. China
uses the twin engine multi-purpose mi-8 and the newer mi-17
helicopters in various versions, both military and civilian. China
the various helicopters produced by Russian Helicopter
manufacturers for many years.
plant in Ulan-Ude produces helicopters at a 'state of the
art' modern facility, producing for customers all over the world.
As well as high tech versions of the Mi-171, the 'Russian
Helicopters' Rostec subsidiary is producing an advanced fully
digital single engine civilian light helicopter, the VRT-500
for release about 2023.However, the engine was expected
to be from Pratt & Whitney Canada - there is no chance for
that now. Where an engine might come from is unclear at this
point, but it is very likely it will be either Russian designed
and built, or it will be from a reliable partner. Or it will never
Rostec will have similar issues with some other helicopter
specifications. For example, Rostec have used avionics from BAE
systems, a UK-US defense industry company, as well as Thales, a
French company in some products. It has used a Honeywell flight
instrument system. Perhaps these have been replaced with Russian
systems (if they exist), or will be replaced.
The prohibition on the import of foreign civilian airplanes has
given the domestic civilian aviation industry a massive boost, but
some foreign technologies will be difficult to replace.
The Motor Sich
manufacturing factory in Zaporizhzhia Ukraine makes engines
(turbo-prop, turbo-fan and turbo-shaft) for drones, airplanes,
helicopter engines (including engines for several of Russia's
military helicopters), and marine gas engines, among other things.
It's main market was Russia, but that ended after the coup in
Ukraine in 2014. As a result, Ukraine looked for new markets and
more capital and found some of what they wanted in China's partly
Skyrizon Aviation. Skyrizon bought a 41% share in Motor Sich in
2017, with 250 million of new capital to be injected, and an
assembly and servicing plant in China to be opened. USA then
'sanctioned' Motor Sich company, resulting in the capital
injection and China facility being scotched. Some bizarre
dodgy share-issue dealings by Ukraine almost gave Skyrizon a
controlling shareholding. This was blocked
by the Ukraine government. Ukraine announced in March 2021
that it intended to unilaterally
nationalise Motor Sich and 'compensate' the China-based
shareholders. Skyrizon Aviation placed a suit
against the Ukrainian government for 4.5 billion at the Permanent
Court of Arbitration in the Hague. In the meantime, Ukraine
explored Turkeys interest in buying a 50%
stake in Motor Sich.
"High-precision long-range air- and sea-based missiles in
Zaporozhye have destroyed the production facilities of Motor
Sich plant, which produced aircraft engines for combat aircraft
of the Ukrainian Air Force, including UAVs"
Russia Ministry of Defense, 26 May 2022
strike ended production of the turbo-prop engine used in the
Bayraktar drone, currently in use by Ukraine against Russian
forces (assisting the two newly independant Republics to remove
Ukrainian forces from their territory). The AI-450
engine cost about $250,000 USD.
In November 2014 Russia's Rostec Corp. and China's AVIC signed an
agreement "for strategic cooperation in the field
of helicopter, engine and aircraft materials production… and a
number of other equipment. Among the possible areas
of work is the preparation and implementation of joint
projects in Russia, China and other countries, as well
as providing additional benefits on warranty and
post-warranty services" (Rostec press release).
apartheid trade policy - unintended consequences
"According to objective laws governing the economy, it
is obvious that in this ongoing sanctions frenzy, if I may say so,
the European Union and its people will inevitably face
consequences that will be hard to reverse. The same applies
to the world’s poorest countries, which are already at risk of
The brilliant minds in the west who drew up the sanctions obviously
thought that Russia is only a producer of raw materials, and the
sanctions would have relatively little effect on europe. Sure,
Russia is a producer of raw materials, and many can be replaced from
elsewhere. But at a higher price.
Let me emphasise that full responsibility for all this lies
squarely with the Western elites, who are ready to sacrifice the
rest of the world for the sake of preserving their global
Vladimir Putin, 12
More importantly, some key Russian products are 'intermediate'
goods. That is, they are processed to a form that customers can use.
This applies to refined metallurgical products in particular, but
also to semi-finished components, such as titanium aircraft parts.
In other words, the Russian semi-finished output is the western
customers input. Globally, the average for this form of
intermediate-goods export dependency is about 18%. But around 30% of
Russia's exports are semi-processed or processed products needed by
foreign manufacturers. This is amplified when several of
Russia's products are used in a western customers manufacturing
supply chain. The impact of 'sanctions' is much greater than the
european's simplistic and ill-informed analysis suggested. Knock-on
effects cascade within and across industries.
Once Russia forms new contracts with other 'friendly' countries, it
will be reluctant to break them to please the same boastful foreign
politicians who set out with the malicious intent to destroy Russia.
No matter how embarrassed or supposedly contrite they are.
Loss of Export Income
"Today's exports bans are worth €10 billion and target
areas in which Russia is vulnerable, e.g. quantum computers and
advanced semiconductors. This will degrade Russia's technological
base and industrial capacity and prospects (beyond purely
military) in the medium term."
EU press release (8
The EU has foregone €10 billion of export income, which is their
Today's import bans are worth €5.5 billion and will cut
revenue streams for Russia and its oligarchs, on products from
wood to cement, from seafood (e.g. caviar) to liquor (e.g. vodka).
In addition, loopholes between Russia and Belarus have been closed
as far as possible by mirroring the import bans in place for
Belarus, as well as aligning – where feasible – our restrictions
and import bans with those of our partners, notably the UK and the
Russia has been denied €5.5 billion of export income.
"Incidentally, the global crisis is largely caused by
these sanctions. Those who conceived them proceeded from
short-sighted, exaggerated political ambitions and Russophobia, at
the expense of their own national interests, their own economies
and the wellbeing of their people, as primarily demonstrated by
the rising inflation in Europe. In some countries, the annual rate
of inflation is approaching 20%, while prices in the eurozone
increased by over 11%, on average."
Vladimir Putin, 12
Higher oil prices
While crude oil production capacity it not under a lot of strain
(yet), the product mixes made by refineries has lost some of it's
'normal' fleet as oil products go to new, and in some cases rather
distant, markets. The long-range
class ships usually carry either crude or refined oil
products, but there is now greater demand to use these ships due to
the West's disruption of oil logistic chains. As the West is fixated
on finding oil supply from much further away, more long distance
ships are required, reducing bookable space for everyone else. The
result is higher freight rates, which in turn drives up the oil
The cost of shipping oil products from the US to Brazil was near
$37,000 a day, $3,800 a day in February and in late June the
shipping cost had skyrocketed to $37,000 a day. This is one example
of increased shippings costs. It seems likely costs will lower as
the International logistics chain sorts itself out to accomodate the
new realities. There will be even further 'sorting out' if the EU
goes ahead with it's insane intention to stop buying Russian oil at
the end of the year. I suspect cold heard realities will cause them
to reverse course by then.
Oil prices have reached levels last seen in 2008. As a result, current
estimates are that Russia's oil revenue will be 50% higher
than last year.
Higher Gas Prices
" Russia has already suspended gas supplies to Poland,
Bulgaria, Finland, the Netherlands, Denmark and to some extent
Germany because they refused to comply with the new payment
2 June 2022
"Expectations by some EU countries that LNG would quickly
substitute Russian pipeline gas are self-deceptive. Global LNG
demand will exceed supply in 2022 (436 million tonnes vs. 410
million tonnes), new projects will not become operational until
2024, while current infrastructure will be unable to ramp up
production by more than 10.6 million tonnes (15 billion cubic
meters) per annum."
Germany played stupid games with natural gas spot prices. It got
burned. Or rather, the German consumer did, in the form of hefty gas
price increases. Natural gas is used to manufacture nitrogenous
fertilisers. Several large German energy sellers claim they will not
renew their contracts for Russian gas. One company is a co-investor
in building a LNG de-liquification facility. Such facilities won't
be available for years; what the natural gas spot market will look
like then, well, who knows? Much depends on covid 19. Will there be
a boom after it is under satisfactory management, or will the
current price inflation in goods and covid supply chain jams work to
create a recessionary spiral?
What we do know is that Russia's contract to use the Ukrainian
pipeline expires in 2024.
This is the major supply pipeline for Germany.
It is badly in need of repair, and an offer by Russia and various
European countries to form a consortium with Ukraine to repair and
certify the pipeline was rejected - by Ukraine.
The pipeline will have to be repaired by Germany. A multi-year job.
Then Russia would have to accept German certification. It may not.
After all, Germany refuses to certify the Nordstream 2 pipeline.
If Germany still wants Russian gas after 2024, Germany will have to
certify Nordstream 2 on Russian terms. In addition, the European
partners in the Nordstream consortium have cut their losses and
gone. The pipeline is left in Gazprom ownership. Gazprom could
probably levy a financial penalty on Germany to gradually recover
damages for German sabotage and still provide gas to Germany more
cheaply than anyone else.
"From the early days of gas supplies to Europe in the
1960s the USSR and, subsequently, the Russian Federation proceeded
from the premise that energy cooperation should never become
contaminated with politics. Following the escalation of
anti-Russian rhetoric in some EU quarters in the 2000s we
repeatedly urged the EU to refrain from politicizing energy
cooperation, highlighting the mutually beneficial nature of this
partnership which brings our economies closer and enhances
security in Europe.
Even if Europe wanted to import a lot more LNG, even if it intends
to go full-green ultimately, why not keep good relations with a long
term supplier of cheap natural gas? What's wrong with that?
Heeding calls by the EU and seeking to increase mutually
beneficial cooperation with our Western neighbours, Russia has
over the past decades embarked on new domestic oil and gas
projects while constructing pipelines for carrying these products
to Europe. To this end the EU-Russia Energy Dialogue was
inaugurated in 2000 and its internal well-developed composition
established. The “EU-Russia Energy Cooperation until 2050” roadmap
was adopted in 2013. Work was ongoing to ensure the
convergence of energy standards and discuss the feasibility of
coordinating energy strategies
Even in the course of gas “conflicts” between Russia and Ukraine
in 2005-2006, 2008-2009 and after 2014 Russia invariably
demonstrated its reliability and guaranteed an uninterrupted
energy supply in accordance with its obligations. At the Gas
Exporting Countries Forum in Doha in February 2022 the Russian
side reaffirmed its commitment to continue exporting natural gas
to international markets, including to Europe.
By disseminating baseless claims about Russia’s supposed plans to
terminate hydrocarbon supplies to EU, our adversaries in the EU
and across the ocean seek to pull Russia away from Europe, sever
the ties that bind us, even in spite of the enormous damage this
will cause to EU economies and its citizens. Unfounded allegations
that Moscow is using energy supplies for political aims are part
and parcel of the fact-twisting information warfare unleashed by
the EU and the US, the latter seeking to increase its LNG exports
to the EU.
There are simply no alternatives to Russian energy resources in
the European market in the short term. Should their supplies be
restricted, immense difficulties for the EU’s economy and
citizens will follow. Some EU capitals are well aware of the
fact. Hence, amidst public calls to renounce Russian energy
resources, some countries are in fact increasing natural gas
shipments from Russia to fill their underground storage
Thus, it is the EU which, by imposing or planning to impose
further unilateral sanctions against Russian energy supplies, is
politicizing the energy sphere, attempting to use interdependences
between energy consumers and suppliers as an instrument of
political pressure, while damaging its own economy and the
well-being of its citizens and aggravating what is already a
precarious situation in the global energy markets."
Higher electricity prices
Finland, which receives 10% of it's power needs from Russia, refused
to pay it's bill due to sanctions ad was cut
off from supply. As a result, Finland bought electricity from
Sweden, and increased local production. This is expected to increase
wholesale electricity prices from drive up by $8.64 (to $95 per
Loss of Energy Security
'Siemens Energy has withdrawn its services and
maintenance support for Russia in order to comply with Western
sanctions ..Siemens Energy said in a statement to Reuters that the
turbines were manufactured in Canada and need to be returned
regularly for maintenance. One of the turbines is currently being
overhauled in Montreal, Siemens Energy added.
Germany must fill it's gas stores in summer before the high-demand
season in winter. The German firm Siemens provides the compressors
that help impell gas down the Nordstream pipeline from Russia to
Germany. The compressors at Portovaya are critical, as they are the
compressors before the very long subsea section of the
pipeline. The compressors are repaired and overhauled at Siemens
plant in Montreal, Canada. However, the sanctions now prohibit any
Siemens for fulfilling its contract to do repair and support work
for Gazprom. The Gazprom managed Portovaya compressor station was
ordered by the Russian regulatory watchdog to idle several turbines
as they had now exceeded their scheduled overhaul deadlines. As a
result, gas supply to Germany was subjected to erratic fluctuations,
at mid June was down to 100 million cubic meters a day, down
from the normal 167 cubic meters.
“Due to the sanctions imposed by Canada, it is currently
impossible for Siemens Energy to deliver overhauled gas turbines
to the customer ......Russian technical compliance watchdog
Rostekhnadzor ordered the facility to idle several turbines in
Portovaya because of “technical faults and the expiry of overhaul
deadlines”, according to Gazprom.'
Upstream online 15
USA treasury decided to renew
the existing licence to 'allow'
named Russian banks (Vnesheconombank, Otkritie, Sovcombank,
Sberbank, VTB, Alfa-Bank, and the Central Bank of Russia) to process
transactions related to energy until December. It includes
developing energy resources of any kind (solar, gas, geothermal,
oil, nuclear power plants etc), as well as selling energy products
of all possible kind, from coal to wood, and oil and gas, of course.
Anything else is blocked by America's threat's against SWIFT.
Higher Food Prices
The overall effect of the west's sanctions is mainly due to the EU
import and export restrictions. The US does relatively little trade
with Russia, and can afford to simply sit on the sidelines and goad
the ever-obedient europeans to 'do more'. All the while knowing
Russia will have to take the Black Sea coast to ensure security of
access (there are claims the Brits were intending to build a naval
base there). And the US knew Ukraine grain exports would be severely
hampered as a result, just as they knew the NATO supported attack on
the rebel territories would result interference in new season
planting. Compounded, of course, by the wests self-defeating
restrictions on Belarus and Russian fertiliser exports. At a time
when the west was fully aware of supply chain disruptions (due to
covid) in the flow of fertilisers coming out of China.
Ukrainian wheat production will be down by about a third this year
(2022) due to the current military operation delaying access to some
fields, and lack of diesel.
Ukraine supplies about 11 million tons of sunflower oil a year to
global markets, and Russia supplies a little less, about 10.6
million tons.The conflict has hindered Ukrainian sunflower oil
exports, causing a shortage.The 2022 harvest of 9 million tonnes is
the previous year. Sunflower meal and oil-pressing residue is in
short supply in the EU due to the western-incited confict in
more than half of Europes 'GM free' corn (maize), about 7.2 million
tonnes. Russia supplies Europe with about 400,000 tonnes of non GM
corn. Ukraine is said
to have over 15 million tonnes of corn in storage, corn which should
already have been exported by now. However, the export ports on the
Black sea are blocked by the ongoing Russian special operation
within the 2 new republics. Mine-free channels have been in place
for many weeks, but (as at early May 2022) Ukraine still blocks any
ships from leaving port. Russia was unwilling to block rail lines,
but as the west refused to stop pumping Ukraine with heavy weapons
by rail, in the end (early May) it blocked rail access from Romania
and Poland. On June 2 2022 a section of the double rail tracked
Besydy tunnel connecting Ukraine to Slovakia and Hungary was hit by
Russian missiles. This route was used to bring in US and NATO
missiles to be used against Russia. Relatively little grain now
flows out of Ukraine.
"Actions by Kiev authorities are the only obstacle in
the way of commercial vessels entering and departing from Black
Sea ports of Ukraine. Upon Kiev’s decision approximately 420 naval
mines of an outdated design have been placed in the basin of the
Black Sea and the Sea of Azov. Due their technical inadequacy
these mines are coming off of their anchors (cables) and are thus
putting all vessels of the Black Sea states at risk. The Ukrainian
origin of the naval mines has been confirmed, their precise
location is unknown. Earlier some of these mines were cleared near
the coast of Romania and Turkey. These explosive devices are
frequently uncovered near the coastal strip of the Odessa
...maritime corridors are being opened on a daily basis from 08.00
to 19.00 (Moscow time) in the Sea of Azov (length 115 miles, width
2 miles) and the Black Sea (length 139 miles, width 3 miles).Their
coordinates and details have been widely circulated among the
international community. In the Mariupol area this corridor is
In the Odessa region it is the responsibility of the Ukrainian
side to ensure the safety of vessels leaving ports and proceeding
to the assembly area. Kiev avoids liaising with representatives of
foreign states to which the vessels belong in order to ensure
their safe passage to the assembly area.
The humanitarian corridor in the Black Sea has been open since 27
Russian Foreign Ministry press release 3
All this against a backdrop of pre-existing poor conditions for the
global food supply - which the west was well aware of. The FAO Food
Price Index rose by 50% between 2019 and 2022, wheat prices were
already 25% higher in 2021. Maize prices have risen 162% over the
last two years and rapeseed by 175%.
Covid 19 has already disrupted logistic chains and food manufacture,
and energy prices were higher, leading to more expensive fertiliser
production (especially urea and ammonium products) as well as higher
"Russia expects to have a good wheat harvest this year,
which will allow our country to offer 25 million tonnes of grain
for export from 1 August 2022. Our capacity for exporting
fertilizers from June to December 2022 will amount to at least 22
million tonnes (20% of global consumption over this period).
Since the launch of the special military operation Russia has
continued to provide humanitarian assistance to countries in need
through bilateral and multilateral channels. Via the UN World Food
Programme Russian food aid was delivered to Lebanon, Tajikistan,
Kyrgyzstan, Cuba, Yemen and Sudan. On a bilateral basis assistance
was provided to Sudan and Cuba - 20,000 tonnes each.
Meanwhile, illegitimate unilateral restrictions imposed by the EU,
the US and their satellites remain the main obstacle to normal
export relations between Russia (and Belarus) and buyers of grain
Russian Foreign Ministry press release 3
The west continues to block Belarus and Russian fertiliser sales,
shipping and insurance. Food was going to be more expensive anyway,
and now the well-fed western politicians have made it even more
expensive - for the very people they were elected to serve.
Food insecurity in poor countries willfully made worse by the
"The food market has been disrupted most severely.
I said this at the recent St Petersburg
International Economic Forum, and I want to say it
again: they printed money, distributed
it in their wealthy countries and, like a vacuum
cleaner, started scooping up all the food from
the global market. Only recently, the United States
was a food exporter – a net exporter – but
now, I think, their imports are about US$17 billion more
than their exports. This is a dismal indicator
for food markets around the world.
the soaring cost of essential
agricultural commodities such as grain has hit
the developing countries and markets
the hardest as this is where bread and flour
are vital for the survival of most
of the population.
it was French Queen Marie Antoinette who, looking over
a crowd of starving citizens from her palace,
reportedly said with indifference: “If they have no bread let
them eat cake.”
the same cynicism that certain Western countries are
now showing by destabilising the global
production of agricultural products and dealing with
this matter by restricting,
for example, supplies of Russian
and Belarusian fertilisers and impeding exports
of Russian grain to world markets."
Vladimir Putin June
European businesses make themselves noncompetitive
The Europeans had a reliable and stable supply of cheap Russian
pipeline gas on long term contracts. First they abandoned contracts
for the 'pricing efficiency' of the spot market. That drove up gas
prices. Then they sanctioned Russia and their own contractors that
kept pipeline pumps working. Now Russian gas supply is lower than
normal, there is an issue of unreliability, and the price of gas has
gone through the roof. Germany, in particular, relies on cheap
Russian gas for industrial production. High gas prices add costs to
its products. This makes some German products noncompetitive. Most
make less profit. Some German companies may go out of business.
The europeans blocked Russia from physically receiving euro - so
Russia forced euro to be sold for rubles. So the euro is sold for
rubles to buy spot-price expensive Russian gas (what currency the
Russia's re-sell the unwanted euros for is moot - maybe dollars are
involved), sold for dollars to buy US weapons to kill Russians, sold
for high priced fertiliser, sold for dollars to buy oil, sold for
dollars to buy expensive wheat, and possibly 'printed' to pay covid
related social support costs. Inevitably, all this selling weakens
the euro. Making Russian gas imports more expensive, making US LNG
imports more expensive...a perfect negative feedback loop, mostly
Fertiliser shortage and massive price hikes
"Incidentally, the Americans have adopted sanctions on
our fertilisers, and the Europeans followed suit. Later, the
Americans lifted them because they saw what this could lead to.
But the Europeans have not backed off. Their bureaucracy is as
slow as a flour mill in the 18th century. In other words, everyone
knows that they have done a stupid thing, but they find it
difficult to retrace their steps for bureaucratic reasons."
Vladimir Putin June
According to Bloomberg (June
13 2022) "The US government is quietly encouraging
agricultural and shipping companies to buy and carry more Russian
fertilizer, according to people familiar with the efforts, as
sanctions fears have led to a sharp drop in supplies, fueling
spiraling global food costs." Some fertilisers have graciously been
'exempted' by the USA, but shippers are still fearful of carrying
them. They - rightly - fear some arbitrary and unpredictable
punitive move on the part of the USA which would leave them exposed
to monetary loss. As a result, Russia has supposedly dropped 24% in
fertiliser sales in 2022.
"Cooperation in the chemical industry
and the production of environmentally friendly
mineral fertiliser is progressing at a good pace.
In 2021, Russian companies supplied almost 10 million tonnes
of fertilisers worth about $3.5 billion
to the Brazilian market."
Vladimir Putin 16
Brazil imports 85% of its fertiliser requirements from Russia. By
June 7 2022 all Brazil's private fertiliser storage facilities were
full to overflowing with fertiliser - 3.5 million tonnes of it. The
Brazilian President came to Moscow on February
16 2022 for talks at the highest level. Perhaps co-incidently,
cooperation in trade was a major focus.
Palladium supply difficulties
"...Russia provides a third of the palladium metal used
in sensors and memory products produced by U.S. companies. Russia
is also a “crucial” source of C4F6 (hexafluorocyclobutene), which
several U.S. suppliers buy and purify for advanced node logic
device etching and advanced lithography processes for chip
production, Techcet wrote in advance of the invasion as Russia
build up troops along the border of Ukraine in recent weeks."
Fierce Electronics 25
supply chain difficulties Neon Xenon
"Ukraine makes more than 90% of the high-grade neon in
gas-phase lasers used to make chips produced by U.S. semiconductor
companies. The gas is a biproduct of Russian steel manufacturing
which is purified in Ukraine, said market research company
Techcet. Neon prices soared during the Russia-Ukraine conflict in
largest steel plants in the world are (were) the Soviet-era
Azovstal and Zaporizhstal steel plants in Ukraine. The
Soviets designed the Azovstal steel plant to double as a
hardened nuclear-resistant military HQ. The deep
below-ground network of facilities was very large, and
became HQ for the combined Ukraine-NATO attack on the Donesk
and Lughansk Republics, with Russia's Crimea territory to
follow. Russia assisted the Republics in their attack on the
plant, quite a big job, as the above ground part is around 4
square kilometers. The
Fierce Electronics 25
is still operating, but Azovstal is not. And the
Azovstal plant produced very ;arge quantities of
neon, simply because of the huge scale of its
operations. It will be a long time befoer the plant
is able to produce very much of anything, including
neon. There are 12 steel plants in southern Ukraine,
and the Russia-Republics military alliance controla
the territory they are in.
Argon or Neon are both
used in computer chip manufacture. Rare gases
are present at very low concentrations in the air, and are
by-products of producing oxygen for industrial purposes,
especially steel making. The Ukrainian
Cryonin Co. is in Mariopul (not far from the now destroyed
Azovstal steel works), so it is no longer part of Ukraine. Ingas
is in Odessa, & we will wait & see. These 2 companies
supply about half the world's ultra high purity neon gas used in
semiconductor manufacture. Bear in mind that 75% of neon
produced is used in making computer chips.
On 2 June 2022, in response to round 5 of Western 'sanctions',
the Russian government announced it has restricted the sale of
these 'noble' gases until the end of the year. Exports will be
allowed on a 'case by case' basis. Presumably exports will flow
to friendly countries (re-export prohibited), or limited
supplies will be allowed to the apartheid regimes in exchange
for materials that Russia needs.
The West can make Xenon, Argon or
Neon itself, but not in the volumes needed. It will be more
expensive - and the tech to achieve the very high purity needed
is mostly offshore USA. For the moment, at least, chipmakers in
the west seem confident
they have, or can obtain, sufficient supply. However, as the
neon in chip-making lazers has to be flushed and renewed every
few weeks, how long will their supplies last? According to
industry sources, most chip makers neon supply will last until
the end of 2022. A
few tech companies have developed the ability to recycle
around 97% of their neon gas, but this is the exception rather
than the rule.
Even when the west backs down on its 'sanctions', the loss of
Azovstal will shorten the supply of neon to the purification
plants in Ukraine, the Donetsk
People's Republic, and Asia.
Further downstream, at the chipmakers, the inventory of
shippable chips has fallen from 40 days supply before the
pandemic to less than 5 days as at January 2022. Chips
supply must now reduce. The USA is building a very large
semiconductor manufacturing facility, but it won't start
production until 2025. No relief there. Therefore the price will
increase, and in the west it will likely skyrocket. Maybe
friendly countries will receive better availability of neon.
Maybe Russia's needs for chips will be prioritised. Time will
tell. (Addendum: US 'high-end' military semiconductor chips all
come from Taiwan. Based on this fact, I suspect the US won't
provoke China to mount a military re-unification until at least
2025. Given the US deep investment in joint ventures with China,
it may never 'take a step too far'.)
Lost Tourism revenue
Russian made up about 19% of the tourists to Finland prior to the
introduction of EU air and travel restrictions. The western campaign
of hatred towards ordinary Russians has also played a part. As a
result, Russian tourists have 'stayed away in droves', with the
consequent loss to the Finnish economy.
“If we talk about the income that Finland received from
international tourism, then the share of Russians in it was as
much as 19%. This is a lot. Annual losses this year will amount to
more than 600 million euros [$640 million]. If we add to this the
difficulties with the Asian market due to the closing of the sky
over Russia, we will lose 2 billion euros [$2.13 billion] every
Kristiina Hietasaari - head of 'Visit Finland'
Cyprus would normally have around a million Russian tourists
year, but now that all Russian flights are prohibited this rather
long-standing trade is all but over. Post covid tourism from europe
in general, and UK in particular might make up some of the
difference, but the rising energy costs in the eurozone and UK may
drastically reduce discretionary spending.
Costlier International Air Travel
Russia closed it's airspace was closed to airlines from 36 western
countries as a retaliatory measure for the west banning Russian
flights from their airspace. 36 countries are affected. As a result,
travel time has been increased for some international routes, with
consequent extra fuel burned and higher ticket prices.
Flights to Asia used to fly through Finnish airspace, raking in
around USD 1.58
million a month in air navigation fees But Russia has closed
its airspace in retaliation for europe closing its airspace to
Russia. European airlines can no longer take the direct route over
Finland and Russia. The flights skirting around Russian airspace
take longer - 13 hours to Tokyo, rather than 9. In addition, Russia
is "no longer paying fees for flights over the Gulf of Finland to
Kaliningrad" according to the head of air traffic control
Matts-Anders Nyberg. Russia now overflys international waters of the
Baltic Sea. Worse, Finnair, Finland's national carrier, had a
competitive advantage in Helinski being closer in flight time to
China, Korea and Japan than other European countries. That advantage
has evaporated, flights are much reduced, and Finland can't compete
with China, which, as a friendly country, is free to cross Russian
airspace. Finnair operating costs have ballooned, and many staff
have lost their jobs.
Jetfuel, which was at a rough average of $85 a barrel before covid,
has about doubled to around $175
a barrel in June 2022. Not only are flights longer, fuelling
those long flight times is twice as expensive.
Switzerland was a major hub for Russian oil and commodity traders.
But once Switzerland abandoned it's neutrality in order to apply
western trade restrictions on Russia it lost its attraction as a
center of commerce. Major Russian commodity traders - including the
trading arms of the Russian oil and gas majors such as Lukoil,
Rosneft and Gazprom - are in negotiation with the UAE
to re-locate their trading hub to the UAE's free trade zones
and low tax environment. A Russian grain trader (Solaris
Commodities) has already moved to Dubai. Where merchants go, banks
go. Especially banks that deal with both friendly and 'unfriendly'
countries. The trading and banking center of gravity must in the
long run move to where trade cannot be interfered with by the west's
latest rush of blood to the head. Not Europe. Not America.
Diplomatic loss of trust and engagement
"Everyone knows all too well our misgivings regarding
the approaches of the collective West, or whatever you call it –
NATO-centricity or Washington’s satellites, it can be framed in
all kinds of ways.
Diplomats use precise language. What is deliberately left unspoken
is sometimes as important as what is said. Ambiguous hints are
given. Russian diplomats, in particular, are masters of "someone"
"somewhere" did "something" "somehow". What needs 'revision'? What
is 'the global track'?
This deals with NATO’s aggressive expansionist policy,
the absence of security guarantees for our country,
conditions undermining our security,
the destructive unilateral, illegal and illegitimate sanctions and
failing to respect Russia’s interests or take them into
consideration in all spheres, including security, economic,
financial and humanitarian matters,
endless lying and cheating when discussing subjects that
matter for the collective West just as much as they are important
to us (although we have been unable to engage in a sincere, frank
and pragmatic conversation on many of these subjects lately),
their inability to deliver on their own promises for no
particular reason or offer an adequate explanation.
We have discussed this at length and convened all kinds of
negotiating formats throughout the second half of 2021. President
Vladimir Putin, Foreign Minister Sergey Lavrov and Defence
Minister Sergey Shoigu have regularly raised these subjects. All
Russian ministers, including the ministers of sport, culture,
finance, industry, etc., have discussed these matters from all
We need to revise something in the global track so that we do
not have to think about rebuilding anything.
I believe that we need to address the root of the problem
instead of thinking about minimising the damage it caused when
there is nothing left in terms of substance."
[...] We have always believed that every state has the right to
its own independent foreign and domestic policies, economy, etc.
Countries can create voluntary unions on a mutually respectful
footing. If they want their integration to be guided by other
principles, this must be something they decide on their own.
Whenever countries decide to subordinate their national interests
to a supranational structure, they must do so voluntarily.
A state can cede part of its sovereignty if it believes that it
can benefit from this. This can include giving up its own armed
forces and merging them into a military bloc that would protect
the country in question. This may be the best option for it.
This way, they can spend their defence budgets on their domestic
agenda instead. If they are doing this voluntarily and this is
what the people want, and if all the required legal procedures
are fulfilled, and referendums held, so be it.
However, what we are seeing is the opposite of that."
Foreign Ministry Spokeswoman Maria Zakharova 8
June 2022 [list formatted by Laurie]
Well, if you read Russian foreign policy press releases and
statements you will know that Russia's official 'foreign policy
concept' was due out March 2022. The fact it hasn't appeared
suggests Russia was blindsided by the depth of the new Western
sanctions. It suggests Russia didn't really believe the West would
be so stupid as to incite Ukraine to attack the breakaway Oblasts,
let alone try to re-take Crimea. But Russia always prepares for
contingencies. Planning and re-planning never ends.
Russia's 'foreign policy concept' radically revised
I guess Maria Zakharova is hinting that the new foreign policy
concept will solve the problem of sanctions by doing what is
outlined above - becoming largely self reliant, running it's own
non-tradable domestic and trade-balance currency, and joining with
friendly countries in deepening cooperation. Cooperation on Customs
harmonisation, and balanced bilateral trade using domestic
currencies. The sanctions problem is negated by trading with 'top of
the list' preferred customers. Customers for minerals such as oil
and fertilisers, titanium, and agricultural produce such as wheat.
Most likely with reduced or no duties, free trade zones and other
My guess is that the unfriendly countries, in contrast, will pay in
advance, in rubles or whatever currency Russia chooses, and get only
what is left after friendly countries have first had their pick.
What's more, the US cancelling Russia's 'favorable nation' status
may come at a price. Two can play at that game.
I expect Russia will confer 'unfavorable nation.status on all the
unfriendly countries. I would expect these countries to have to pay
export taxes and other devices on most items bought from Russia. I
would not be surprised if there were either price or payment terms
concessions for friendly countries (re-exports would be forbidden).
Unfriendly countries will be literally at the bottom of the
table. I am fairly sure this will be part of a radically
revised 'foreign policy concept'. It creates a powerful incentive
for unfriendly countries to abandon their illegal trade
restrictions, and come slinking back to the grown-ups table, tail
between their legs.
The second bolded quote is more obscure. It may simply be regret at
how Europe cripples itself for USA interests. It could refer to a
NATO - like group made up of Russia, Belarus, Turkey, Venezuela,
Brazil, Syria, and various Central Eurasian countries. Or it could
refer to an effort led by France to create a European defense group
Le Drian says there is willingness for dialogue. No there wasn't.
France did not respond to Russia's direct questions on it's
understanding of the concept that one state must not gain its
security at the expense of another. As for the Americans being
'specialists in dialogue with Russia, what a joke! The opposite is
true. Americans are specialists in hectoring, lecturing, and
monologues.To his credit, Le Drian is correct about the Europeans
being experts in sanctions. Far beyond USA. In other words,
Europeans are experts in being patsies, destroying themselves for
Americas benefit. Maybe the lightbulb has finally gone on in Le
Drian's brain. Eight month's on...
So we need to talk to have a strategic
stability, to have relational stability between the
Europeans and the great neighbor. And all of the initiatives
aiming at talking with a willingness of dialogue are there.
And they’re not – the Americans,
while they’re specialist in dialogue with Russia,
and the Europeans are special
experts in sanctions, we need both, and
this is what we’re doing.
French Foreign Minister Jean-Yves Le Drian at a joint press
conference with US Secretary of State Tony Blinken June
President Macron has virtually set up camp in President Putin's ear
in recent months. A theme Macron kept repeating was his 'duty' to
bring peace to Europe. Macron long ago pronounced NATO "brain dead".
Tellingly, the top French general visited the Russian military brass
recently. Maybe this is why Russia showed such sangfroid about
Finland and Sweden joining NATO. It's going. Once NATO goes, the 2008
Security Treaty can be signed.
A really 'off the wall' fourth possibility would be a Euro-defence
bloc that included Russia, and that stationed combined air and
missile forces, plus combined air defenses in every European
country, for a very low cost, all-in-together military alliance.
That would be effective - and very funny.
So diplomacy includes bargaining, based on a balance of interests,
mutual respect, and honesty. USA the UK and Germany have failed
spectacularly. France, well, we'll see. But if my speculation is
correct, Russia would be very interested in inking a treaty that
fully meets the security needs of every European country. NATO would
have to be disbanded. I have written about this here.
The west has been actively destroying diplomatic relations with
Russia ever since the Obama presidency, who was particularly
malicious and spiteful, so the damage the US has done to relations
is not unintended. The damage done in Europe is repairable, because
Eurasian are neighbours on the same continent, and have to live
together. Not so the United States.
The end game for the United States, in particular, appears to be to
force Russia to abandon it's remaining diplomatic presence in USA,
and probably try to force Russia to break off diplomatic relations.
It hasn't worked.
Russian diplomats have been expelled from 28 countries since the
launch of Moscow’s military operation in Ukraine, the Russian
Foreign Ministry revealed on Monday. According to Deputy Foreign
Minister Evgeny Ivanov, diplomatic expulsions became the preferred
method of the West even before February 24
The EU has taken similar destructive actions, although they lagged a
little behind their master (the EU actions are dictated by the
political doctrines of US and UK). I suspect they are now
re-thinking their relationships, not just with Russia, but with the
RT 25 April 2022
In times of trouble you discover who your friends are. Russia has
gained enormous respect in Eurasia, the Middle East and
East-Southeast Asia for standing up to the thuggish foreign policy
of the US and its EU camp followers.
How embarrassing for the west.
1.3 Block banks from doing international money transfers
People and businesses can avoid restrictions on international
money transfers by opening an account with a non-Russian bank in
For example, some Russian residents have
always had bank accounts in Kazakhstan (about 18% of the Kazakh
population are ethnically Russian and many have family ties to
Russia). In the six weeks from the start of the military actions in
Ukraine until early April 2022, Russians opened 940 new bank
accounts in Kazakhstan's banks. Kazakhstan is an important trade hub
for Eurasia, and there is a lot of Russian -Kazakh business activity
there, not to mention the commercial activities associated with the
huge Baikonur Cosmodrome. As a result there are about 800 Russian
corporate bank accounts there.
The most important bank is the Eurasian Development Bank. Russia, Kazakhstan,
Armenia, Belarus, Kyrgyzstan, and Tajikistan are the shareholders,
with Russia (majority founder) holding about 66% of the shares.
About 47% of the EDB's borrowing is in Russia and Kazakhstan, in
their national currencies. Russia and Kazakhstan are natural trade
partners - the more so as Kazakhstan is shaping up as an important
regional business, transport, commercial law, political, and
The advantage of Russians owning a Kazakh bank account is that
Kazakh accounts are outside western systems, and although they
interact with it, they are unlikely to be frozen. The US has USD
38 billion (at least) in foreign direct investment in
Kazakhstan, and it is unlikely to restrict currency transfers for
that reason. Historically USA owned the majority of Kazakh oil and
gas, and I assume that is still largely the case.
Equally, there is nothing to stop Russians opening bank accounts in
friendly countries. Russia is developing bank to bank corresponding
accounts with some friendly countries- at this stage we don't know
which ones. All communications on money transfers are direct
bank-to-bank. The west will have no insight into these arrangements,
and nor should they - it is none of their business.
mechanics of international payments
Payment for goods crossing international boundaries is done
through a system of cross-border 'partner' (corresponding) banks.
For example, a Russian bank such as Gazprombank will open a bank
account in Germany with a German bank such as Deutche bank. In
parallel, Deutche Bank will open a bank account in a Gazprombank
branch in Russia. Both banks initially deposit funds into their
offshore accounts as a kind of working capital, or buffer.
When a business in Germany buys, for example, gas from a business in
Russia, the German business instructs Deutche bank Germany to
forward funds from their local Deutche bank account to the offshore
Russian gas wholesaling business. Deutchebank simply sends a message
to their partner bank in Russia (Gazprom) to transfer the required
amount of money out of Deutchebanks Gazprom account and transfer the
money to the account of the Russian gas seller. It is a simple bank
account to bank account transfer system. The bank to bank message to
transfer funds is done via the SWIFT messaging system.
In principle the message could be sent by letter, email, text
message, whatsapp, telegrams, carrier pigeon, or tattooed on a long
distance runners left buttock. But SWIFT messaging is extremely
fast, efficient, and relatively cheap.
The only other means of payment is bitcoin or similar blockchain
Bitcoin or similar cryptocurrencies
“... everyone tends to understand that this is a trend
of time, and sooner or later, in one format or another it will be
carried out... But, once again, it should be legal, correct, in
accordance with the rules that will be formulated...The question
is when it will happen, how it will happen and how it will be
regulated. Now both the Central Bank and the government are
actively engaged in this.”
Denis Manturov, Minister of Industry and Trade of the Russian
Federation 18 May 2022
As of June 2022 the Russian government is still considering if
cryptocurrencies such as Bitcoin have a place as a 'currency' and/or
a payment system. Some in the Russian government have been advocates
for the use of Bitcoin and other cryptocurrencies, but both the
Ministry of Finance and the Central Bank have been less than
enthusiastic. The Central Bank initially wanted them banned as risks
to the Russian financial system, but has now been persuaded to the
view that there might be a place for cryptocurrencies as long as
they didn't interact with the Russian monetary system. A bit
The 'weakness' from the regulatory authorities point of view is in
controlling the purpose to which cryptocurrencies are put to use, in
other words, illegal activities such as payment for drugs. The
Russian President pointed out that Russia has a competitive
advantage in crypto mining, because Russia produces more electricity
than it consumes - the more so since Norway has cut itself off from
purchasing Russian electricity.
14 2022 A draft bill was sent to the Duma (Russian Parliament)
banning the use of cryptocurrencies on the basis that cryptocurrency
is not the legal tender of the Russian Federation, and cannot in any
way have a status equal to the ruble. This is unlikely to be the
last word on the issue.
I suspect there ultimately will be an uniquely Russian
implementation of blockchain payments, probably controlling the
point at which cryptocurrencies are turned into rubles, and maybe
limiting the types of goods and values of goods that might be paid
for with cryptocurrency. This is my initial speculation.
Blocking money messaging through SWIFT
Russian access to SWIFT (the Society for Worldwide Interbank
Financial Telecommunications) is blocked. But only transactions done
through American and EU banks are affected. Russia is a member of
the SWIFT interbank messaging system, but most Russian banks are
blocked from using it - at least if the transaction 'touches' an
intermediary US or EU bank at any point in the movement through the
SWIFT messaging chain. In principle, Russian banks should be able to
use SWIFT when it doesn't involve US and EU countries, and so long
as the transaction doesn't have to use a EU or US bank as an
intermediary. But US threats to 'sanction' any organisation - even
SWIFT - that facilitates Russian trade. As a result, SWIFT is
in reality closed to Russia - except for the Russian banks
'exempted' by USA, notably Gazprombank, the conduit for Europe's gas
payments to Russia.
As at April
2022 Sber (Sberbank) and VTB Bank, the two largest banks by
assets, are blocked from SWIFT. But of Russia’s 374 banks, only 7
have been prevented from using SWIFT so far.
Russian Banks vital to the German energy system are not blocked
Russia's major exports are oil, gas and wheat. Several Russian
banks that deal in gas and/or oil have been excluded from sanctions.
Germany needs Russian gas. There is no alternative. So the US had to
'permit' Germany to continue to buy gas from Russia. Sales of
Russian gas to Europe are paid through Gazprombank. Therefore
Gazprombank is unsanctionable.
Some countries reject the idea they should observe US and EU
'Sanctions' applied by US and EU are embodied in their domestic
laws, and have no legitimacy in International law. They are
country-specific trade restrictions, not international sanctions.
The only legal international sanctions are those agreed by the
United Nations Security Council.
The UN Charter states that 'all countries are sovereign'. That is,
countries are free to run their own affairs, make their own laws,
and are not subject to other countries dictates. In theory. In
practice, smaller countries, and those with weak leadership are
easily blackmailed and intimidated by the US and by the EU bloc.
A few countries remain sovereign, and ignore the intimidation,
threats, cajoling and pleading of the US and EU. They trade with
Russia according to their own national interests, not the interests
of the 1% ers in the west. Russia calls these countries 'friendly
countries'. Chief among these friendly countries are China and
From June 8 2022, Russian residents will be permitted
to send up to USD 150,000 (or the equivalent in another foreign
currency) a month to their back account (s) abroad. In practice this
is only possible if the transfer is not to (or via) a western bank.
Non resident foreigners who are from friendly countries will be able
to do the same. Russians and non-resident foreigners will also
be allowed to send USD 10,000 a month to their home bank account
using non-bank foreign exchange services.
But this does not apply to 'entities' from hostile
"The ban on transferring funds abroad
by legal entities from countries which support sanctions also
remains in force. The restrictions are effective
through 30 September 2022."
Central Bank of the Russian Federation 8 June 2022
Russia is starting to use alternative messaging
systems with 'friendly' countries
"The restrictions against Russia imposed
by unfriendly countries have affected Russian businesses,
and, of course, complicated the logistics
of exports and imports and created obstacles
to making settlements.
necessary to provide entrepreneurs with as much
assistance as possible ...including speeding up
the transition of foreign trade to rubles
and the national currencies of countries that are
Russia’s reliable business partners.
I want to emphasise that in the new,
changed environment, we need to do this much faster."
Vladimir Putin, April 18 2022
There are other payment systems, both Russia's System for Transfer
of Financial Messages (SPFS) and the Chinese Cross-Border Interbank
Payment System (CIPS) that can be used between some 'friendly'
countries for transactions involving the renminbi. CIPS will perhaps
be of some importance for Russia to settle renminbi trade, but it is
unclear how important it is at this time. (See my article 'Beware
the Ides of March' for a detailed discussion.) There are other
mechanisms for effecting payment between partners, such as currency
swaps, and payment in gold (where the gold doesn't leave the paying
countries vaults, only title changes). Add to that simple
corresponding bank to corresponding bank payment (with friendly
countries, of course). Any form of notification, from email to text
would do. SWIFT is not needed.
"In order to mitigate sanctions risks to trade and
economic cooperation between Russia and Latin America, we are
consistently working to introduce alternative financial
mechanisms to Western ones, and that includes [...]
direct correspondent relations between banks. We are also
taking a number of other steps towards this goal"
Foreign Ministry Spokeswoman Maria Zakharov, June
Currency swaps are likely to become increasingly attractive to
businesses in China and Russia as the ruble is becoming a very
stable currency. A 24.5 billion currency swap between the People's
Bank of China and the Central Bank of China was tried
in 2014, but the volatility of the ruble and the huge trade
imbalance made it of limited use. A further swap line was opened in
2020. Details of it's importance remain murky.
Russia is also experimenting with blockchain payment and digital
rubles (and digital yuan), but again, no further details have
emerged so far. My overall impression is that there is relatively
little interest in ruble use by the average Chinese business, and
the major flow is yuan for investment in major Russian strategic
projects - and that happens virtually as state-directed
SWIFT captures huge amounts of statistical data about money flows
from country to country and business to business. Information on
Russian transactions will now become invisible to the west.
Russian bank accounts in the US and EU
"When they froze the Russian assets in dollars, euro,
yens, and the pound sterling for the amount of more than 300
billion euros or dollars, those were mostly the money kept in
Western banks after we received payments from them, from the
Western countries, for our gas deliveries. In other
words, they paid us, and they stole the money from us because
those were the currencies which are linked to the Western banking
Sergey Lavrov April 2022
On the 8th of April 2022 the fifth round of EU sanctions, designed
to be "broader and sharper, so that they cut
even deeper into the Russian economy" but "calibrated in order
to minimise the negative consequences on the Russian population",
according to the EU. The restrictions included freezing
the assets of four major Russian banks (VTB Bank, Bank Otkritie,
Sovcombank and Novikombank - together they are 23%
of the Russian banking market). Not only have the correspondent bank
accounts held by these four banks at EU banks been frozen, but all
further transactions in the EU have been 'banned'. Transactions with
Gazprom bank in the EU for energy products continue, but Gazprombank
in the USA is blocked.
In contrast, USA allows transactions with other banks
(Vnesheconombank, Otkritie, Sovcombank, Sberbank, VTB, Alfa-Bank,
and the Central Bank of Russia) for energy production and shipping
(including shipping), energy products themselves - oil, LNG, coal,
wood, and anything to do with nuclear power plants, including fuel
assemblies and uranium in any other form. Corresponent accounts with
Sberbank remain blocked, presumably to hamper the payment of
salaries of US-based Russian news media (part of the US censorship
This is a card the west can only play once. As noted above,
Russian banks have accounts with partner banks in Europe and USA.
The US and EU 'froze' those accounts, meaning the money in them
couldn't be used to pay for materials and goods for import into
Russia. Essentially freezing imports from the EU and US.
Equally, European payments for Russian exports received could not
transferred from a European bank account into that bank's
correspondent Russian bank account. When might the Russian supplier
ultimately be paid? Sometime between tomorrow and never. Essentially
freezing exports to USA and the EU.
Until recently, the gas that Germany needs could still be sold via
Gazprombank in Germany. Payment (in Euros) was made to the local
German branch of Gazprombank. Later, presumably, the German
Gazprombank subsidiary transferred the money (in euros) to Russia.
Very large sums of money washed into and out of the local Gazprom
subsidiary every day. Until the German branch of Gazprombank was
closed down. Why was it closed?
Because it was vulnerable. If some day in the future Germany froze
the German Gazprombank account a very big chunk of change will be
locked up (as at mid April 2022 EU countries pay Russia around €650
million a day for oil and gas). Every scheduled gas payment would be
paid into an account in the Gazprom Germania subsidiary in Germany -
and instantly frozen. What if the local Gazprombank invested in
German euro treasury bonds? (I don't know if they did or didn't.)
They will be effectively frozen as well.
"So what we told them to do: they would not be paying directly to
Gazprom’s accounts abroad, but they would be paying to a bank
called Gazprombank. It is an independent entity. They would be
paying the same amount which they have to pay under the existing
contracts, but they will pay these amounts to a special account
which they have to open with this bank. There would be a parallel
account in roubles. So they pay euros, and then inside this bank
these euros are transferred to the rouble account, and from this
account Gazprom receives roubles.
As of now, they would not be able to keep the money in their
banks, the money that they not even owe us, but which they paid to
us already. I believe this is something which does not contradict
contracts. They would still be paying in euros or dollars or
whatever was the currency of the contract, but we will have
insurance that this robbery would not happen again."
Sergey Lavrov April 2022
Russia has closed off this 'geopolitical risk'. Germany must open a
corresponding bank account with Gazprom bank. Germany must
ultimately pay in rubles. So GazpromBank sells German euros for
rubles in the Russian market on behalf of the German client.
The rubles are then credited to the Germans account at the Russian
GazpromBank. At that point, and only at that point, the
payment will be transferred by Gazprombank to the gas wholesalers
account - in Russia.
If Germany doesn't send money to GazpromBank in Russia, no payment
to the gas wholesaler can be made. No money, no gas.
By mid May 2022 34 European banks had set up the required accounts
in order to pay in rubles, or were obtaining the paperwork needed to
do so. Poland and Bulgaria have refused to pay, so their gas
supplies have been cut off.
This system will likely be extended to all payments for Russian gas,
oil, wheat, nickel, coal, and other exports. Except for friendly
countries, of course.
The nett effect is to create quite a substantial demand for rubles
from the Russian domestic market. This will drive up the value of
the ruble, increasing its purchasing power. It will make Russian gas
a little more expensive for overseas buyers of the gas, but cheaper
The Germania subsidiary no longer has a function, and has been
liquidated by Gazprom. But the German government has supposedly
placed the dead entity into a 'trust'. or some such invention,
presumably to take hold of Germanias remaining assets, which would
be either scrapped or sold.
Two mysteries await solution. First, who has large quantities of
rubles sitting in their bank accounts - apart from Gazprom, Russia's
central bank and the central banks of China and India? Euros are of
limited use to Russians. Who would be the ruble-rich buyer for this
regular flood of Euros? The US and UK have a substantial trade
deficit with Europe, but they have very little ruble currency, and
their own sanctions preclude them from dealing with Russian banks
(except Gazprombank in the case of USA).
the purchasing power of the ruble
"It is crucially important to support domestic demand
and prevent it from shrinking. It is necessary to act both through
the budgetary system and to provide businesses with greater access
to loans. This is the responsibility of the Central Bank. The bank
has already begun lowering the interest rate, which will reduce
the future cost of loans in the economy...
....the budget definitely should actively support
the economy, fill it with financial resources, maintain its
liquidity. We have the capacity for that.
Of course, one needs to act with caution;
the Minister and I constantly discuss this."
Vladimir Putin, April 18 2022
If people feel insecure, demand shrinks, and a downward spiral
begins. The Russian government is boosting the internal economy by
the classic means:
1. transfer payments to support incomes, especially for the low
2. loans for businesses, especially small businesses, but at
favorable interest rates.
3. Loan guarantees for what Russia calls 'backbone enterprises' -
"industrial production, trade, agriculture, oil processing
4. Govt spending on infrastructure projects.
Transfer payments have to be made either from government borrowing,
or from a budgetary surplus. The concept of a budgetary surplus
barely exists in the west. In spite of everything - and we mustn't
forget covid - Russia intends to fund transfer payments and other
supportive programs from its budgetary surplus:
"Nevertheless, in the first quarter
of this year we are witnessing a record level
of budget surplus...It is necessary to be cautious,
and as I see it, the key condition is that
the financial system remains stable at the federal
and regional levels.
The current fat in the budget may soon disappear. According to the
head of the Audit Chamber, Russia’s 2022 oil and gas revenues
received in 2022 (estimated $85 billion) will be needed for
government spending, and $54 billion will be needed in 2022 to keep
the economy stable. There will be a budget deficit of around $21.6
billion dollars in 2022.
What is our current surplus? I believe it is some 1.1
trillion rubles, and the total surplus
in the regions is about 0.9 trillion rubles."
Vladimir Putin, April 18 2022
The government will use some of the money saved in the $155 billion
National Wealth Fund (a welfare/pension fund built up over the years
from oil and gas revenue profits). The fund will not be allowed to drop
below a certain level. If budget demands still can't be met, then
the budget items themselves will be cut back (aka 'fiscal
The Russians expect the contraction in the economy to be bigger than
that caused by covid, and the next two years to be very tough.
Interest rates must adjust freely to meet the needs of changing
conditions. Russias military intervention started on February 24,
and western governments froze Russia foreign reserves. The ruble
plummeted. The Russian Central Bank rushed to support the ruble by
doubling interesting rates to 20%.
"Let me remind you that the key rate increase by the
Central Bank was, however, justified and necessary to stabilise
the banking sector and financial markets. The decision proved
successful and the Bank of Russia is already lowering the key rate
gradually, which will make loans cheaper. Other steps are possible
based on the real situation in the sector, but this is the
prerogative of the Central Bank."
Vladimir Putin April 25 2022
The ruble rate soon stabilised, and on April 8th 2022 the Central
Bank dropped the key rate down to 17%.
Infrastructure projects will be progressed to keep employment high
while also providing enduring benefits to society. The government
will inject $674 million into Gazprombank's capital structure in
order to fund these projects.
A fifth mechanism is uniquely Russian. The Central Bank can
stabilise the purchasing power of the ruble by setting the price at
which it will buy gold from domestic producers. It links the ruble
to gold, and effectively triangulates gold, the ruble, and currency
'x' (where 'x' is any given foreign currency, and all translations
go through the gold standard.)
Confidence in the ruble is further increased (according to one UK
gold market dealer and commentator) due to some European gold ending
up with the Russian Central bank. Overseas financial dealers buy
physical gold in London, export the gold to pay for Russian oil at a
30% discount, then on-sell the cargo at current market prices,
making a handsome profit. The nett effect is diminishing supply of
physical gold in London, and ever- growing gold reserves in Russia.
In late February 2022 Russia's annual inflation rate was around 8%.
The six weeks after the incursion into Ukraine saw Russia's
inflation rate soar
to 17.5%. On 27 April 2022 Alexey Kudrin, the head of the
Russian Audit Chamber, said
inflation is likely to be 20.7% over the rest of the year.
As at April 18 2022, the Russian government planned to 'adjust'
social benefits 'in accordance' with inflation.
Their policy to increase inflation-adjusted income hinges on
'Of course, the main condition for a real increase in
our citizens’ incomes is the creation of new and well-paid jobs,
the acceleration of the economic growth rate, and the development
of industry and other sectors.
Overall, the current situation is stable in this regard, as we can
see from the electricity production index. This indicator is very
good, which points to the dynamic development of the economy. And
the number of registered unemployed is relatively low.'
Vladimir Putin 12 May 2022
Gas prices in Russia tend to rise in the high demand summer season.
The major oil producing companies have their own strings of gas
stations, and can, to an extent, maximise profit when demand is
high. In April 2022 the Russian government announced it will
direct oil companies to increase volumes of both gasoline and
diesel allocated to the auction system. This will help dampen
anti-competitive behaviour, protecting the interests of the
consumer, and dampening price inflation in the economy.
Force a sovereign debt default to erode the rubles
value - the US and Europe freeze the Russian Central Bank's
foreign exchange reserves
Central Banks around the world keep cash reserves of foreign
currencies used in international trade (as well as gold). Central
banks may also hold currency loaned to them (at interest) by another
countries central bank. These are commercial arrangements, and there
don't seem to be any legal treaties governing these arrangements.
So when the USA central bank and the European central banks
announced they were 'freezing' the reserves of foreign exchange held
by them on Russia's behalf, it seems not to have breached any law,
at least as it seems so far. That part of Russia's central bank gold
holdings allocated as reserves have also been frozen.
Russia has about $640 billion dollars of reserves, and of that,
about $300 has been frozen. This means the Russian Central bank
cannot use these assets to stabilise the Russian currency or to pay
down Russian government debt owed to foreigners.
The Basel 3 banking regulations require that in a time of stress,
Tier 1 (first class) assets in various 'legal entities' must be
liquid, easy to monetise, immediately available and and freely
transferable. This would apply to Russian Central Bank currencies
held at the Bank of International Settlements. All the various
Russian Central Bank investments involving currency reserves of the
hostile 'sanctioning' countries are frozen, illiquid,
untransferable, and therefore automatically lose their 'tier 1'
freezing of some of the currency reserves
of the Bank of Russia marks the end
of the reliability of so-called
In fact, the US and the EU have defaulted
on their obligations to Russia. Now everybody knows
that financial reserves can simply be stolen.
And many countries in the immediate future may
begin – I am sure this is what will happen –
to convert their paper and digital assets into real
reserves of raw materials, land, food, gold
and other real assets which will only result in more
shortages in these markets."
What will happen to the $300 billion of Russian Central Bank money
held in foreign bank accounts? There is no legal mechanism to seize
it. In these situations the US looks for some injured US citizen to
win a suit (heard in American courts, of course) against a
government, and use the illegally frozen funds to pay as damages to
its citizen. The Americans did this to Aghanistan government money.
Saudis perpetrated 911. The Taliban, who had nothing to do with it,
had damages 'awarded' against them by the US courts. Likely the
Americans will find the family of some US mercenary killed in
Ukraine and use them to sue the Russian Government.
In assessing whether assets are freely transferable for regulatory
purposes, banks should be aware that assets may not be freely
available to the consolidated entity due to regulatory, legal,
tax, accounting or other impediments.
Assets held in legal entities without market access should
only be included to the extent that they can be freely transferred
to other entities that could monetise the assets.
The Americans might like to seize the money as reparations, but
these are only available to the victorious party, which, obviously
will be Russia. And US claims not to be a party to the conflict
Whatever the method, the US will steal the Russian Central Bank
money. Perhaps Russia will sue the US Government in Russian courts.
It may demand reparations from Ukraine for the damage done in the 2
republics, given Ukraine refused to implement the Minsk agreement
endorsed by the Security Council. Perhaps US and the west will be
named as parties. Various NATO documents and computers have been
recovered from Ukrainian forces. Russia may now have proof of NATO
instigation of war.
Or Russia may simply 'write the money off'. Time will tell.
2. Use international rating agencies to downgrade the quality of the
countries debt, so that no one wants to hold it, causing sell off of
the target country currency and reducing the purchase power of that
So far, Russia has managed to pay the interest on it's sovereign
debt in full, and on time.
"The paying agent — National Settlement Depository —
received funds to pay income on Russian Eurobonds maturing in 2026
in the amount of $71.25 million and due in 2036 in the amount of
26.5 million euros."Thus, the obligations to service government
securities of the Russian Federation have been fulfilled by the
Russian Finance Ministry in full in accordance with the issuance
documentation for Eurobond issues."
Russia’s Finance Ministry used the new 'temporary procedure' to send
12.51 billion rubles ($234.5 million) in interest payments to the
National Settlement Depository to pay the due interest on two issues
of dollar-denominated Eurobonds (maturing in 2027 and 2047).
The investors will now have to open a ruble account in Russia so
that the depositories transfer the money (in rubles) to it to it.
The investor can then wrestle with their western banks to repatriate
the money - and convert it out of rubles and into dollars. But they
can't interact with 'sanctioned' Russian banks. Which begs the
question - which Russian lending institutions are on the
'authorised' list anyway? Would these banks all happen to be
'sanctioned' banks? That would be deserved. Whatever the case,
Russia has not defaulted. There is no reason to downgrade Russia's
credit risk, but of course, that is what the Fitch rating agency did
anyway. No one cares.
20 May 2022
"Payments to holders of Eurobonds issued by the Russian Federation
shall be made through authorised Russian lending institutions,
the list of which is approved by the Government of the Russian
Obligations under the Eurobonds issued by the Russian Federation shall
be recognised as properly met if executed in rubles in the
amount that is equivalent to the value of the obligations in a
foreign currency and converted at the foreign exchange rate
available on the domestic foreign exchange market of the Russian
Federation on the day the Russian Federation made the payment to
the central depository."
Executive Order On the Temporary Procedure for Meeting State Debt
Obligations in the Form of Government Securities [etc] 22 June 2022
How is the Russian economy doing?
"Russia has been able to withstand this
unprecedented pressure. The situation is getting back
to normal with the ruble recovering to where it was
in the first half of February, which is
attributable to a robust trade surplus, which is
an objective reality. In the first quarter,
the current account surplus exceeded $58 billion, setting
a historical high. Foreign cash is returning
to the banking sector and household deposits are
Vladimir Putin April 18, 2022
"...Russia is confidently dealing with external challenges due
to the responsible macroeconomic policy
of the past few years and systemic decisions
and solutions to strengthen its economic sovereignty,
technological and food security."
Vladimir Putin, 12
"Our production companies are gradually filling domestic market
niches vacated after unscrupulous partners left
the country. This concerns daily staple goods, industrial
and service sector equipment, construction and farming
Vladimir Putin, 12
"We are expecting a good harvest this year. According
to preliminary expert estimates, we may harvest 130 million
tonnes of grain, including 87 million tonnes of wheat.
If this happens, then the projected grain harvests would
hit an all-time high in Russian history.
This will make it possible to meet domestic demand, with
a substantial safety margin, and to expand global
exports for our partners; this is highly important
for global food markets."
Vladimir Putin, 12
"Inflation is gradually subsiding. Last month, inflation rates
fell several-fold on March levels. Weekly price hikes are
down to 0.1 percent. This closely matches weekly growth
rates under Bank of Russia inflation targets."
Vladimir Putin, 12
"The Bank of Russia’s baseline scenario expects annual
inflation to run at 14.0–17.0% by the end of 2022. Inflation
movements will be shaped including by such impactful factors as
the efficiency of import substitution processes and the scale and
speed at which imports of finished goods, raw materials and
components will be recovering. According to the Bank of Russia’s
forecast, given the current monetary policy stance, annual
inflation will reduce to 5.0–7.0% in 2023 to return to 4% in
Bank of Russia Press release 10
According to the Bank of Russia (10 June 2022) lending bank criteria
have tightened, and the price of money has been raised, as there is
more business risk due to the trade restrictions.
The minimum wage will be raised by 10% on June 1st 2022.
Welfare of society support payments
Pensions will be raised by 10% on June 1st 2022.
"The budgetary system’s capabilities continue
to expand. In January-April, the consolidated
budget surplus reached 2.7 trillion rubles, while budgetary
spending has grown appreciably over the same period
following decisions to finance development projects
and purchase prepayments earlier than planned."
Faith in the ruble
currency, the ruble, is growing stronger in conditions
of a record-breaking foreign trade surplus. It appears
that it is posting better results than all other foreign
currencies since early 2022."
Vladimir Putin, 12
By mid May the Russian currency briefly hit 55.63 rubles to the
US dollar on Tuesday - the strongest since February 2018.
Russia Federation National External debt
At March 2022 total external debt (private and government) is
about (USD) $453.5
billion. This sum includes money owed to foreigners by the
Government, the Central Bank, and commercial banks. It also
includes money owed directly to foreign investors (loans, trade
credits, various securities, private direct investment funds and
other entities etc).
Total national external debt has dropped 5.5% since December 2021.
Russian Government (only) external debt
2021 was (USD) 62 billion. Almost all of this was long term
securities, probably bonds of some description. All else equal, as
the ruble strengthens, this will be cheaper to re-pay. Especially
the Euro denominated debt - given the current weakening of the
Euro continues (as it perhaps must, given the continual selling to
buy rubles for gas).
The first 4 months of 2022 has seen a surplus (almost USD 96
billion) five times larger than at the same time last year.
Current Account (Trade in Goods & Services)
The current account
surplus, the broadest measure of trade in goods and
Balance of Trade
A record-breaking foreign trade surplus .
Domestic private and business income/economic
"...some trends that require special attention.
For example, domestic demand is short of 2021
parameters. Corporate and private accounts continue
to shrink. Obviously, these factors impact economic
development trends, and it is necessary to reduce
these risks by relying on our successful experience
of targeted actions during the 2020–2021 pandemic.
today, the most important indicator of successful
socioeconomic policy is the income of Russian
citizens. To ensure positive dynamics here, it is necessary
to support consumer demand and improve
the opportunities for businesses and regions.
In March, we decided to expand the financial aid
programme for families with children in need. From
April, it was extended to include families with children
aged up to 16 years. Backdated payments have been made
since May 11.
also arranged for additional financial support
for the constituent entities, by restructuring
regional debt and granting loans from the federal
budget....These mechanisms must motivate regions to finance
additional economic development programmes, including
a capital boost for regional industrial development
funds, and they must also ensure that all obligations
and programmes are fulfilled on the ground
and that major construction projects are continued. All
these measures are compulsory.
respect to businesses, we have developed a lending
programme for backbone companies, secured by VEB. Such
loans are expected to amount to 1.6 trillion rubles.
There are specific decisions to support key industries such
as aviation, agriculture and food production....we
have expanded the programme for the guaranteed
support of lending to businesses
by VEB...an instruction has been issued to extend
this programme to companies that are yet to obtain
the status of major employers but have already emerged
from the category of small and medium-sized
businesses. Aided by VEB’s guarantees, these organisations
will be able to raise over one trillion rubles
at attractive, lower rates due to the risk
in late April, we agreed to take special measures
to grant additional resources
to the economy – as professionals say,
to saturate it with liquidity. This is important
for the continuous operation of companies
and organisations and for maintaining
and even increasing the number of jobs. These
measures include deferring social contribution payments
for the second quarter of 2022. There was
extensive discussion of this matter
and a decision was made. Companies which employ almost
52 million people in total will be eligible for this
contributions for these organisations will be deferred
for a year, starting from May 2023. Overall,
businesses will be able to keep around 1.1 trillion rubles
in circulation. Essentially, this money will serve
as an interest-free loan from the Government.
In addition, companies in the production sector
will be eligible for social contribution deferment
in the third quarter of this year, amounting
to another half a trillion rubles.
instructed the Government to explore the issue
of providing additional preferences with regard
to repaying insurance contributions for the third
quarter depending on employment and payroll retention.
We went through this, as I said, during
Vladimir Putin, 12
Extensive debt restructuring is keeping businesses going, keeping
people in jobs. The deferment of business 'social contributions'
probably starts in May 2022, I suspect the start in 2023 is an
error. All these measures can easily be 'rolled over' as needed,
especially as high oil prices are providing the government with a
windfall of un-budgeted extra money.
Central Bank interest rates and monetary policy
"Let me also note that the Bank of Russia continues
easing its monetary and lending policy and making
loans more widely available in general. The Central
Bank key rate, as you know, has been reduced
this dynamics, we have taken the decision to reduce
the favourable mortgage rate to 9%. Loans
at this rate are available as of May, while
the favourable mortgage programme has been extended until
the end of this year. This decision should be
of help to the families that are planning
to buy a flat and to improve their living
conditions. We should go on thinking about this. And,
of course, the favourable mortgage mechanisms will
support the construction industry and the related
Vladimir Putin, 12
"On 10 June
2022, the Bank of Russia Board of Directors
decided to cut the key rate ...
to 9.50% per annum." - Press Service Central Bank
of the Russian Federation
The Bank of Russia's June 10 2022 forecast is for a key rate
averaging 10.8—11.4% for 2022 (perhaps lower than that in the
second half of the year), 7–9% in 2023,
and 6–7% in 2024.
The EU ban on coal may give Russia a 'glimpse of the future'. Coal
burning is the primary long-term driver of irreversible climate
change. Like it or not, Russia will ultimately have to leave coal
in the ground. In the meantime, coal is in short supply in the
world, and, unfortunately. Russian coal finds a ready market.
assessment of the western enforced apartheid
"I don’t think we are thinking in the context of
sustaining. Sustaining means, you know, you sustain, you take some
hardships, and hope that, sooner or later, this would be over.
has been under sanctions all along – Jackson–Vanik, then it was
repealed, but Magnitsky Act was introduced, then we were
punished for the free vote of the Crimeans, we were punished for
supporting those who were in favour of keeping the Minsk
agreements...and so on and so forth.
we have come to a very straightforward conclusion. We cannot
rely on our Western colleagues in any part of our life which
has strategic significance, be it food security, which we
managed to ensure ourselves after 2014, be it, of course,
defence, and be it some strategic sectors where high-tech is
developing and indicating the future of the mankind.
We did not have time to achieve self-sufficiency in all these
areas, but in most cases, we resolved this issue.
Of course, we are open to cooperation with all other
countries who do not use illegal, illegitimate unilateral
measures in violation of the UN Charter."
Sergey Lavrov 19 April 2022
"...specific decisions will be made in the near
future on the indexation of pensions and all
social benefits, as well as the salaries
of specialists employed in the public sector.
To ensure practical implementation of this policy,
I ask the parliamentarians to carefully work out
the necessary amendments and legal mechanisms.
These and the other decisions we have been making
are aimed at providing direct assistance
to the most vulnerable categories
of the population – families with children
and senior citizens.
The key industries, strategic enterprises, small
and medium-sized businesses are also receiving
and will continue to receive support.
As a result, by taking the measures
I have just mentioned, we have not just softened, but,
as I said, we have repelled, blocked the very
first crushing blow – as the West believed it
to be – of the illegitimate sanctions
against our country.
Our banking system, national currency, transport, trade,
and the economy in general have withstood
the shock and have not crumbled.
On the contrary, they now have good resources
for development, for the launch of new
projects in infrastructure and industry,
and for developing and unlocking
the potential of all our regions.
Undoubtedly, this is the result of a balanced
and responsible socioeconomic policy over the recent
years, the implementation of our national projects,
and the result of your, my colleagues,
concerted and energetic efforts amid today’s extraordinary
...we will counter any crude and often inept external
restrictions, the destruction of all civilised
rights and agreements and attempts to isolate us
with greater freedom of entrepreneurship, openness
to honest partnerships, respect and reliable
protection of owners and genuine investors."
Vladimir Putin 27 April 2022
"The Russian economy’s accumulated potential, including its
experience overcoming the 2014 sanctions, will allow the Russian
economy to quickly adapt to the latest sanctions and the global
crisis. In the coming years, Russia will go through a laborious
period of completing the construction of a self-sufficient
industrial core, including with respect to the defence industry,
high-tech engineering, and the IT sector.
Russia will expand payments in Russian rubles on loans and
energy supplies.....The further reformatting of the Russian
economy and the departure of Western brands will open windows of
opportunity for partner countries in the EAEU to increase the
export of services, food, and engineering products. New niches
will be vacated on the Russian market, and the EAEU countries
will receive privileged access....The US is living beyond its
means, "exporting" inflation to developing countries...over the
past 20 years, the United States has become the largest debtor
in the world; the cost of the dollar does not reflect its real
According to a March
2022 IMF report, over 20 years the share of the dollar has
decreased from 71% to 59% due to its replacement with national
currencies. The process will accelerate after the erosion of
confidence in the dollar due to the theft of Russia's dollar
reserves....the scope for de-dollarisation in the global
economy remains significant...
This will also be facilitated by the formation of a settlement
architecture parallel to the dollar, including new units of
accounting (probably tied to real values and resources), as is
discussed between the EAEU and China."
Vyacheslav Sutyrin, Valdai Discussion Club, 24