The West's Apartheid International Trading System

by Laurie Meadows
First published 8 June 2022 [0900 UTC]
Last edited 03 July 2022 [0930 UTC]


Sanctions as a protection racket    Destroying Russia's economy   Block imports of Russian goods   An Apartheid International Trading System  


  Oil   Gas   Diamonds, gold and silver   Agriculture   Steel   Titanium   Neon   Defense Industry   Pharmaceutical Industry   Shipping Industry   Aviation industry (civilian)          
Electricity sector   Service Industries   Urban rail   Road transport    Wood industry   Fertiliser industry    Financial Services industry   Banking sector  Telecoms   Foreign Direct Investment into Russia   Russia's overseas investments   Space industry   Automotive industry   Media Services  

Prohibit the Export of Goods to Russia   Russia's Path Dependence  

West's apartheid trade policy - unintended consequences for the West  

Block Russian money transfers     Destroy the Purchasing Power of the Ruble    Force a sovereign debt default    Mechanics of International Payments
Payment by Bitcoin or similar cryptocurrencies  

How is the Russian economy doing?  

Separate trade development -
friendly trade     Diplomacy   End of NATO?   Russia's new 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'.

Background


it 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 forces.

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 agenda.

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 25, 2021



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 secondary:

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 thereafter.

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 productive assets.

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.  

We 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 impudence.

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 June 2022


An Apartheid 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 choose both.
"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 2022

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.

"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 functioning institution.

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 lawyer

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.

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 at all.

"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 2022


"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 September 1796

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 circumstances.
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)


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 fail.
Proverbs 22:8.


The sanctions protection racket


So-called 'sanctions'  are in reality a US protection racket, nothing more.

"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"
- US 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 is bizarre.

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?

Attribute
 1999
2020 
International
Reserves (bn)
$12
$596
Bank System
assets (bn)
$59
$1,523
Stock market
capitalisation (bn)
$40
$696
Public debt
(% GDP)
92.4%
19.3%
GDP per
capita
$9,317
$27,903
Nominal monthly
wages (bn)
$61
$710
unemployment
13%
5.8%
Russian Direct Investment Fund 'About Russia'


Destroying Russia's economy


"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 importance).

1. Prevent the targeted country from buying and selling goods on the world markets.

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


1.1 Prohibit 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
Russia's number one export is oil (including oil products) and natural gas, with oil and gas together making up 43% of Russia's total export income.

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 day) is 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 a day.

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, TatneftLukoil, 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 another.

Oil
"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)."
'Russian Oil Companies in an Evolving World'  Indra Overland and Nina Poussenkova
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.

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 10% 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 is first.)

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 low-value fuel 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 (petcoke). Further 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 seized 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 May 2022

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."
European Union press release 3 June 2022
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 of liquids.

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 otherwise."
European Union press release 3 June 2022

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).

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 2022

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 smaller.

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 priced gasoline.

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."
IEA May report

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 least.

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 the transition.

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.


Gas

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 supply.

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 foreseeable future.'
'Beggaring Europe: switching cheap Russian gas for expensive American LNG' The Cradle, Daoud Baalbaki 15 June 2022

"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 continent."
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 coal-energy severely.)

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 targets.

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 to transport.

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 2025.

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.


Gems and 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 world.

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 Russian Federation.”
US Treasury 2022
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.

In late June 2022 the USA, UK, Canada, and Japan formally banned the import of Russian gold - a redundant move of little significance.




Agriculture

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."
Presidential Instructions following meeting on agricultural industry, fisheries and related sectors’ development April 26, 2022
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.

Russia is 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 2022

"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 2022

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 region."
'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 etc.

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 conscripted).

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 discount.

The knock-on effect is a global increase in edible oil price. This in turn makes edible oils unaffordable in poor Asian countries. This has 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 export again.

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.


Metallurgical Industries

Steel
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.

...the Western states 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 extensively damaged.

Iron ore pellet production in Ukraine is disrupted, and so is Ukrainian rail transport to European steel mills. Iron ore from Russia's Metalloinvest 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 normal levels.

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.

There was 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.

...Businesses 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.

...we 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.

I suggest that we discuss a potential industry development model with the business representatives here, based on the current state of affairs and thinking far ahead.

I want 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.

I want 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 facility infrastructure.

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.

Titanium

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 company VSMPO-AVISMA 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 30 2007

A second production line was launched in 2018. This highly automated 82 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 infrastructure.

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'.

"During 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.”"
Airinsight.com February 28, 2022

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 2022.

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.

Nuclear Industry

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 February 2022

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.


Defense industry

"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.

Our 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.

The share of civilian products in the consolidated net profit amounted to 45.5 percent."
Sergey Chemezov, CEO of Rostec State Corporation 18 May 2022

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 long 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 civilian spinoffs.

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 2023.
- the first Russian-made diesel gas-turbine engine (the M55R), to be used in Russian frigates


Electricity sector

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.


Aviation 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 banned. 

Russia is already building 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"
AeroTimeHub, Gabriele Petrauskaite 31 March 2022

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 now.

Russia also 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 manufactured aircraft.

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 has used the various helicopters produced by Russian Helicopter manufacturers for many years.

The Rostec-owned 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 2022
.


Medical industry

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 manufactured.

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 scale.

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."
MarketWatch 28 April 2021

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 20, 2022

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 from China.
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 March 2022

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 companies.

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.

"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 2022

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.

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.



Service industries


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 to 1,000.

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 June 2022

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.


Air Transport

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.



Urban Rail Transport

On 13th May 2022, Siemens, which has traded in Russia for almost 170 years, announced 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.


Shipping industry

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 marine use.

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.

"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 Russia.

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 to have.

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 Association June 2022
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, at least.

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.



Road transport

On April 8th 2022 the EU banned road transport through EU countries.

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.



Wood 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 products.



Fertiliser industry

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 production.

In April 2022 the EU banned Belarus potassium chloride (specifically).

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. China bought 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 years.

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.

...despite prohibiting the import of certain types of Russian fertilizers, the EU has introduced exemptions to fulfill its own needs.

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 1,577,807 tonnes).

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 restrictions.

...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 their transactions.

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 June 2022
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.


Financial service industry

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 bonds.

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, the NDS 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 resolution.

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.


Banking sector

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.


Telecoms

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.


Foreign direct investment into Russia


There are/were 311 foreign companies invested in various enterprises in the 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 GDP.

The United Arab Enterprises Mubadala sovereign wealth fund has invested $3 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 rewards.

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 pressure' campaign.


Foreign 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.

The President 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.

In particular, 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 Petroengineering.


Foreign direct investment in the Russian Automotive industry

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. The new 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 out.

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. Germany planned 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).

"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 done before.

“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

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.

All transactions with the named companies are now prohibited by Russian law. Long term storage of Russian gas on German territory is prohibited.

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 these assets?
 

Space Industry


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. 
.

Media Services

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 dependency

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.

We have 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.”

We have 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.
Sergey Lavrov

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.

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 it.

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.



Separate 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.

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
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.

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 trade.

That said, China's export trade with Russia is very small - only about 2% 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 consequences?

"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 Western countries.

Positive 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 percent).

We have 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 June 2022


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 the possibilities.

Pharmaceutical industry
"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 universal organisation."
Sergey Lavrov 19 Feb 2021

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 13, 2021."
Precisionvaccinations.com April 26 2022
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 gold.


Tourism


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 politicians.

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.


1.2 Prohibit 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 priorities are:
1. Support companies that employ a lot of people.
2. Support strategic industries, such as agriculture and the arms industry
3. Create conditions for local industries to manufacture previously imported products
4. Find parallel imported parts
5. Import the needed parts from 'friendly' countries if they are available there

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.

Arms industry

"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 mission-critical, articles.

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 components.

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 dependence.


Aviation sector - civilian and dual purpose military-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 banned.

As at February 2022 Boeing had 34 aircraft on its order books sold to various Russian airlines (UTAir Aviation, Volga-Dnepr UK, Siberian 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 has used the various helicopters produced by Russian Helicopter manufacturers for many years.

The Rostec-owned 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 fly.

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 state-owned 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

Russia's strike ended production of the turbo-prop engine used in the Turkish Baykar 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).



West's 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 hunger.

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 dominance."
Vladimir Putin, 12 May 2022
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.

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 April 2022)

The EU has foregone €10 billion of export income, which is their choice.
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 US."
Russia has been denied €5.5 billion of export income.


Inflation
"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 May 2022

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 price.

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 system."
Interfax, 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.

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 facilities.

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."
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?


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 megawatt hour).


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.

“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 June 2022

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 last 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, and supply at mid June was down to 100 million cubic meters a day, down from the normal 167 cubic meters.

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 about half the previous year. Sunflower meal and oil-pressing residue is in short supply in the EU due to the western-incited confict in Ukraine.

Ukraine supplies 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 region....

...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 fully operational.

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 March 2022"
Russian Foreign Ministry press release 3 June 2022

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 shipping costs

"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 and fertilizers."
Russian Foreign Ministry press release 3 June 2022

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 west


"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.

Meanwhile, 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.

I think 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.”

This is 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 24 2022



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.


Weaker euro

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 self-inflicted.


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 17, 2022

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 February 2022

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 February 2022


Rare gas supply chain difficulties Neon Xenon Argon
"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 2014."
Fierce Electronics 25 February 2022
The two 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
Zaporizhstal 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 year”
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.

Lost business

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.

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 restrictions,
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 possible angles.

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]

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'?

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 advantageous concessions.

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 minus USA.

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 25, 2021

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...

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.
Around 400 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
RT 25 April 2022
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 puppet-master.

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 with Russia

People and businesses can avoid restrictions on international money transfers by opening an account with a non-Russian bank in another country.

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 cultural hub.

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.


The 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 'cryptocurrencies'.


Payment using 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 limiting. T

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.

On June 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 from SWIFT

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 domestic laws

'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 India.

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 countries:

"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.

It is 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 8, 2022.

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 transactions.

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.


Freeze 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 system"
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 campaign).

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 for Russians.

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).
 

2. Destroy 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 paid.
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 and construction".
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.

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 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.

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 discipline').

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.


Inflation


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 well-paid jobs

'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 illegitimate freezing of some of the currency reserves of the Bank of Russia marks the end of the reliability of so-called first-class assets.
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."
Vladimir Putin

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' status.
30.22
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.
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.

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 anyway.

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 currency.

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."
Sputnik 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 Federation.

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

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.




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 growing."
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 May 2022


Import replacement

"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 machinery"
Vladimir Putin, 12 May 2022.


Food

"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 May 2022


Inflation

"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 May 2022

"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 2024."
Bank of Russia  Press release 10 June 2022

Capital

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.


Wages

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.


Government Budget

"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

"The national 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 May 2022

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

At December 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).


Current Account (Trade in Goods & Services)

The first 4 months of 2022 has seen a surplus (almost USD 96 billion) five times larger than at the same time last year.
The current account surplus, the broadest measure of trade in goods and services ..

Read more at:
https://energy.economictimes.indiatimes.com/news/oil-and-gas/has-sanctioning-russia-worked-oil-gas-sales-put-285-billion-in-putins-pocket/91937585


Balance of Trade

A record-breaking foreign trade surplus .


Domestic private and business income/economic stimulation/employment

"...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.

As before, 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.

We have 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.

With 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 reduction.

Next, 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 concession.

Social 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.

I have 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 the pandemic."
Vladimir Putin, 12 May 2022

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 to 14%.

Given 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 economic sectors."
Vladimir Putin, 12 May 2022

"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.


Decarbonisation

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.


Russia's 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.

Russia 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.

So, now 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 circumstances...

...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 value.

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 currently being discussed between the EAEU and China."
Vyacheslav Sutyrin, Valdai Discussion Club, 24 May 2020