The West's Apartheid International Trading System
An overview of the effect of sanctions on Russia, by sector, from industry to banking
by Laurie Meadows
First published 8 June 2022
Last edited 16 September 2023

The US & West governments aim to destroy the Russian economy & thus the Russian State   
US objective 1 - missiles 6 minutes from Moscow 
US objective 2  - block the Russian people's development across every possible sphere of life 
US objective 3 - erode China's purchases of Russian gas 
US minor goal - impair Russia oil & gas sales   US minor goal -
Cripple Europe's manufacturing

Sanctions don't work     Bad choices, bad outcomes     Russia puts the west in check     Sanctions as a protection racket      Destroying Russia's economy   Block imports of Russian goods   An Apartheid International Trading System  

Oil industry    Gas industry    Russian gas to China  
Russia's LNG exports  Arctic LNG  Nordstream pipeline   Nordstream sabotage   Turkiye-Russia natural gas hub  The middle path - oil and gas 'plus'   'Blue' Hydrogen + CO2 capture  The Future for natural gas  Coal industry   Mining - Diamonds, gold and silver   Gold   Agriculture industry  (Grain backdownSteel industry   Titanium   Neon   Aluminium  Nickel   Minerals in General    Defense Industry   Pharmaceutical Industry    Ship building industry    Aviation industry (civilianUAVs   Electricity sector    Nuclear industry   Nuclear power plant exports   Nuclear fuel industry   Service Industries     Manufacturing sector     Transport Infrastructure     Urban rail   Longhaul Rail   Road transport    Sea transport   North Sea transport route   Air transport (passenger)  Wood industry     Fertiliser industry (backdown)    Financial Service industry     Insurance Sector     Banking sector    Telecoms     Foreign Investment into Russia    Foreign investment in Russian oil and gas   Foreign direct investment in the Russian Food industry    Russia's overseas investments     Space industry    Automotive industry    Media Services     Electronics industry    Intellectual property  

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

West's apartheid trade policy - unintended consequences for the West    Higher natural gas prices
    The Russian reverse gas price cap 

Block Russian money transfers      Destroy the Purchasing Power of the Ruble     Force a sovereign debt default     Mechanics of International Payments   
Blocking money messaging through SWIFT    Payment by Bitcoin or similar cryptocurrencies    The ruble-dollar accidental experiment     Faith in the ruble

How is the Russian economy doing?   Inflation  
Government Budget    Housing 

Separate trade development -
Friendly trade     Diplomacy   End of NATO?   Russia's new foreign policy concept   Russia's Parliamentary support strengthened

Russian assessment of the western enforced economic apartheid     State-owned enterprises   

Cost of assimilating war-torn East Ukraine into Russia

These notes are mostly a commentary on the on-going consequences of the emerging divided global trading systems. The cause and mechanics of the emergent non-western system is covered in some detail in 'Beware the Ides of March'.


" is important to talk to Russia. [...] Because first it is our neighbor, and also because it is important that we have a stable relationship with this country, (inaudible). And it is in the name of these principles that we would like to maintain this dialogue. It does not prevent us from standing firm, like we said earlier.

But of course, Europe, as well, need to talk to Russia at a high level, and mainly because there is a major issue, which is arms control.

And over the past few month, we witnessed the de-organization – deconstruction of the regulation system of weapons that – the system that was put in place in – at the end of the ’90s on the strategic armaments. And luckily, we have New START being extended, but we also have the issue of the intermediate nuclear 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

"...regarding the very character of the sanctions.

First, for any sanction to be legal it needs to be authorized by the UN Security Council. But this is not happening, so they are illegal. This is the first point.

And now the second point that I consider the most important one. For some reason nobody imposes sanctions for interfering in the domestic affairs of other countries, for disrupting internal political life or for shattering entire states.

Nobody imposes sanctions against those who reduce countries to a position where they are compelled to take certain measures to protect their interests.

...Sanctions (if we want them to work) are a tool which must be in the sole possession of the United Nations Security Council. All other matters should be resolved through dialogue rather than imposing one’s own agenda on other countries. That is all there is to it...

...Today, sanctions are being used not as a tool of geopolitical struggle but simply as an element of competition. Take Nord Stream 2, for example. Our US friends are fighting it. But it is definitely profitable for our European partners. “No, do not build it!” [the Americans say] ...We have already worked with Turkey to build TurkStream along the Black Sea bed. TurkStream will launch later this year.

Yet we still cannot come to terms with the Europeans.

Our US partners opposed, in exactly the same way, the “pipes for gas” project in the 1960s that we pursued with the Federal Republic of Germany. It was exactly the same.

It was the same with Nord Stream 1. What would global energy look like now if there were no Nord Stream 1? I can give you the answer. Prices would be even higher than they are now, simple as that. Do you want to buy mineral resources at higher prices? No."
Vladimir Putin 9 April 2019

The US and West's governments are trying to totally destroy the Russian economy, the 11th largest economy in the world, and by doing so, destroy the Russian political State. 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 the US (NATO) government 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 destroy Russia's tactical nuclear weapon deployment infrastructure. In addition, the US government wishes to install 'aegis' missile complexes that can chase down and destroy Russia's retaliatory strategic ICBM's on their way to USA. 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 in the civilian population The US hope is for popular unrest to unseat the current government. Hoping, of course, for a new government, one obedient to US dictates and which implements new policies very favorable to US business corporations. 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 productive assets.

The June 2023 mutiny and attempt at a mercenary-force coup had zero support from the people, the military, the security service, the big business group, or even the political opposition. All sectors were rock solid behind the Presidency. This unequivocal support is the biggest and most meaningful poll result in history. This rallying of the Russian population has built even greater resolve to be victorious over the wests machinations. The destruction of Russia is now impossible.

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' that a decent country would be proud of.

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 (especially Russia), 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

"Washington demands more and more sanctions against Russia and the majority of European politicians obediently go along with it. They clearly understand that by pressuring the EU to completely give up Russian energy and other resources, the United States is practically pushing Europe toward deindustrialisation in a bid to get its hands on the entire European market.

These European elites understand everything – they do, but they prefer to serve the interests of others. This is no longer servility but direct betrayal of their own peoples. God bless, it is up to them."
President of the Russian Federation Vladimir Putin 30 September 2022

Sanctions don't work - those that fail to learn from history are doomed to repeat it -
"On 21 November 1806, Napoleon, by issuing the Berlin Decree, enacted the world-largest embargo ever against the United Kingdom. The Berlin Decree established the so-called Continental System, a Europe-wide blockade forbidding France-aligned European countries to import British goods.   

Initially the embargo seemed to work: the British withdrew from Europe and in a few months the exports to the continent fell by half.

But over time the British found three ways to break the international isolation: circumvention, diversification and diversion. In a few years the UK was capable of replacing the trade with Europe by deepening the ties with overseas colonies and the rest of the world. A life-threatening challenge was turned into a once-in-a-lifetime opportunity to create a still existing symbiotic metropolis-peripheries relationship – ie the Commonwealth.

While the UK gradually recovered from the blockade, France-centered Continental System suffered more and more because of Europe's over-reliance on British imports, from textile to technology. The economic troubles fueled smuggling, prompting Napoleon to intervene, even militarly, as it occurred in Spain. But, eventually, sabotage and imperial overstretch weakened Paris' capability of controlling the Old Continent and quickened Napoleon's downfall.

The UK experienced a pre-modern economic encirclement, a pre-modern form of containment, and turned the isolation from Europe, which was London's main trade partner, into an opportunity to expand into new markets, to strengthen national industries, and to shape its future vital space.

Napoleon's desires never materialised: the UK experienced no high inflation, no stagnation, no economic crisis, no bankruptcy. Conversely, the Continental System would prove crucial in fueling the UK's extraordinary political and economic growth throughout the 19th century."
Emanuel Pietrobon, Geopolitical Analyst, 5 May 2022

Nor will the desires of the 'little emperors' of the west materialise. Simply put, sanctions don't work.

"The first thing I think is they got the idea of sanctions as being a knockout blow absolutely wrong because sanctions have been applied repeatedly by the United States and they've essentially never been a knockout blow.

Even when sanctions have done damage to a national economy - and they certainly have in many cases - it hasn't been a knockout blow, from a political point of view, or from any kind of fundamental foreign policy point of view.

The U.S imposed very tough and very harmful sanctions against Venezuela, for example, to try to depose president Maduro, and to install an American chosen president. This utterly failed of course.

The U.S has imposed sanctions on many countries around the world and the foreign policy returns, just judging from the American foreign policy objective - that is not the right or wrong of the objective - has failed repeatedly.

Sanctions don't work.

They do sometimes even cripple an economy, but they don't change the political Dynamics, they don't change the geopolitical dynamic. Now, when it comes to Russia, the idea that this would be some kind of a 'knockout blow' for the conflict in Ukraine was utterly naive and predictably a failure.

But I think the Russian economy also was clearly vastly underestimated, and what the West gets wrong on all aspects of the Ukraine crisis, is that the world is not united with the West.

The West is just a small part of the world. Most of the world wants to stay clear of this crisis. In fact, wants this war to end, of course, but is continuing normal economic financial and foreign policy relations with Russia.

That's the basic point. So that Russia not only has vast domestic capacity in the economy which Western analysts underestimated, but it has continuing trade links with most of the world. ...the sanctions regime is generally a failure.

And in the case of Russia it failed in two fundamental ways. One, not achieving at all the aims of the sanctions and [two] not even hindering the Russian economy to any significant extent.

Well, clearly Russia has a lot of resilience, because it has a vast food production base, it has a vast minerals base, it has a vast industrial base. The Assumption in the West was that it did not have a high-tech base so as was said by the German foreign minister, I believe, Russia would be scrounging washing machines imported from Germany to get the chips for its military capacity...

These kinds of absurdities were part of the mythology. And Russia's high-tech capacities were clearly constantly neglected and discounted though Russia obviously has a very sophisticated digital industry, and that's both for civilian and for military purposes. So there was a a lot of ignorance, I would say, in the west, or make-believe, or wish fulfillment in Western capitals - especially Washington - about what Russia can and can't do, and what would happen with the sanctions.

I remember at the start of the sanctions, of course, in the conversations that I had with Washington, they really did believe this was the the the absolute definitive weapon - cutting Russia out of SWIFT - this was gonna be 'it'. This was somehow so dramatic it would decisively end the conflict.

Aah, completely naive.
Professor Jeffrey Sachs 15 September 2023  'Why Western Sanctions Against Russia Failed', New Rules podcast

A trading system encompassing Eurasia (in the widest sense) and beyond will arise from the ashes of the west's pyrrhic 'victory' over the Russian Federation. The 'hyper-Eurasian' trade will fuel all countries who participate, but particularly the BRICS countries.

"We tried to build up relations with the leading countries of the West and with NATO. The message was the same: let us stop being enemies, let us live together as friends, let us engage in dialogue, let us build trust, and, hence, peace. We were absolutely sincere, I want to emphasise that. We clearly understood the complexity of this rapprochement, but we agreed to it.

What did we get in response? In short, we got a ”no“ in all the main areas of possible cooperation.

We received an ever-increasing pressure on us and hotbeds of tension near our borders...

The goal was to make Russia more vulnerable...

...they try to turn everyone into a tool, in order to use these tools for their own purposes. And those who do not yield to this pressure, who do not want to be such a tool are sanctioned: all sorts of economic restrictions are carried out against them and in relation of them, coups are prepared or where possible carried out and so on.

And in the end, if nothing at all can be done, the aim is the same: to destroy them, to wipe them off the political map.

But it has not and will never be possible to draft and implement such a scenario with respect to Russia.

...Russia is not challenging the Western elites. Russia is simply upholding its right to exist and to develop freely.

Importantly, we will not become a new hegemon ourselves. Russia is not suggesting replacing a unipolar world with a bipolar, tripolar or other dominating order, or replacing Western domination with domination from the East, North or South. This would inevitably lead to another impasse.

....Let me recall that the Western civilisation is not the only one even in our common Eurasian space. Moreover, the majority of the population is concentrated in the east of Eurasia, where the centres of the oldest human civilisations emerged.

The value and importance of Eurasia lies in the fact that it represents a self-sufficient complex possessing huge resources of all kinds and tremendous opportunities. The more we work on increasing the connectivity of Eurasia and creating new ways and forms of cooperation, the more impressive achievements we make.

The successful performance of the Eurasian Economic Union, the fast growth of the authority and prestige of the Shanghai Cooperation Organisation, the large-scale One Belt, One Road initiatives, plans for multilateral cooperation in building the North-South transport corridor and many other projects, are the beginning of a new era, new stage in the development of Eurasia. I am confident of this.

Integration projects there do not contradict but supplement each other – of course, if they are carried out by neighbouring countries in their own interests rather than introduced by outside forces with the aim of splitting the Eurasian space and turning it into a zone of bloc confrontation.

Europe, the Western extremity of the Greater Eurasia could also become its natural part.

But many of its leaders are hampered by the conviction that the Europeans are superior to others, that it is beneath them to take part as equals in undertakings with others. This arrogance prevents them from seeing that they have themselves become a foreign periphery and actually turned into vassals, often without the right to vote

...Do you know what’s really important? ... to have the European part regain its legal capacity...Helmut Kohl told me...that if European civilization wanted to keep going as a global centre, it should definitely work with Russia. "
Vladimir Putin 27 October 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 Trading 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 anyone's 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.

"Events of this year confirm the special significance of such a factor as accessible and affordable raw materials without which it is impossible to organise any production process or to set up co-production chains. Russia is just about the only country that is completely self-sufficient in terms of natural resources, and the Far East plays a substantial role here. This region is a highly important supplier of crude oil and natural gas, coal, metals, timber and marine biological resources to the domestic market and our foreign partners.

We are staking on the prudent and rational development of Russia’s natural riches under the most stringent environmental standards. First of all, we will refine all extracted raw materials domestically as much as possible. We will also use these raw materials to strengthen the sovereignty of this country, to ensure industrial security, to raise incomes and to develop the regions.

We have already protected the resource extraction industry from unfriendly actions. From now on, only companies with Russian jurisdiction have the right to develop natural resources in Russia.

The Ministry of Natural Resources and Environment together with the Ministry of Industry and Trade and leading business associations has determined the national economy’s demand for strategic raw materials. This information will become the foundation of the revised Strategy for the Development of Russia’s Mineral Resources Base with an extended planning horizon up to 2050."
Vladimir Putin, 7 September 2022

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 system). 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. 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.

Russia puts the west in check

On April 25th 2023 the President of the Russian Federation signed an executive order "to provide an urgent response to the United States and other countries and international organisations whose actions, unfriendly and contrary to international law, illegally deny the Russian Federation, Russian legal entities and individuals property rights and/or restrict their ownership titles. The Executive Order seeks to protect the national interests of the Russian Federation."

"...Under the Executive Order, if the Russian Federation and/or Russian legal entities or individuals are stripped of their ownership rights regarding properties in the foreign states that are targeting the Russian Federation or its legal entities or individuals, with unfriendly actions, and/or if the Russian Federation and/or Russian legal entities or individuals are stripped of their property titles, as well as when these rights are subject to any restrictions or there is a threat of being deprived of these rights, facing restrictions, and threats to Russia’s national, economic, energy and other kinds of security, its defence capability, an interim administration shall be instituted regarding the following assets:

a) movable goods and properties located in Russia and belonging to foreign parties with ties to unfriendly countries (including if these foreign parties are citizens or residents of these countries or if they have their registered addresses in these countries, or principal place of business or if they derive most of their profits from operating in these countries), and also those belonging to the parties controlled by the said foreign parties;

b) foreign-held securities, shares in authorised (joint) capital of Russian legal entities held by parties from unfriendly foreign countries;

c) property rights held by parties from unfriendly foreign countries.

The Executive Order sets forth a list of movable goods and properties, securities and shares in authorised (joint) capitals of Russian legal entities, as well as property rights subject to interim administration measures.

The document designates the Federal Agency for State Property Management as the interim administrator and also sets forth its authority.

Under the Executive Order, the President of the Russian Federation decides when to terminate the interim administration.
Presidential Executive Order 25 April 2023

Initially, only the Finnish government-owned Fortum power company and the German Uniper power company are affected. All Russian-based assets of these businesses, including shares and all operating income, are now under the control of Russia. Uniper owns nearly 84% of the Russian subsidiary Unipro Corporation which operation 5 power stations in Russia (Fortum operates 7 thermal power stations in Russia, and is involved in wind and solar power ventures there). According to the Kremlin spokesperson Dmitri Peskov, “The decree aims to create a compensation fund in response to the illegal seizure of Russian assets abroad. Only companies owned by countries that imposed sanctions against Russia will be affected...”

It likely comes in response to the April 20, 2023 amendments to the German Energy Security Law which provided for the German trustee of a Rosneft majority-owned oil refinery that was seized by the Germans in September 2022 to be finally sold. In Finlands case it is perhaps a response to the Finnish government-owned Gasum company's 2022 refusal to pay Gazprom in rubles, refusal to abide by the 'take or pay' clause, and Gasums insistence in taking the matter to arbitration. Gazprom cut off Gasums gas supply in May 2022 for non-payment. As it turned out, Gazprom interpreted the arbitration decision (which is private) as requiring Gasum to now pay €300 million for gas deliveries. Gasum says it is not how the ruling should be interpreted and insists it is not obliged to pay in rubles. So the debt was left outstanding (from Russia's point of view) and now Gasum is under Russian administration, and all debts owed to Russia will be extracted from those countries properties. The properties will be returned to the owners when the President decides.

The decree is very broad. In my opinion it can be read as authorising the seizure of assets of all those countries involved in arming Ukraines NATO proxy army.(" ...targeting the Russian Federation or its legal entities or individual<...> and threats to Russia’s national, economic, energy and other kinds of security, its defence capability...) It also covers "property rights" which people tend to forget also includes intellectual property, such as patents. All patent income will be seized.

The most interesting immediate effect is that Germany nationalised the Finnish owned Uniper energy company and hoped to buy out the remaining shares at an agreed price, but now may not be able to. Presumably some of these shares are held by the Russian subsidiary, and if so, this action may now be jammed.

Of course, all foreign bank assets and bank accounts and securities held by foreign companies, government entities and associated parties that are now stranded in Russia's security exchange clearing house will be able to be seized, and all interest payable to the foreign owners will go to the Russian government. Temporarily of course. Less all cost and expenses of administration. Ahem...But nothing will (eventually) be released to the owners until all stolen Russian assets are returned in full account and good order, including the assets of Russian individuals. The west can't afford to 'lose face' by returning them, so I guess more and more foreign assets in Russia will be seized (including ships from unfriendly countries that dock in Russian ports). No doubt the west will 'double down' and seize whatever west-based Russian assets they can find.

Further, in May 2023, the Russian government clarified the conditions under which 'unfriendly country' investors in Russian assets would receive dividends on their shareholdings. Dividends would be paid if the company was active in Russia, that is expanding production; introducing new technology to Russia, 'investing' in Russia (presumably part of the profits are used for further capital investment in Russia). Existing rules limit any dividend distribution to less than 50% of the previous years profit, can only be paid if the company has a demonstrable commitment to continuing to do business in Russia, and the business can show that it contributes to Russia's technological development or contribute to Russia's economic sovereignty.

The last refers to 'onshoring' and helping Russian business operate without foreign inputs, as well as developing Russian substitutes for currently imported western technologies and products. In addition, any distribution over USD130,000 a month must be paid in rubles to a special ('type C') account with the Reserve Bank. Its unclear to me whether this is an expropriation of funds, or whether it is held 'in limbo' until the west returns the Russian Reserve Bank foreign reserves and gold, plus interest. Either way, justice is served.

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?

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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

"...we have been working on since the beginning of the special military operation has to do with countering sanctions. It was no easy matter, of course, considering that over 16,000 sanctions have been imposed on Russia. Over that period, we have adopted 192 laws and worked with the Government to take more than 300 measures to support our people, enterprises and regions."
State Duma Speaker Vyacheslav Volodin 31 July 2023

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 probably 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 primary 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. There has been a 7th tranche, and who knows, maybe they will scrape up something to make an 8th. It doesn't really matter.

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 oil 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 2021. In May 2023, according to the EIA, Russia produced about 9.3 million barrels a day of crude, and other sources note all liquids (crude, natural gas liquids, condensate) to total 10.8 million barrels a day. The Russian summer 'driving season' spike in demand aside, Russian oil industry projects average 2022 oil production was projected to be about 9.64 million barrels a day (with NGLs and condensate of about 1.2 million barrels a day, this is about 10.8 mbd) . By early 2023 oil was well supplied on a subdued market, prices fell, and OPEC plus Russia cut production to return prices to a reasonable level.

In 2019 President Putin implied Russia's cost of production of oil was below $40 a barrel. He implied, correctly, that the US oil extraction costs are questionably economic at $40 a barrel.

"...if oil falls below $40, oil production profitability and extraction growth will be questioned. Of course, technology is advancing, and the cost of such production will drop and fall below $40 a barrel; maybe it will be at $35–40 – but oil production costs are lower in Russia anyway, let alone gas; I won’t even cite figures so that I don’t scare anyone. It is much lower than in the United States or Europe, and even in certain oil-producing countries in the Middle East"

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.

Arctic gas - LNG
Russia has the world's largest gas reserves. Gazprom is the biggest producer of natural gas, with around 20 trillion cubic metres of reserves, and NOVATEK is the second largest. As West Siberia fields are 'mature' and declining, production has shifted to the Arctic, mainly the Yamal Peninsular. The gas reserves in the Yamalo-Nenets Autonomous Area are around 50 trillion cubic metres.

Massive investment in the extremely cold environment has resulted in several LNG gas trains (and also specialised arctic-condition LNG gas carriers) being built, currently producing 19 million tonnes a year. This is expected to double in the near future. In July 2023 the first completed 'gravity based' production line for liquifying natural gas was launched. The massive complex (600,000 tonnes) is the first of three, and will be towed to the Utrenneye gas field on the Gydan Peninsula in the Yamal-Nenets Autonomous Area. According to NOVATEK, the Yamal-Nenets Autonomous Region  is 'the world’s largest natural gas producing area and accounts for approximately 80% of Russia’s natural gas production '. The gas-liquifying production lines for Novatek's second Arctic gas project, Arctic LNG-2, are under construction. The participants in Arctic LNG-2 have signed 20 year LNG Sales and Purchase Agreements for the total LNG production volume.

The participants in the project, as at 2021 were NOVATEK (60%), TOTAL (10%), CNPC (10%), CNOOC (10%), Japan Arctic LNG, consortium of Mitsui  and JOGMEC (10%).

Russia's LNG carriers can supply gas along the Arctic Northern Sea route west to Europe, or East to Asia. (Not good news for US LNG  exports,and thus the US instigated sanctions and bombing of the German/Russian consortium's Nordstream 2 pipeline).

"You mentioned restrictions. Yes, they do exist and they are harmful, of course, as well as sanctions, and everything else, but they cannot stop the process of Arctic development.

To reiterate, no matter how the sanction tools work, the first shipment from Yamal LNG went to the United States. Funny, but true. And, I believe, trade continues uninterrupted as well.

Because whenever our US partners and friends can benefit from something, they make whatever it is happen. If they find it is not lucrative, then they tend to tighten the screws. But only if they do not find it lucrative for themselves. They have not been paying much attention to the interests of other countries lately."
Vladimir Putin 9 April 2019 

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 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. Domestic supply is a priority, and piped gas supply networks need to be expanded - a challenging task in a country the size of Russia. Any remaining strategically important private facilities will, I suspect, end up in majority Russian government control, one way or another.

"In this context, the further development of the huge gas industry network created in the east of our country is becoming strategically important for Russia. This network includes the Yakutia and Irkutsk gas production centres, the Amur Gas Processing Plant, which is under construction, and the Power of Siberia gas pipeline, which was connected to new reserves with the launch of the Kovykta gas condensate field into commercial operation last December.

Overall, as far as international cooperation and export contracts are concerned, Gazprom is facing monumental challenges, having to rearrange its logistics routes and gain a foothold in new markets. Yesterday alone, I think Mr Miller and I spent about two hours discussing all these plans with our potential partners.

Let me emphasise that no matter how important international trade is, what matters the most to us is promoting our national development, providing for reliable, steady economic growth, shielding the national economy from any threats, and ensuring uninterrupted supplies for our enterprises and regions. Of course, this also includes improving the quality of life for people across all regions of Russia.

I believe the expanded programme of social gasification, when connection to gas distribution networks is brought right up to the land plot boundary, is one of the most important projects for Gazprom in terms of its social responsibility. Starting this year, the programme has no expiration date. In addition, it now covers social infrastructure, educational and medical institutions, as well as housing.

Let me remind you that certain categories of people can benefit from additional support. This includes families with many children and combat veterans. I am referring to subsidies people can obtain when buying services and gas equipment for their homes. We have already allocated federal funding to this effect"
Vladimir Putin 17 February 2023

"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 ( 2014a)."
'Russian Oil Companies in an Evolving World'  Indra Overland and Nina Poussenkova

Western companies involved in supporting existing Russian drilling programs have all fled - except for the USA's SLB, which is the world's largest oilfield services company (SLB was formerly known as Schlumberger). It has picked up the most lucrative service and equipment contracts abandoned by those who fled Russia, and as a result revenue from the Russia-Central Asia division of SLB grew by 25% in the third quarter of 2022 - twice the growth in revenue from its Middle East and North African operations. SLB continues to expect record earnings from its Russian contracts - presumably confined to existing contracts, so as now to fall afoul of the US trade restrictions.

US restrictions may to some extent hamper Russia's very large oil companies when it comes to drilling technologies that need to be applied to new projects, 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. Russia is rapidly developing expertise, including some unique cold-resisting steel technologies, in producing oil and gas in the severe conditions of the Arctic, where there are very large reserves of hydrocarbons.

"The territory of the Russian Federation includes a vast sea shelf, which makes up almost 22% of the total area of the world’s ocean shelf, and 70% of this Russian sea shelf can be used to produce oil and gas. According to geological data, this territory contains about 56 billion tons of proven oil and gas resources and is forecasted to contain an extra 100–140 billion tons of oil and gas resources (in oil equivalents) [1,2].

For the Russian Federation, oil and gas production on the shelf of the northern seas and Sakhalin Island is an important strategic objective and, to a great extent, the economic situation in the country and its defense potential depends on whether this objective will be achieved.

It should be noted that foreign companies lack experience in oil and gas production on ice. The solution to the problem of developing a sea ice-resistant platform for operation on the shelf of the arctic seas and Sakhalin Island has no parallels in the world practice."
Poletskov et al 2019

US refineries need heavy oil, but take very little Russian heavy crude (about 1% of its requirements), so has prohibited import of Russian oil with very few consequences. Most US heavy oil comes from Canada (oil sands), Mexico (Maya and Altamira), Iraq (Basra), and Ecuador (Oriente and Napo).

In April 2022 'European' OECD countries imported 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). However, by mid July 2023 the EU imported only about 230,000 barrels of oil and oil equivalent a day from Russia. Most Russian oil and oil products had re-routed to China, with India the third largest destination. By April 2023, China and India were said to take 90% of Russia's oil exports between them.

In 2022 the EU imported about 11 million barrels of oil and oil products a day, and a decent slice of that was supplied by Russia. In 2022, of the major EU economies, Germany ran through 1.67 million barrels of imported oil and oil products a day, Italy 1.3 million, Netherlands 1.26 million, Spain 1.22 million. (France imported roughly 700,000 barrels of 'non-French' oil a day, with almost none of it from Russia.)

"OECD Europe has refinery intake of roughly 11 million barrels a day. It has its own crude production of about some 3 million barrels a day. The remainder is imported. Of this, we have some 800,000 barrels a day of Russian crude flowing via Druzhba which will be difficult to replace initially, and another roughly 1.5 million barrels a day of Russian crude heading to OECD Europe via sea...So potentially a very large hole in the European balance..."
Neil Crosby analyst OilX 15 April 2022

About 17% of Europe's oil imports from Russia come down the massive Soviet era 'friendship' pipeline, the rest comes (mainly) by tanker (some of the oil from the Middle East comes via the 2.5 million barrel a day capacity 'Sumed' pipeline between the Red Sea and an Egyptian oil terminal in the Mediterranean). 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 it's diesel needs, mainly from Russia (80% of it's Russian imports in 2019). As a result, Russia supplied 10% of Europe's diesel demand. Unsurprisingly, the Europeans did not initially sanction Russian oil (although they threaten to).

However, the Europeans have placed various bizarre 'price cap' restrictions on Russian oil shipped by sea.

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). As at June 2023, only countries fed by the Druzhba pipeline (Hungary, Slovakia and the Czech Republic) can still receive Russian oil.

And, as at June 2023, the EU has replaced it's Russian oil with oil from United States, Norway, Algeria, Brazil, Angola and the United Arab Emirates - and whoever else has cargoes for sale.

There is no alternative, because as at May 2022 global oil supply was tight - shown by oil prices before the wests proxy war on Russia. Spot market Brent crude was about $99 a barrel the day before the Russian military operation. It spiked on February 24 2022, 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'. The 2023 world demand for oil is expected to reach a record high, even as European demand weakens due to their slow-motion collapsing economies (guess why...). China is booming, which is the trend of the times, boosted in part by cheap energy from Russia. China imported a record 16.3 million barrels a day of oil in April 2023. As China is now probably the largest customer for Russian oil, it may be that some of this oil is refined and re-exported - probably to Europe. But there is a more fundamental reason for higher oil prices.

"The United States is allocating oil from its strategic reserves – well, this is good, but they will have to be replenished and the market analysts understand this. Today, they have withdrawn oil from strategic reserves and tomorrow they will have to buy it again. We are hearing that they will buy when prices go down. But they are not going down. So what? Wake up! You will have to buy at high prices because prices have gone up again.
What do we have to do with this? These blunders in the energy sector were made by those who have to think about it and deal with it."
Vladimir Putin 27 October 2022

The USA strategic oil reserves are at an historic low, and there doesn't seem much prospect for the 'low prices' that were supposed to eventuate due to Russia's collapse.

"While oil demand is expected to continue to rise, both seasonally and structurally over the remainder of the year, only a marginal increase in supply is foreseen. In May, world oil production fell by 660 kb/d to 100.6 mb/d. Deeper cuts from some OPEC+ producers kicked in while output from Iraq’s northern Kurdish region and some Canadian oil sands remained shut in. Saudi Arabia, with its voluntary cut of 500 kb/d agreed in April, led the monthly drop in world supply, but the overall decline was stemmed by a seasonal 330 kb/d rise in biofuels along with higher flows from Nigeria and elsewhere. The Kingdom has promised to slash output by a further 1 mb/d in July to a two-year low of 9 mb/d. Riyadh made the pledge at the 4 June OPEC+ meeting that rolled over the bloc’s existing curbs through 2024"
IEA Oil Marketing Report June 2023

Driver of permanently high oil prices
The core driver for sustained higher oil prices is simply that the cheap free-flowing oil resources have greatly diminished. Sophisticated technologies have to be use to maintain pressure in the oil wells, and a constant stream of new wells drilled in the poorest form of resources (shale oil). All this is expensive. But banks don't want to lend for oil exploration or field development in a political environment where the move to 'green energy' might end up prohibiting oil production or impose crippling taxes. In other words, they don't want to put their capital at risk.

In March 2022, roughly 38% of Russian oil exports went to Asia Pacific nations. The vast bulk of this went to China (1.6 million barrels a day), and this trend has now increased. Oil, natural gas and coal make up roughly 70% of Russian exports to China (in 2022 Russia was China's second largest oil supplier - Saudi Arabia was first).

'Deep processing' oil to de-carbonise it
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 make it possible to '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
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. This is made worse by Russia prohibiting Russian businesses from taking up insurance or reinsurance from any 'unfriendly' country. (The ban remained in place until December 2022, but has been extended.) In late November, Turkiye announced that no oil tankers will be allowed to transit the Bosphorus strait unless they could prove they had adequate insurance. Turkiye says the move is to comply with EU sanctions on insurance cover for oil shipments, which dictate that insurance may only be issued for oil that is sold below an EU-determined price cap. Turkiye is not a party to the EU restrictions. Turkiye is, I think, regarded by Russia as a 'friendly country', and therefore Turkiye could itself issue insurance cover. But as at 2022, 95% of insurance cover for the global fleet of oil tankers is issued by the International Group of Protection & Indemnity Clubs. This is a UK based association, and it spreads risk taken on by ship owners by arranging reinsurance amongst it's 13 underwriting association members (UK, American, Asian and European entities).

In principle, a hub for insurance and re-insurance involving many Middle East and Eurasian countries could be arranged, and would certainly put a stick in the spokes of the West's machinations. However, it turns out that Russia is able to insure it's own cargoes, using domestic insurance companies. Reinsurance is also being tackled regionally. In October 2022, the Eurasian Intergovernmental Council established the 'Eurasian Reinsurance Company' whose purpose is to reinsure exports (such as oil, mineral, wheat) where reinsurance is unobtainable from developed countries. It will insure risk associated with doing export business (such as reinsuring export loans) as well as insuring risk of loss in higher risk entrepreneurial projects, and risk of loss from political interference (as abundantly illustrated by the wests seizure of Russian cargos and assets). The members are the member countries of the Eurasian Economic Union - Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. The initial capital at risk is very modest, but it is projected to reach up to 2 billion dollars in the long run.

The Greeks, who run around a quarter of the available oil tankers, have so far managed to keep EU trade restrictions at bay (oil to EU is not officially banned until 31 December 2022). As at late August 2022 about 50% of Russian oil is shipped by Greek owned tankers. Russian-owned oil tankers carried 19%, and Chinese tankers 6%.  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 (it was eventually released).  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. India's Reliance refinery group has a massive refinery taking oil from all over the world, which is blended before refining into various products. The diesel it sells is in hot demand in Europe,  and "it is very hard to distinguish that this one molecule of diesel came from ‘this’ source in ‘this’ country. It’s basically impossible to distinguish.” 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. As it turns out, Russian oil wasn't blockaded, a 'price cap' was introduced, which, coincidentally, was just over current market prices... Amusingly, Russian subsequently sold oil to India and other countries at or below the 'price cap', but Russia transported and insured the cargo, charging it separately. Oddly, sometimes the cost of shipping and insurance was far higher than you might expect...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, Euronav's 45 VLCCs, will already 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. VLCC demand is flat, and new VLCC tankers are re-entering service, which should depress charter rates. But in fact charter rates for VLCC tankers have increased markedly - from 25%-to over 30% in the 6 weeks from June 1 2022, almost all on the route to East Asia, whether from the Middle East, West Africa, or USA. Making oil for China more expensive, and oil from Russia by pipeline so much cheaper.

In the period from January to July 2022 the EU all but doubled the amount of oil it imports from the Middle East as it 'weans itself off' Russian oil. But a lot of Middle East oil goes to East Asia. If the EU buys it, there is a bidding up of the oil price by the Asia Pacific customers, and competitive bidding by both to charter suitable oil carriers. In other words, if the EU shifts to Middle East (and West African) oil , Asia goes short. If Asia can't buy oil from Russia due to lack of ships or insurance, Asia has to start a bidding war with the EU. There can be only one result.

What the Europeans seem to forget is that if Russia can't ship oil, it creates a global oil deficit, and the price of oil goes up, even if demand drops due to high oil (and food) prices. If Russia cannot sell enough of its oil production, Russia will run out of storage capacity, and 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.

Even if Russia finds enough ships of the right class, 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. That someone, in part, is Russia. This will also drive up the price of oil, even in the face of falling demand.

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, but it is increasingly obvious the shortfall is made up in sales to China and India - which then sells the much more expensive refined and blended Russian product to Europe.

The brave move by European politicians to blockade seaborne Russian oil if it is sold over a European 'price cap' has turned out to be irrelevant - so far. If was ever applied, it 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, and the lure of cheap oil has changed India into a significant importer of Russian oil - in spite of US overt threats to the Indian government.

By early June 2022, there were 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 had 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).

Indian accelerated imports likely more than make up for drop in sales to Europe. 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 was extremely small. India is said to be receiving Russian Urals oil at a 25% discount, and once refined, the diesel component is sold on to Europe at a very good margin. No wonder Indian imports are increasing.

Russia increased it's crude exports to India and China from 19% in February 2022 to 36% by the end of June 2022. By February 2023 Russia was supplying about 35% of India's crude imports (about 1.62 million barrels a day). At the same time, oil exports to Europe 'apparently' fell 30%. Oil exports to Europe are said to have fallen by 500,000 barrels a day by end June 2022. Middle East countries imported 150,000 barrels of Russian crude oil a day in June, and are expected to see that rise to 220,000 barrels a day by the end of July 2022.

As the impact of the cut off in supplies of diesel began to bite in late 2022, North African countries began to exploit the situation by importing prodigious amounts of Russian diesel, blending it and re-exporting it, presumably to Europe. According to an article in the Wall Street Journal written in late February 2023, whereas Morocco only imported 600,000 barrels of diesel in 2021, it imported 2 million barrels in January 2023, and was believed to be on course to import 1.2 million barrels in February. Tunisia  bought almost no oil products from Russia in 2021, but in January 2023 imported 2.8 million barrels of petroleum products - gasoline, diesel, and gas oil ( a form of fuel oil used in boilers, ship's engines, industrial machinery etc).

Some imported crude is being stored at the UAE port of Fujairah before it's final on-shipment to Asian markets. This trend is likely to continue, in my opinion, as Fujairah is interested in increased crude oil trading and storage in future. And as Russia can only store 8 days of oil production storage Fujairah may help solve the problem. Fujairah may become a useful trading hub for Russian oil traders, as the Russian exit their traditional location in Switzerland. And of course it will accelerate trading bilaterally, as well in currencies other than the dollar. In early February 2023 the trend became clear. Indian refineries are buying Russian oil from Dubai based oil traders. The oil is priced in UAE dirhams. Lukoil's UAE-based Litasco subsidiary is one of the traders that India uses. A Dubai oil trading hub may, in principle, also facilitate using gold in settlement between countries. And it is then unsanctionable - unless UAE is sanctioned by the USA, or the US instigates the overthrow of the UAE government (USA has a military base there, so is ideally placed for a 'playbook' US sponsored 'freedom and democracy' movement).

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, and 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). Hungary and Serbia were due to sign an agreement in June 2023 to build a 128 kilometer pipeline between them, with Hungary supplying Russian oil to land-locked Serbia. Serbia, (not a member of the EU) had it's access to Russian oil via Croatia blocked by EU sanctions. Presumably Hungary will charge Serbia a transit fee.

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.
Russia stopped supplying crude to Poland via the Druzhba pipeline following the February 25 2023 introduction of the 10th 'sanctions' package and expiry of Poland's contract with Russia's Tatneft oil and gas company. It also coincided with Poland supplying it's first tank to Ukraine. Russia supplied 10% of Poland's crude.

At the same time, in late February 2023 Transneft pipeline operator has agreed to Kazakhstan's request to ship 20,000 tonnes of oil to Poland and Germany (via Poland). In my opinion, this oil will be a blend of Russian and Kazakhistani oil, and sold at a good price.

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

Russia increased it's production by about 2% in 2022, to 535 million tonnes. Oil prices are relatively low at beginning January 2023, but the increased production might offset that somewhat.

Sanctions apply as of 3 June 2022, but didn't come into force until 3 December 2022. At January 2023 oil is selling at a price lower than the sanctions level. The EU will have to reverse course if oil prices rise. It's a fair bet that as the global economy picks up 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 2023) 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 from June until 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 2022 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 (by September 2023 oil prices were around USD 90 a barrel). 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 (prices have to be around USD 80 a barrel to be profitable and to incentivise further light tight oil drilling), 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. The Russian President has long pointed this out. And it is worth noting that cooperation amongst BRICS countries is slowly but incrementally increasing. Saudi Arabia has applied to join BRICS. So has Iran. So has Venezuela. Russia, of course is a BRICS member. US light oil production will peak and decline in the not too distant future. That leaves these 4 countries, which together dominate long term global oil supply, in close cooperation on economic matters. Inevitably, this includes investment in oil and gas storage and refining, investment in distribution hubs, shipping, gas re-formatting into 'blue fuels' and so on - including, I suspect, investing in solar and nuclear power in those countries.

In summary, oil supply will be managed sensibly by the 'swing producer group'. Oil prices will be suitable for Russia as well as the rest, in spite of the so-called 'sanctions'.

"Of course, these restrictions have a negative effect on us. But, first, we have different concessions for different markets. This is the first point. In some cases, these concessions are minimal.

Second, as I said, all these concessions affect global pricing one way or another, and overall, we are fully satisfied with the current pricing situation.

Production is on the rise, and we are also fully content with this situation inside the country. Sales volumes are considerable.

Yes, it has repercussions for budget revenues, without a doubt, as well as for gas prices and sales in certain markets, mainly European. But we are gradually replacing some markets with others, and it is by no means a disaster.

These developments encourage Russian companies to step up their game and search for new logistics channels and new partners, and they are succeeding.

Our companies have to boost their professionalism, if you wish. It is not enough to just deliver goods to a port and sell them. I do not want to dive into all their instruments, but our companies buy assets abroad and refine crude oil into oil products.

In general, the Russian oil and gas market is in good condition and has excellent development prospects.

...I must say that all the decisions within OPEC Plus on reducing production and other issues are first and foremost depoliticised. These decisions are not affected by Russia’s special military operation or any other opportunistic considerations. They are based on economic feasibility for both the producers and consumers. All in all, we manage to balance out the market together."
Vladimir Putin June 16, 2023

Backdown Record

#1 " part of the sixth sanctions package introduced last month, the EU imposed a partial embargo of Russian oil, banning sea shipments of oil to the EU and prohibiting European companies from insuring and reinsuring sea shipments of Russian oil and oil products to countries outside the European Union.

As a result, major energy players such as Vitol, Glencore, Trafigura, Shell and Total stopped trading Russian oil for third countries.

Now, however, they will be able to resume business with Russia. The legal details of the new provision will be published in the Official Journal of the EU"
RT 23 July 2022

#2 In early August the UK removed sanctions on insurance and reinsurance of ships carrying oil to third countries (not the the EU). The UK is the single major ship insurer in Europe. Russia has made it illegal to insure with 'unfriendly countries' anyway, and has developed it's own insurance businesses for it's own oil and LNG carriers.

Reversal: in early September 2022 the EU and UK (oil buyers) agreed they would 'cap' oil prices, and that any 'friendly country' buying oil from Russia at prices higher than the cap would result in withdrawal of insurance on the oil tankers and prohibition on using EU/UK ports to unload. This 'cap' is to start in December 2022. Obviously, the EU and UK don't control the international oil market. This 'initiative' has quite rightly been met with scorn and derision.

"Russia will embargo countries that support the Washington-proposed price cap on its oil...In my opinion, this is a complete absurdity… To those companies or countries that will impose restrictions, we will not supply our oil and oil products, because we are not going to work under non-market conditions”
Deputy Prime Minister of the Russian Federation Alexander Novak 01 September 2022

The Middle path - oil and gas 'plus'

"Russians in this audience probably remember and know that we have been talking about ending our dependence on oil and gas exports for quite some time now. This trend is gradually picking up steam, although I have to say that when it comes to oil and gas there are important things we must take into consideration.

Second, the state has the financial capability to uphold its steadfast commitment to ensuring social justice, reducing poverty and inequality."
Vladimir Putin June 16, 2023

Looking ahead, the EU having lost cheap Russian crude are unlikely to regain access, except via India, meaning their cost structure will remain high (absent a worldwide recession to drop demand) and will have to electrify as much of their vehicle fleet as possible as fast as possible - in competition with the rest of the developed world. Access to reliable baseload electricity will be problematic unless gas turbines are installed, and natural gas prices will remain high, even if the EU repairs the Russian gas pipeline.

As global demand, especially in the 'global south', increases (again, absent recession) spare crude oil export production capacity will likely disappear. Lack of investment in exploration and development to replace declining oilfields means slowly diminishing global export supply after about 2030. USA is already a nett oil importer, and it's reliance on other countries exports will meet competing demand for a diminishing pool of exportable crude at the same time as the US light tight oil starts to fade.

Major producers such as Saudi Arabia, Russia and Iran have already started to commit production to long term contracts and joint ventures, a process that started in response to the US and Western blockade on the Russian financial system. The stupidity of oil-import dependent countries denying access to the very financial system used to pay a major international oil   and gas producer for its export products is head-shakingly hard to believe. China is 'locking-in' major exportable oil and gas resources, including cheaper pipeline delivered hydrocarbons. The USA will have to pay heavily to compete, and poorer countries will be the ultimate losers.

Once Russia has 'weathered the storm' of Western 'sanctions', it is reasonable to guess Russians will have a slowly improving standard of living, reduce poverty and inequality. This takes excess income from sale of oil and gas. But eventually oil supplies will become more expensive to extract, and in the longest run, effectively end. In the meantime, as the population decline slows and maybe reverses, domestic consumption is increasing, leaving less for export.

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. In the longer run, 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 Toyota's 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.


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 2022 this problem had 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 in 2022, swapping to Azerbaijani gas for supply. Latvia refused to pay in rubles, and was cut off from Russian gas in late July 2022.

Russian gas is exempt from sanctions because Europe, and especially Germany, is dependent on Russian gas. Up until the Nordstream pipeline sabotage, around 40% of Europe's total gas needs were supplied by Russia (155 billion cubic meters a year).

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 not 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, but not at previous levels (it was 42.6 billion cubic meters in 2020). And, as all existing German contracts signed with Gazprom Germania have become null (Gazprom have liquidated its German-based subsidiary), contracts will doubtless have to be re-negotiated as they expire - probably at a much higher 'spot market' price.

Gazprom's German gas storage assets cannot be sold as part of the Gazprom Germania liquidation because the German government has seized them. Russia responded by sanctioning Gazprom Germania (in liquidation), which means Russia will miss out on the income derived from filling gas storage for the winter season. Higher gas prices will likely offset this. (By December 2022 gas prices were 10 times higher than previously, at one point around touching around $1,700 per thousand cubic meters.)

Russia produced 11.8% less natural gas in 2022, yet because of the higher gas prices "Russian gas producers, exporters have made a good profit in the past two years and have substantially increased their contribution to the national budget." according to the Russian President, speaking at a government economics meeting held on the 17th of January 2023..

Belarus now pays for its gas (18.8 billion cubic meters) 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.

In a similar way, Turkiye will now pay for a part of its natural gas imports (about 26 billion cubic meters a year) from Russia in rubles. Russian tourists are relatively confined to Turkiye, Gulf States, China nad some South East Asian countries as a tourist destination, and in some countries, they are able to pay in rubles using their Mir cards, so Turkiye has a flow of ruble foreign currency it can use in trade. In addition, it means Turkiye can avoid using some of it's precious US dollar 'hard currency'.

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. According to Russia's President, global natural gas consumption is expected to increase by 20% in the period 2023 to 2043. More than half the demand growth will be in the Asia-Pacific, with China being the major importer. The period of transition from fossil fuels to renewables may well see growth increase even more, as natural gas can be used for hydrogen production with carbon stripping and sequestration.

Russia had a large program run by Gazprom in conjunction with foreign-supplied advanced gas technology to extract further value from some of Russia's gas stream. The project, completed in late September 2023, splits the components of freshly extracted gas into pure methane (exported to China), various light liquid condensates for use in petrochemical industries (especially ethane), and almost pure Helium, a valuable gas used in high tech processing. The foreigners disappeared due to the trade restrictions, but Russia was able to ramp up its indigenous technology to continue and complete only a little later than originally scheduled. The end result, of course, is that Russia is even more autonomous in this important area than before.

"I visited our two major construction projects related to natural gas and gas conversion. What I want to say about the restrictions imposed on us: European companies refused to deliver equipment because maybe they believed that we lacked competences. We have restored all our competences, all of them. We only needed to adjust the schedule slightly, by several months.

Major, global-scale facilities will be put into operation in the nearest future. Those who were forced – and our European partners keep saying that they were forced to stop working with us – they are suffering huge losses and loss of profits.

Moreover, some major high-tech companies had to lay off 50 percent and sometimes even 70 percent of their staff.

We are restoring them and are building additional engineering competences, which is very good. Yes, we do need to adjust the deadlines and make do with less, but the advantage is obvious.

Yes, we still have much to work on, especially when it comes to advanced technology, but if the situation was different… The day before yesterday, my colleagues reported that new competences in this area are being built, and it was very important to hear this.
Vladimir Putin 15 September 2023

In the medium term, unless the Europeans pay to repair the Nordstream pipeline (estimated repair cost so far is $500 million) and also pay compensation, the prospects for Russian gas sales to Europe might fade further, and especially for LNG. Much depends on global demand, how quickly LNG terminals can be built, the state of the global economy (ability to pay, post-pandemic boom or recession), and so forth.

The Nordstream 2 AG consortium is a company registered in Switzerland. A German subsidiary of the Nordstream 2 consortium (the ironically named 'Gas for Europe') was set up to obtain German certification for the project and manage the German 'leg'. This entity was wound up in late January 2023. It looks like this is a German signal that Nordstream will never be repaired, never be certified. In the meantime, the German government - inbetween sending German tanks to fight Russians in Russia - proposed 'seizing' Nordstream 2 consortium's 3,000 spare pipes stored at Mukran port on Rugen Island, which, by coincidence, is the site of a proposed LNG import terminal. A 40 kilometer pipeline will be needed to take the gas to the German mainland. As at late February 2023, they are  now proposing to buy the pipes, but as the Swiss registered Nordstream 2 company is owned by Gazprom, the transaction "may be difficult from a legal point of view" according to the Germans. If Gazprom does sell these pipes, it would be a strong indication of a final termination of the project. In that case, it's a safe bet that if Germany doesn't pay in full for the destruction of the project, then German assets in Russia to the same value as the Nordstream 2 project will be seized. Almost certainly the assets seized would be Germany's investment in Russian oil and gas.

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. Russia sold increased quantities of LNG from this source in the immediate term (mid-late 2022) - but this will not last. Medium term, this seasonal European trade could possibly be replaced by new gas volumes in the Middle East coming on stream - but infrastructure 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 [from] elsewhere – by the end of 2022 – is very 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

Curiously, on September 14 2022 Russian Deputy Prime Minister Alexander Novak said exports of gas to the EU are expected to decline by 50 billion cubic meters in 2022. Is this because Europe has found other sources of gas supply, plus reduced demand due to some combination of European business failures and reduced domestic demand? Or is it because Russia expects Nordstream 1 to remain closed for the rest of the year? Russia cannot open any gas pipelines until the terms of existing contracts are able to be met in full. And that means all sanctions have to be reliably ended - which means guarantees must be given, with penalties for further breaches.

"Regarding Nord Stream 1, our German partners have agreed that all technical aspects of Nord Stream 1, including the maintenance of gas-pumping turbine units, are subject to British law because – I myself was unaware of this and learned about this from Mr Miller – Gazprom had to sign a contract for the maintenance of these units made by Siemens not with the Siemens main office but with its subsidiary based in the United Kingdom, which slapped sanctions on Gazprom, and agreed to repair the turbines at a Siemens plant in Canada.

What do we have to do with all of that? Canada finally took it but yielded to numerous requests coming from Germany and gave it to Germany, whereas under an agreement with a Siemens subsidiary in the UK, the turbines were to be shipped straight to St Petersburg. Logistics arrangements have changed and the contract has to be revised. The British-based Siemens subsidiary will not even respond to Gazprom’s inquiries.

You can take as many photos with the turbine as you want, but give us the documents, for crying out loud. This is our property. We need to understand the legal status of this property and its technical condition. They give us nothing but chit-chat.

The last turbine is now out of order, so Siemens representatives came to look at it. There is an oil leak, which is an explosion and fire hazard. There is no way for the turbine to remain operational given its current condition. Give us the turbines, and we will turn on Nord Stream 1 overnight. They do not give us anything. They say we are weaponising it. What are they talking about? They themselves messed things up big time and are now not sure what to do about it. They drove themselves into a sanctions dead end.

There is only one way out. In Germany, people are rallying to turn on Nord Stream 2. We are supportive of the demands by German consumers and we are ready to turn it on as early as tomorrow. All we need to do is press the button, but we are not the ones who imposed sanctions on Nord Stream 2."
Vladimir Putin 7 September 2022  [Note: Nineteen days after this speech, Nord Stream 2 was bombed by a western Government - with or without the complicity of other government co-conspirators/proxy non-state actors.]

As at 8 September 2022, EU imports of gas from Gazprom are down 48% since the start of the year. Not too far from the EU's target of cutting Russian gas imports by 66%. And yet Gazprom is on course to achieve 85% higher earnings this yet compared to last. In other words, under current conditions, Russia is making more money while supplying less gas.

Gazprom, Russia's gas giant, said last week that since the beginning of this year, the EU had reduced its imports of Russian gas by 48%, while the EU plus the UK combined have reduced Russian gas imports by 49%.

Gazprom's exports to countries outside the CIS have shrunk this year by more than 35% compared to last year's period.

Still, the gas giant is set to rake in 85% higher revenues this year, to around $100 billion, as natural gas prices surged following the Russian invasion of Ukraine and the significant cut to Russian pipeline gas exports to Europe, an analyst told the Financial Times last week.

Whatever Europe does to reduce gas use, it will take time. China has expanded it's imports of natural gas from Russia, ostensibly as a measure to generate more electricity due to the summer 2022 heatwave - but some 'surplus' Russia-origin gas is re-exported to Europe, perhaps as much as about 7% of Europe's gas needs in the January to June 2022 period. These transhipped LNG cargoes have been reportedly been sold at a handsome profit for the Chinese businesses involved.

Nordstream Pipeline sabotage
On September 26 2022 a major power conspired (alone or with other actors) to blow up, or cause to be blown up, the Nordstream 1 and Nordstream 2 pipelines in place in the Baltic sea.

"Of course, Europe is protecting its interests, especially in the economy, but then again it is doing so half-heartedly. There go the gas pipeline explosions. These are not our pipelines; these are pan-European pipelines. Five European companies are part of Nord Stream 1. So what? Everyone is keeping quiet, as if it is business as usual. They even have the nerve to suggest that Russia blew it up. Russia blew itself up. Have they lost their senses or what? No, they keep doing this.

Gazprom published photos from 2016 showing, I think, a US-made explosive device under the gas pipeline system. They claimed they lost it during exercises. They lost an explosive device so conveniently that it slipped right under the pipeline. I think the [stated] purpose of the device was to destroy underwater mines. Look, here is the photo.

The international media are keeping silent about this; no one is broadcasting it; it all withers on the vine and is nowhere to be seen: neither online, nor on television. This is another case of monopolising the media to promote what they need and to kill everything that stands in their way. It is right there, but no one is saying a word about it.
Vladimir Putin  27 October 2022

Both major pipelines were hit by 2 explosions. Each pipeline is made up of two pipes, pipe A and pipe B, for a total of 4 pipes. The explosions damaged three of the 4 pipes. One pipe of the Nordstream 2 pipeline remained undamaged, the others lost all their gas. Russia offered to open this last Nordstream pipeline if Germany licensed it and removed restrictions (for which, read 'sanctions'). Russia's offer was refused.

"We are ready to supply gas, and we are ready to supply oil – why turn them down? After the explosions on the Nord Stream pipelines we have one pipe left and it is operating. We can pump 27.5 billion cubic metres but they don’t want it. What does this have to do with us? If they don’t want it, so be it."
Vladimir Putin 27 October 2022

As a result, millions of dollars of gas were lost, the Nordstream pipelines were exposed to sea water, the Germans won't open the only undamaged Nordstream pipeline, and so the only Russian pipeline gas left able to operate (politically, at least) is the pipeline running through Ukraine. However this Ukrainian-transit pipeline (Druzhba and Druzhba 2) is locked in a contract dispute with gazprom, and all gas flows have stopped. In addition, due to the poor state of repair, it cannot take the higher pressures (and therefore higher volumes) that the Nordstream pipelines can. The Soviet-era Druzhba 2 pipeline runs Russia-Ukraine-Slovakia-Czech Republic-Germany, and so Slovakia and the Czech Republic cannot access gas.

2009 map Russian pipelines

Note - 2009 map. Since 2009 the Nordstream pipelines have been built. And subsequently destroyed. The 'brotherhood' pipeline is also known as the Urengoy pipeline.

The Polish have blocked the Russian Yamal pipeline (which transits Poland) but coincidentally a new pipeline directly from Norway to Poland was opened the day before the explosions. Russia has opened a case of International terrorism.

Turkstream pipeline
On 12 October 2022 the Russian President suggested additional pipeline strings could be laid under the Black sea to augment the Turkstream pipeline, fully replacing Nordstream 2, and supplying south and central Europe. Unlike Nordstream's German/UK built compressors, Russian-built compressors would be used on the mooted project. Turkiye would stand to benefit from considerable transit fees and more stable prices.

"At the Russian Energy Week yesterday, after consultations with the Turkish Minister of Energy and CEO of Botas, an agreement was reached with Gazprom. I spoke about this publicly: if Turkiye and potential buyers in other countries are interested, we can consider building another gas pipeline and establishing a gas hub in Turkiye for trade with third countries, first of all European countries, of course, but only if they are interested. This hub, built by Russia and Turkiye together, would serve as a platform for both supplies and pricing, as pricing is a critical issue these days. The prices today are exorbitant. We would be able to regulate them properly at a market level without any political implications."
Vladimir Putin 13 October 2022

Russian gas to China
In the meantime, Russia is turning east. China took only 9.2 billion cubic meters of Russian gas in 2020, four times less than Germany (Turkmenistan is China’s largest pipeline natural gas supplier, Russia is second). While China is the fourth largest natural gas producer in the world, domestic gas demand has outstripped China's production. More and more consumers are being connected to the national gas distribution network. China imported 170 billion cubic meters in 2021. There is huge room for expansion in gas sales to China.

The 3,000 km-long Power of Siberia pipeline from West Siberia to China was opened in late 2019. At the moment the capacity is around 10 billion cubic meters, but in time this will be expanded to 38 billion cubic meters (its full capacity) when the giant East Siberian Kovykta gas condensate field in Irkutsk fully comes on line and can send processed gas to Chayanda gas field in Yakutia. Chayanda is the main gas field supplying both East Siberian cities and the Power of Siberia export pipeline. The Kovykta gas condensate field has reserves of around 1.8 trillion cubic meters of gas, and about 65 million tonnes of gas condensate (liquids). According to CNOOC, China's state-owned energy company, demand for natural gas in China will be up by 7% in 2023.

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, let alone pipeline built. However, Russian government officials seem optimistic:

"We are going to provide the power of Siberia pipeline 2 within four years. We are going to complete this process and we are going to have the completion and reliable supply of gas without any Europe - and when Europe says that you cannot live without us, that's absolutely nonsense! Russia will survive, it's a big territory it's a big country."
Andrey Gurulyov, Member of the Russian Federation State Duma budget expenditure commission 30 September 2022

"Using natural gas from the Russian Federation for decades, the leading European economies clearly had advantages of a global dimension. If they believe they have no use for these advantages, that’s okay with us and does not bother us in any way, because the demand for energy around the world remains high. It is not just about our friends from the People's Republic of China, whose economy is growing fast, as I said and everyone in the world is well aware of, the demand for energy is growing...

...Even the Europeans’ US partners have redirected their LNG tankers to Asian countries...In effect, today it is the biggest economy in the world in purchasing power parity. The Chinese economy is bigger than the American one. Their needs are on the rise, we have stable agreements...Our Chinese friends are tough bargainers. Naturally, they proceed from their national interests in any deal, which is the only way to go. But they are stable and reliable partners and the market is enormous.

But there is more to it. We will also engage in liquefying gas and selling LNG all over the world. As you see, I have already cited an example of the first Arctic LNG-1 tanker ... Everybody is buying it. They will buy it, it will be profitable for them. So we have no problems at all. If European countries want to give up on that, losing their competitive advantages, this is up to them. Let them do it."
Vladimir Putin 7 September 2022

Russia is clearly going to be the major supplier of the cheap and reliable natural gas that China needs. As mentioned, Russia aims to ultimately supply China with 50 billion cubic meters of gas a year through a pipeline in West Siberia (Power of Siberia 2). This pipeline was originally intended to transport natural gas from the Arctic Yamal gas field to Europe. But the pipeline will now be redirected East to China. Sales of gas shipped through Power of Siberia 2 will fully replace the now defunct Russia-Germany Nordstream 1 pipeline. Nordstream 1 carried a third of the Russian gas supplied to the EU. All that will ultimately be exported East. All that remains is a pipeline going through Ukraine, and a contractual dispute has left that with only one string flowing. Eventually, it is possible that no Russian gas will flow to Europe. But the proposed new 2,600 kilometer long Russia-China Power of Siberia 2 pipeline is going to be a few years coming - Mr. Gurulyov's 4 year timeline seems improbably optimistic.

The pipeline will run through difficult terrain in a severe climatic zone. The proposed pipeline route also transits Mongolia, a country which the US is working very hard to bring under it's influence, with all the consequences that will follow (installation of puppet governments, cancellation of gas projects in favor of US funded 'green energy projects', installation of US bases and Russian-facing missiles under the guise of 'defense cooperation' - the whole sorry package). Pipeline construction is not even planned to start until 2024.

The route through Mongolia has been chosen because it brings transit income to Mongolia, it will be a market - albeit a minor market - for Russian gas, and the very polluting Soviet-era coal plants that currently power the Mongolian capital city could be finally closed down. In addition, the pipeline will be able to connect directly into China's national gas distribution pipeline as it exits Mongolia into Chinese territory. But the pipeline doesn't have to transit Mongolia. The pipeline could travel up to the existing Power of Siberia 1 pipeline, follow its route across Russia to Northern China, and thus avoid the risk posed by the USA engineering a destructive 'Ukraine 2' situation in Mongolia. The disadvantage is that it is a longer route, and also needs a subsidary pipeline in China to carry on into the main Chinese network. Gazprom has not made a final decision, but seems to be leaning heavily in the direction of risking a Mongolia transit.

Russia's LNG exports
The most competitive supplier of natural gas will have a track record of reliability and moderate price. That describes Russia (discounting the effects of the US/NATO proxy war on Russia).

In December 2022 the Russian President pointed out that Russian natural gas is supplied to 'partner countries' at a price ten times lower than European gas users pay. He makes the point that as Russia is a reliable supplier, those countries can develop industries with confidence, including fertiliser industries. So far, this has mainly been pipeline gas. Price and reliability are Russia's competitive advantage. But selling pipeline gas requires a long term commitment from the buying country. For example, it took Russia 10 years to negotiate the contract for natural gas supply via the Power of Siberia pipeline to China.

Until recently, China thought that it would be possible to obtain cheaper natural gas from contracts for LNG loads, as it already relies on LNG for around two thirds of it's natural gas imports. But West's interference in normal gas trade has meant there is now a bottleneck in LNG shipping capacity, as Europe, spurning available pipeline gas, turns to an increased number of LNG shipments. At the same time, China's demand for LNG shipments is bouncing back as it's natural gas imports from LNG shipments returns to more normal levels after a 21% drop in 2022. The US blockade has clearly demonstrated the value of overland pipeline gas that cannot be interfered with (the Nordstream 2 pipeline under the Baltic Sea is not so much a pipeline as a practice target for Nordic country, Poland, UK and USA undersea drones).

Russia seems to be settling on a very flexible and diverse natural gas distribution system - land-based pipelines, pipelines under the Black Sea far from the 'unfriendly' countries, and LNG priced at favorable terms (for friendly countries), targeting both longer term and spot markets. It doesn't exclude supplying 'unfriendly; countries either, except that there be a pre-condition - they will supply at free market prices. Even mention a 'price cap' and it's "no gas for you".

Russia has a plan to be able to produce 110-190 bcm/year of LNG exports by 2025. Russia, with 4 LNG plants in operation, is already the world's fourth largest LNG exporter at 40 bcm/year of LNG exports. There is likely to be very strong competition in the LNG market, and it is likely to split along the West's 'friendy'/'unfriendly fracture line, which may also become the cheap/expensive line. Strategically, China could import all of Russia's 2025 LNG export production without blinking. It would still need to import LNG shipments from elsewhere, but could drop LNG imports from unfriendly countries - .Australia (44 billion cubic meters a year) and USA (12 billion cubic meters). China is also well aware of the US push into Central Asian oil, gas and uranium producing countries - and the inevitable overthrow of governments and instigation of violent internal divisions the USA always use to gain control.

405 million cubic meters of LNG entered the European gas transmission system by year end of January 2022. This is a record 110% increase in the 5 year average annual demand. This was even when the Nordstream pipelines were operating and supplying gas to Europe as well. Ironically, the EU stocked up on Russian gas - imports of Russian LNG surged 41% year on year August 2021/August 2022. Obviously, Europe was preparing to dramatically cut Russian gas purchases. As it turns out, it it wasn't enough.

By late December 2022 Russian Deputy Prime Minister Aleksandr Novak revealed that the European countries were "constantly asking us to increase supplies” through the remaining undamaged pipelines - the Turkstream (31.5 billion cubic meters a year), Bluestream (16 billion cubic meters a year capacity), and the Urengoy ('brotherhood') pipeline entering Ukraine at the Sudzha metering station (reduced to about 15.7 billion cubic meters a year as at late December 2022 but as at February 19 2023 that had fallen to 14.3 billion cubic meters a year). Clearly, there is European demand for Russian gas at the moment, and Russia - in principle - is happy to provide it under commercial conditions. But global LNG supply is increasing.

Qatar is expected to increase production at it's 'North Field' (= South Pars for Iran) natural gas wells by 10% (about 20.6 billion cubic meters a year). 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.

However, major LNG suppliers want long term contracts, guaranteed volumes. And now, for Qatar at least, they insist on a contract that prohibits re-selling any gas supplied.

“The buyer wants supply stability, and the seller wants a buyer who is stable and can buy in the long run. But the fundamental problem in Europe, in my opinion, is that governments talk about buying more gas, but they can’t because most European countries don’t have the funds to buy gas. Most LNG purchases are made through private companies. It is the private sector that buys... I think 10-15 year deals are probably the most acceptable for both parties. But for us, the long-term deal is not only in duration, but also in price... If you look at the situation, it will be very difficult for Europe to withstand zero supplies of Russian gas for more than two winters...There will be some LNG coming from the US and other places. We have committed ourselves not to remove anything from Europe and not divert any volumes. But, in the end, this is a small volume compared to the huge volume that comes from Russia.”
Qatari Minister of Energy Saad al-Kaabi 5 October 2022

The long term prospect for Russian natural gas to Europe (which by then may only be LNG shipments) don't look good. Politically, the EU seems determined to buy higher priced US gas, regardless of the damage it does to the EU economy (albeit the EU is attempting to 'cap' forward gas prices). The USA, in particular, has rapidly increased it's supply of LNG to Europe (at the expense of Russian LNG gas) and US LNG liquification capacity is expected to grow by 50% over the next 3 years (an increase of about 37 billion cubic meters/year). By the end of 2022 expansion of US natural gas liquification facilities will see the US with the ability to produce 143 billion cubic meters of natural gas annually. By the end of 2024 the US will likely be the world's largest LNG producer, exceeding Qatar and Australia (although Australia may have to reduce LNG exports to conserve increasing domestic needs).

By the time the US contracts additional new LNG vessels to transport these increased volumes to the EU, (the LNG carriers will probably be built by South Korea), it seems likely China and South East Asia will have increasingly turned to Russia, Qatar (Qatar will once again overtake the USA by the end of 2025), or Iran (and in the long run, West Africa) for 'cheaper' LNG . While Gazprom plans to increase it's exports to China to around 88 billion cubic meters of pipeline gas a year, China needs more than that, and it has to be imported as LNG. Some part of this will be Russian LNG. The importance of Qatar to China was underlined on on the 21st of November 2022 when China's Sinopec signed a $60 billion long term contract to buy 4 million tonnes of LNG (5.52 billion cubic meters) a year from Qatar, only a small part of China's rising demand. The LNG is expected to start being shipped to China in 2026. Europe and those Chinese and Southeast Asian countries that have signed long-term contracts with USA will be stuck with relatively expensive long-haul US gas (India will have less expensive gas from Iran, as well as Russian gas that was imported into Iran for re-export).

"The EU is the world’s largest LNG importer. In 2021, the bloc purchased 80 billion cubic meters of LNG. Among the union’s major LNG suppliers are the US (28%), Qatar and Russia (20% each), Nigeria (14%), and Algeria (11%)."
RT 24 July 2022

"The European Commission and member states' efforts to diversify away from Russian fossil fuels saw them last week sign a Memorandum of Understanding with Egypt and Israel for LNG exports from the eastern Mediterranean. We agreed a joint statement with Norway to step up our cooperation to have a deeper long-term energy partnership and will work towards securing additional short-term and long-term gas supplies, addressing high energy prices and cooperating on clean energy technologies. We are also working together with other alternative energy suppliers such as the USA, Qatar and Azerbaijan, to give just some examples."
European Commission Spokesperson CNBC 29 June 2022

[The EU] will pay more on average for its [non-Russian] oil and gas than its peers. Asian countries will buy more Russian oil at discounted prices, LNG imported by Europe from the U.S. will cost more than the price paid by U.S. consumers owing to transport and liquefaction/re-gasification costs."
Christopher Granville, TS Lombard, CNBC 29 June 2022

In 2021 the US sold about 36% of its LNG to Asia and Southeast Asia (13% to China, 13% to South Korea and 10% to Japan). Clearly, the USA is aiming to take Russia's 20% EU market share as well.

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.)

Iran's South Pars gas field is mature, but the Iranian North Pars field has not yet been brought into production. Once North Pars 4 phases are (eventually) fully drilled the field is expected to produce 4.8 billion cubic feet of gas per day (although gas from the first phase will all be used internally in Iran). This is an eventual production of about 49.6 billion cubic meters/year.  This will be sold as LNG. On the 19th July 2022 Gazprom signed a memorandum of understanding with Iran to help develop the Kish and North Pars gas fields, as well as six oil fields. Gazprom will also invest in constructing pipelines for gas export, as well as liquefied natural gas (LNG) projects. Where, exactly, these pipeline will be routed will be most interesting. Iran and Turkiye have started to negotiate a new and larger gas export deal for a 25 year period, starting 2026. (Iran already supplies 10 billion cubic meters a year of gas to Turkiye for Turkiye's expanding industrial base.)

Turkiye-Russia natural gas hub

President Putin suggested to the Turkish President that they build an additional pipeline from Russia to Turkiye (via the Black Sea). The objective is to turn Turkiye into a gas transit hub, perhaps taking some business from the existing 30 natural gas hubs in Europe. In my opinion, this strategically placed hub would have the potential to eventually develop into an exchange that is mainly used by 'friendly' countries, perhaps facilitating bilateral contracts, gas for goods swaps, use of gold in payment and so on. It would, in this case, trade in many different currencies. I also strongly suspect that derivative contracts will be prohibited, unlike in the EU (Although a major reason for the gas cap is to try to reduce the risk posed by derivatives - Germany's Uniper gas company lost billions on derivatives following the West's recent Russian gas shenanigans).

In October 2022 the Russian Deputy Prime Minister, Alexander Novak, said the intention is that Turkiye would be not only a trading hub for natural gas, but expanded infrastructural capacity could expand the gas volume to Europe. He indicated other gas producers such as Azerbaijan, Algeria and Qatar could supply gas using the infrastructure. Of course Russian natural gas is likely to be in the mix, either figuratively or literally.

The future for natural gas
There are large gas fields in the Mediterranean and the Caspian Sea that will also come on line in time (although Russia also has a very large stake in the massive Caspian Sea field). There are likely to be more very large oil and gas fields in the Arctic (the US/Canadia Beaufort Sea alone is said to have around 1.8 trillion cubic meters of natural gas). Arctic gas reserves are difficult and expensive to produce.

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. Cleaner baseload power is needed. While nuclear power will likely eventually take over the major role of baseload power, 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).

Distribution chokepoints remain (especially in Southern Europe). Who will build out new distribution pipelines in a world turning it's back on fossil fuels? World gas supply is increasing. Oversuppply drives down prices. Recessionary conditions push down price. Natural gas - and especially carbon containing natural gas - may become uneconomical to produce (except as a subsidised social service).

Natural gas is a source of climate shift and has no value in a world that must stop burning fossil fuels and releasing fossil carbon dioxide. But natural gas can be almost carbon neutral if it is processed to remove the greenhouse gas and safely and permanently seal it back under ground. Then it is immensely valuable. As a 'step-through' cheap and reliable 'base-load' energy source to offset the solar and wind intermittency problem.

Natural gas to Hydrogen gas & carbon capture and storage
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 (so-called 'blue' 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.

"A transition to carbon neutrality does not go against Russia’s interests – we have opportunities for developing alternative energy sources, including hydrogen energy and pure hydrogen, and we have serious competitive advantages in this respect. In part, it is possible to use gas. There are many opportunities, and this does not scare us at all but, on the contrary, creates an impetus for development. Primary gas is the best source of energy as a transitional source of energy. How was it possible not to invest enough money - or prevent investment - in the traditional energy sector without preparing fully for this green energy transition? How could this happen?

This is largely the reason for the current energy crisis. After all, Western politicians just talk to win voters to their side. First, they scare regular people with potential climate changes, then they start exploiting this fear and make unrealistic promises, and then they receive the votes they need, come to power and then say “oops”! What is happening now – a return to coal, a return to fuel oil?"
Vladimir Putin 27 October 2022

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 reason Proman and Stena Bulk decided to go for methanol-fuelled ships is to be prepared for the transformation we have to undergo on the way to net zero,” says Erik Hånell, CEO of Stena Bulk. “We know that we will be able to use this investment through to 2050 and beyond.” The plan is to blend in increasing amounts of blue and, eventually, green methanol to remain compliant with the IMO trajectory towards zero carbon." 20 April 2023

There are very few methanol fueled ships at the moment but methanol has advantages over alternatives such as LNG, engines can be retrofitted to burn methanol, and there is a clear transition pathway from duel fueled ships to full methanol bunkered. Methanol is clearly a major shipping fuel for the future.

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.

 "Rosatom's cooperation agreement with France's Air Liquide for a project to build a hydrogen production complex on Sakhalin Island has expired...Rosatom said it now "continuing the implementation of the project independently with the participation of a number of Russian and foreign partners.

Air Liquide...announced on Friday that it intends to exit Russia. The company said it signed a memorandum of understanding with the local management transfer its activities in Russia in the framework of a management buyout. This is subject to Russian regulatory approvals.

Rusatom Overseas, Air Liquide and the Sakhalin regional government signed a memorandum of understanding in the spring of 2021 to study the possibility of building a complex on Sakhalin Island to produce up to 100,000 tonnes of hydrogen per year. The parties completed a feasibility study for the project in February 2022....Rosatom is considering a total of ten pilot projects in the field of hydrogen energy. Rusatom now developing these projects. The company is doing research on large-scale hydrogen transportation and production and working with metal companies."

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 carbon-stripped 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 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, up until recently, most of the domestic gold is not exported, but sold to the Russian Central bank (or not, depending on the Banks current policy).

The Russian government 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.

But Russia doesn't want the ruble to appreciate too much in value. Using non-ruble EAEU currencies in foreign reserves might help achieve this stability.

In crisis conditions, gold is 'good' money, and when necessary, 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 early December 2022, USA's National Defense Authorization Act sanctioned anyone who took part "in a significant transaction— (A) for the sale, supply, or transfer (including transportation) of gold, directly or indirectly, to or from the Russian Federation or the Government of the Russian Federation, including from reserves of the Central Bank of the Russian Federation held outside the Russian Federation; or (B) that otherwise involved gold in which the Government of the Russian Federation had any interest." It is uncertain what is meant by a "in a significant transaction", but the overall purpose of this US law is to try to intimidate anyone using the Russian gold exchange. The fact it talked about gold held outside Russia perhaps hints that Russia might have some gold, including Central Bank Reserve gold in a tightly allied country such as China and/or India. It also prevents the use of gold purchase and sales via the Bank of International Settlements (the Central Banker's Bank). But the new Basel 3 banking regulations require that gold held as a tier 1 asset must be readily able to be bought and sold. However, Article 55 (3) of the Bank of International Settlement rules says "All deposits entrusted to the Bank all claims against the Bank and the shares issued by the Bank shall, without the express prior agreement of the Bank, wherever located and by whomsoever held, be immune from any measure of execution (including seizure, attachment, freeze or any other measure of execution, enforcement or sequestration)."

The US NDAA Act also  says:

"(a) STATEMENT OF POLICY.—It is the policy of the United States to seek to exclude government officials of the Russian Federation, to the maximum extent practicable, from participation in meetings, proceedings, and other activities of the following organizations: (1) Group of 20; (2) Bank for International Settlements; (3) Basel Committee for Banking Standards; (4) Financial Stability Board; (5) International Association of Insurance Supervisors; (6) International Organization of Securities Commissions,"
In other words, one member of the International community is attempting to dictate to other members who may or may not attend meetings of world organisations. While the US dominates the Bank of International Settlements, and in principal could force a change to article 55 (3), so far it hasn't. But the US is just one member in 28 of the Basel committee, so it has no power, it seems, to bend rules to keep Russia away from meetings, let alone make regulations that disadvantage Russia's gold reserves status.

In late June 2022 the USA, UK, Canada, and Japan formally banned the import of Russian gold - a redundant move of little significance. On July 21 2022 the UK banned the acquisition, sale and purchase of gold and all financial services and funds and brokering services relating to gold from Russia (and on 29 October 2022 banned Russian gold jewellery). Another nail in the coffin of London as a gold exchange. Switzerland followed suit in August 2022. (As a result, Russia no longer recognises Switzerland as a neutral country.)

On the face of it, a few commercial banks buy (and sell) a little gold, mostly at mutually negotiated 'over the counter' transaction, albeit VTB, Otkritie and Sovcombank were members of the London Bullion Market Association (LBMA) until they were banned in late February 2022. Another nail in the coffin of the LBMA as a global gold exchange.

However, there is a memorandum of understanding between the Russian National Financial Association, (representing the major securities market participants, banks, and with the central bank of Russia and Ministry of Finance as patrons) on the one hand, and the Shanghai Gold Exchange on the other. Apparently the National Financial Association would “play the role of market organizer” to “facilitate Russian institutions to access China’s gold market”. I can only surmise that the two countries are aiming to strengthen the trading of gold on both exchanges, with the Shanghai Gold Exchange being by far the most important. Perhaps, in time, Shanghai will set the gold price for the market.

Personally, I suspect there will be a good Eurasian trade in physical gold in time, and these 2 'exchanges' (and perhaps others) may play an important role.This suspicion is reinforced by Russian media reports in July and August 2022 that an international precious metals exchange may be established in Moscow (the 'Moscow International Precious Metals Exchange'), involved in brokerage of not just gold and silver but all precious metals. Russia is promoting the idea of creating a new international standard, the 'Moscow World Standard' (MWS) for dealing in precious metals. This standard would not allow the gold price fixing mechanism to be (allegedly) manipulated by the 5 big market making banks in London, and is specifically aimed at surpassing the LBMA standard.
Eurasian countries that already use the ruble in trade with Russia (members of the Eurasian Economic Union, that is Armenia, Belarus, Kazakhstan, Kyrgyz Republic and Russia) would almost certainly be participants in such a Moscow exchange. The user base might expand with increasing use of the ruble in bilateral trade, for example with Turkiye, India, the UAE, and Iran.

The EAEU regulatory body (the Eurasian Economic Commission, EEC) would likely set up regulations such as certifying refineries and listing which refineries gold bars will be 'good delivery' on the exchange. The EEC would run a new precious metals price fixing committee (including EAEU member country Centrals Banks and the major banks dealing in precious metals in each of those countries). It is proposed that pricing would be agreed in either participant national currencies or some as yet undefined 'international settlement unit' for use in international trade. According to a Russian Ministry of Finance letter (July 2022) to those involved in precious metal trading it has become “critically bet on fixing prices in the national currencies of key member countries, or on new units of international settlements, such as the new unit of settlements proposed by the President of Russia within the member countries of the BRICS organization" in order to to "normalize the functioning of the precious metals industry." Apart from the need to expand trading in gold outside the interference by the west (the EU also partially banned Russian gold and some individuals in the 7th sanctions package), there is also the belief that gold prices on the London Bullion Exchange are manipulated.

Some UK gold industry participants have claimed for some time that the price of gold has been in effect 'capped'. While the main mechanism for this has now been blocked by new Basel regulations, the gold price has remained muted. Moscow argues a fair and transparent market serving 'friendly countries' will see the price of gold rise in the friendly countries. (which would suit not just Russia, but also many Middle Eastern and Asian countries). We will see how much interest there will be from 'friendly countries'. If the concept 'gets legs', then the nett effect, of course, will be a huge sucking sound, as gold is siphoned out of western gold exchanges and into Eurasian gold exchanges.

The proposal is realistic, as Russia plus 'friendly countries' together comprise a bit over 60% of world gold production, which makes their choice of marketing venues, and therefore pricing power, particularly important.

(India, a major gold using country, is also setting up a gold exchange, the India International Bullion Exchange (IIBX). According to Prime Minister Modi, it will "...empower India to gain its rightful place in the global bullion market and serve the global value chain with integrity and quality." It will also neutralise any malicious move by the United States to block India from trading gold.)

The Russian precious metals industries can't keep selling to the Central Bank forever. Easier marketing to 'friendly countries' is essential.

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. And especially at the Shanghai Gold Exchange. And if the Eurasian precious metals exchange comes to fruition, trading in Russian, Chinese, and Kazakh physical gold will be easy. Perhaps settling currency exchange using blockchain contracts between central banks, cutting out the middlemen - and thus market manipulation. These transactions would, of course, be invisible to 'unfriendly' countries. And would not involve the dollar.

Russia produces about 26% of global gem - quality diamonds, and about 30% of the global industrial grade diamonds. Trade in Russian diamonds is worth about $4-5 billion a year.

In 2016 the Alrosa-owned Mir mine in Yakutsk produced 3.19 million carats of diamonds, but in 2017 it was flooded when an upstream mining-waste pit failed. This mine had produced over 10% of Alrosa's diamonds. A joint 20 year joint partnership project commenced work in 2023 to make a new mine to replaced the flooded one. Production is not expected until 2032. Zimbabwe and Alrosa concluded an agreement in 2020 whereby Alrosa provides 12 million dollars over 2 years for, geological exploration and prospecting for diamonds in Zimbabwe. If economic deposits are found the agreement allowed for joint venture production of diamonds in the rough, with Alrosa holding 70% share to Zimbabwe's 30%. The joint venture received 39 exploration permits for 2022, with a capital cost of about 16 million dollars expected. Zimbabwe has been under sanctions for 23 years so far, has out of control hyperinflation, high unemployment, poorly controlled corruption, has a foreign debt of $14.04 billion (and is in arrears for making payments), a domestic debt of $3.4 billion. The debt is primarily owed to the African Development Bank, the World Bank, and the European Investment Bank. Zimbabwe is a poor credit risk, but Russia, which is not a member of the three major capital-providing entities (much of which traces back to non-regional countries), is, it seems, willing to provide capital without conditions via a profit sharing joint venture.

Russia's Alrosa supplies India's diamond trade - which cuts and polishes 9 out of 10 diamonds in the worlds gem market.

In May 2023, the G7 countries meeting announced they would "work closely together to restrict trade in and use of diamonds mined, processed or produced in Russia..." According to the president of the Diamond of the Diamond Workers Union Gujarat the sanction would sound the death knell for the industry. This directly affects the livelihood and continued employment prospects of the approximately one million diamond workers in India. The Indian Prime Minister Narendra Modi was one of 8 invited guests at the meeting. You can be certain the G7 leaders were aware of the importance of the diamond trade to Indian workers.

Diamond producing countries are all members of the UN mandated 'Kimberley Process' that certifies diamonds as not being 'blood diamonds', diamonds mined under appalling and exploitative conditions. At the Plenary session of the 2022 meeting of the KP members the west tried to insert new politicised agenda items preventing Russia from remaining a member of the organisation, and thus being unable to trade.  These 'out of time' amendments weren't circulated to all members (a typical western trick), and Russia-friendly countries promptly refused this amended agenda to go forward. The Kimberley Process reaches decisions by consensus, and so the west can't dominate. Zimbabwe is the 2023 chair, and so all the wests efforts to ruin the non-politicised nature of the organisation are doomed from the start, at least for now.

Minerals in General

"In order to ensure, under the current conditions, the state’s technological independence and security based on the full life cycle of production from raw materials to final products, the Russian Federation Government was instructed to develop and implement a set of priority measures to create demand for domestic solid minerals (including rare and rare earth metals, titanium, lithium, manganese, beryllium, tantalum and wolfram) in certain critical sectors of the economy (metallurgy, the defence, chemical and medical industries, and construction).

These measures should, in particular, provide for a consolidated order for specific types of goods (machinery, assemblies, installations and materials) with an increase in the share of Russian solid minerals in the chain of their manufacture; the creation of Russian production capacities and technologies for the processing, mining and exploration of minerals, and the geological study of minerals; the utilisation of waste components of mining and processing activities, ashes and slags; the geological and economic reassessment of recorded state reserves; the assessment of probable mineral resources; and the adjustment of strategic planning documents for the development of the mineral resource base and industries regarding the coordination of goals, activities, indicators and deadlines.

The Russian Federation Government, together with the Federal Assembly chambers, was instructed to work out the issues of stimulating the exploration and mining of strategic and scarce types of raw materials and to make the necessary amendments to the legislation.

The Government, with the participation of the Russian Academy of Sciences, Rosatom State Corporation and other interested organisations, was instructed to determine the priorities for the development of the mineral resource base of solid minerals in conjunction with the forecast for scientific and technological development in order to create promising high-tech products and materials for the long term. In addition, the instructions relate to the development and implementation of a federal scientific and technical programme aimed at providing comprehensive support for geological exploration, mining and industrial processing of solid minerals, as well as the accelerated substitution of imported technologies and equipment with Russian equivalents.

The Government was instructed to organise prompt and coordinated support to address these tasks, including using the mechanisms of the Russian Federation Government Coordination Centre."
Instructions following an audit of the implementation of legislation and presidential decisions aimed at developing a promising mineral resource base 28 June 2022

Russia has many other important minerals, with mineral resources worth an estimated $7 trillion. Up until now Russia had a favorable legal framework for mineral extraction. Exploration can be done by licence over defined areas, with the only proviso that any discovery of minerals of  national defense and security importance will go to the Russian State (survey costs are compensated). 'Strategic' mineral deposits can't be directly owned by a foreign company, but its subsidiary can. These minerals include uranium, high-purity quartz, some rare earths, some diamond deposits, nickel, cobalt, tantalum, niobium, beryllium, lithium and larger deposits of copper, gold, palladium.

Helium, a very limited resource found deep in the earth's crust, is absolutely essential to the operation of medical MRI scanners. It is captured as a by-product of oil and gas drilling. Russia has a very large helium resource in Eastern Russia, but the production plant is currently out of commission due to fire damage. When back in operation it could supply about a third of the world's helium needs. US helium reserves (mainly in Texas) have now run very low, and most US helium suppliers now ration it to medical use only. The US helium industry expected to import helium from Russia as US supplies dwindled, but his is now in question - due to US trade restrictions on Russia.

Precious metals are required to be refined in Russia, but other than that and export taxes, foreign corporation work under the same regulations as domestic companies, and their right to revenues are guaranteed by law. If a foreign operation is nationalised or expropriated in accordance with a federal law, the foreign investors are entitled to compensation for losses. Russia is practiced in making life difficult for a company to the point the company 'willingly' sells up its stake, so nationalisation or expropriation is unlikely. Breaches of environmental requirements (always part of the license) is a popular choice. Force majeur due to western sanctions constructively altering the terms of a contract (as in the case of the Siemens gas pump 'incident') might become increasingly popular.)

“The nickel alloy market is estimated at around $10 billion and expected to grow by 8–10% over the next five years. That is why we see a great opportunity for Nornickel to enter new high value-added markets and actively promote nickel, the Company’s strategic product.”
Denis Sharypin, Nornickel Head of the Marketing Department 23 August 2022
Russia produces about 10% of global nickel. There are ample supplies of class 2 nickel in the world (less than 99.8% nickel content), but class 1 nickel is not so abundant (about 40% of nickel deposits are high quality sulfide deposits).  Russia's Nornickel produces15-20% of world battery-grade nickel (class 1 nickel). Nornickel is the world’s largest producer of high-grade nickel and palladium.

Nornickel is also developing innovative high purity nickel and cobalt-based alloys that can withstand temperature extremes and resist chemical degradation by acids or alkalis. These alloys are used in high tech sectors such as the space, aviation, chemical, nuclear, and oil and gas sectors - all of which have exacting technical specifications for nickel alloy products.

As the west needs nickel, it has not sanctioned it. In fact, the U.S. increased its imports of Russian nickel by 70% in the 4 months from March through June 2022. The EU's imports increased by 22% over the same 4 months. But - supposedly - the EU is looking to reduce it's imports of Russian nickel in future and buy it - at a premium to the cheaper Russian product - from elsewhere, probably Australia or Canada. Markets in friendly countries will probably be happy to buy the cheaper Russian product.

In December 2022 the Finnish railway company VR announced it would stop carrying nickel from Russia to Norilsk Nickel's refinery plant in Harjavalta, Finland. The Finnish plant takes around 24% of Nornickel's output (about 65,000 tonnes per year). This plant supplies nickel sulfate concentrate solution used to manufacture lithium-ion  batteries. The batteries are manufactured by a new BASF facility in East Germany. BASF ultimately aims to annually produce enough batteries for 300,000 electric vehicles. BASK also has a plant in Harjavalta, Finland producing purified nickel cathode material for the EU market.

Nornickel has previously commented that, in effect, cheap rail transport is essential to Nornickel's profitability at Harjavalta. Presumably, the Finnish move is designed to ultimately force Nornickel to close its plant at a loss and exit Finland.

Nornickel, in conjunction with Finnish renewable-energy supplier Fortnum and battery maker BASF established a plant in 2021 that recycles the metals in lithium-ion batteries. The recycled metals, including nickel and cobalt, would then be added to primary materials to 'close the loop of lithium ion battery manufacture.

"“The combination of battery materials production and recycling enables the circular economy by closing the loop,” said Tim Ingle, Vice President Precious Metals Refining, Chemicals & Battery Recycling at BASF. “To drive electrification, we are focused on bringing solutions for high energy density cathode active materials and high-efficiency lithium extraction for battery recycling.”

Nornickel describes the construction of a modern recycling plant as a further step towards becoming “one of the most sustainable nickel refineries in the world”. The Russian company and BASF have been partners for some time and have already announced that they want to further intensify their cooperation.

BASF’s investment in its Finnish plant is part of a multi-stage investment plan worth €400 million that the company announced in mid-2017. The cathode materials business is still a relatively small unit under the BASF umbrella but is one of the Group’s most important innovation projects. From 2012 to 2015, the company made a number of acquisitions and investments to gain access to the cathode market.""

It is obvious to me that BASF is setting up conditions to bankrupt the Nornickel plants, buy distressed assets, and become a 'full cycle' battery manufacturer while shutting Nornickel out of the same 'green' credential.

Most likely the EU will at some point apply a carbon tax on any batteries produced without an ability to recycle the constituent material with 'green' energy.

Russia is the world’s 9th largest bauxite producer, producing about 3.5 million tonnes a year, with over 80% coming from the Urals. Russia also imports refined bauxite (alumina) to supplement local supplies. Russian Aluminum (Rusal) and SUAL produce about 85% of Russian aluminium metal (primary product for further manufacture).

The SUAL group is an umbrella organisation for 21 companies involved in bauxite mining, alumina production and refining, and production of aluminium manufactured goods. (This information may now be outdated)

Rusal has 4 plants in Russia that smelt bauxite into alumina, a Russian refinery for refining alumina into aluminium metal, and a further refinery in Ukraine (no longer operating). Rusal produces about 10% of global primary aluminium.

Rusal obtained 20% of its alumina from Australia, from their share of the Queensalnd Alumina joint venture. But in 2022 Australia prohibited alumina export to Russia.

Rusal buys - or rather, bought - alumina from Mykolaiv (Nikolaev in Russian), Ukraine. Ukraine, in turn, refines bauxite from its Pripyat and Vysokopl’ye deposits. Ukraine also imports bauxite, mainly from Guinea (which has the worlds largest bauxite deposits) and Guyana. Refining bauxite into alumina is very energy intensive, and Ukraine has - or had - excess electricity from Soviet era nuclear and thermal coal power plants. 

Once smelted into metal, this is equivalent to 900,000 tonnes of aluminium billets or products a year, which is almost a quarter of Russia's aluminium metal production. This raw material is no longer available.

In 2021 China supplied Russia with 1,750 tonnes of alumina. A tiny amount. In 2022 China steeped in and agreed to supply Russia with alumina to help offset Russia's lost unfriendly country suppliers. By the end of 2022, China had supplied Russia with 843,000 tonnes of alumina.

In turn, Russia is supplying China with increasing amounts of the highly sought-after 'green aluminium', also known as 'low carbon aluminium'. This is aluminium refined from alumina using renewable power, typically hydro power. Russia offered its green aluminium to Chinese manufacturers at attractive discounts. Some of Russia's 'green aluminum was sent to Europe, but not any more. While China imported just 18% of its aluminium metal from Russia in 2018, by the end of 2022 it had increased to 69%.

Russian producer Rusal has its sights firmly set on the Chinese market to sell even more product, particularly low-carbon aluminium from its hydro-powered Siberian smelters. And China seems very satisfied with the arrangement.


The Trans-Baikal Udokan copper deposit, at over 26 million tonnes of resource in place, is the world's third largest undeveloped copper deposit. The processing plant will produce both copper cathodes (almost pure copper metal) and concentrated copper sulfide. The first stage is expected to have a maximum total production of around 135,000 tonnes of copper. Concentrate exports are expected to start in 2023.

Agriculture Sector

"I will emphasise it once again – Russia has been and remains one of the world’s main food producers and exporters. We supply our agricultural products to 161 countries. Last year, we exported over 43 million tonnes of grain, including 33 million tonnes of wheat. This year, we expect good grain harvests, which will allow us to increase our supplies to the external markets up to 50 million tonnes."
Vladimir Putin, 30 June 2022

"Today, we have managed to ensure food security among most key products such as grain, sugar, vegetable oil, and fish products, to name a few. I would like to separately note the achievements of meat and meat product producers.

In addition to saturating the domestic market, our livestock and poultry producers are exporting their products to more than 110 countries.

Of course, we are aware of what we need to work on, such as fruits, vegetables, milk, and dairy products in general. To reiterate, given our land area and other resources, the industry’s potential is tremendous. To tap it, it is critically important for us to consolidate our positions, achieve tangible progress and the necessary independence in a sensitive area like the seed and breeding fund which is the base of the agro-industrial complex and a basis for increasing the yield of our crops and the productivity of our farms."
Vladimir Putin 21 November 2022

The west started applying its illegal trade restrictions on Russia from about 2013 onwards. Russia was forced to take sudden and dramatic measures to build up its own food industries, as before then, it had imported a lot of food from overseas, Europe in particular.

Russia had to heavily subsidise local producers and food processors to ensure food security for its people, let alone for export. In the period 2013 - 2020 it paid nearly 931 billion rubles to develop domestic agriculture and to subsidise the cost of raw materials and food on local markets. (Further large sums supported exports.)

Russia has the advantage of cheap oil, and therefore cheap diesel and gasoline used in agricultural machinery. The west's restriction on the Russian oil market resulted in a sale of both diesel and gasoline very profitable, and some Russian entrepreneurs sold considerable quantities on the \grey market', to the extent that supply of fuel for the 2023 seed sowing season was so limited it jeopardised getting the coming seasons crops. Luckily, Russia was able to borrow a 'cup of diesel' from its neighbour next door.  It demonstrated that while Russia's strategic industries are largely government controlled, no one is in full control of all inputs. Lessons were learned, and it is unlikely to happen again.

"I would like to inform you that there were not exactly disruptions but certain difficulties on the fuel market. We have stabilised the situation and supplied as much as the Russian Federation needed and the Government asked: I think 60,000 [tonnes] of diesel and gasoline each; and we will stabilise the situation on our common markets. If we have to decrease supplies to foreign markets and increase the internal demand, it is not a problem."
President of the Republic of Belarus Alexander Lukashenko to Vladimir Putin 15 September 2023

In 1995 Russia grew all its own potatoes, virtually all its own grain and vegetables, almost 90% of its dairy products, and about 70% of its own meat. Around half the fruit was imported, as was about a third of the sugar and about a quarter of the vegetable oil.

By 2019, this had turned around, and Russia had a considerable excess of grains, sugar, and vegetable oil. It was producing almost all its own meat, but was importing 10% more fruit than 1995, and importing a little bit more dairy products. (It is important to realise that fruit and vegetable imports from Turkey and Iran help balance trade with Russia and provide low cost fruit, including tomatoes).

As a result of the enforced 'home-shoring' of production, from 2014 to 2019 Russia increased 'basic crop' production (such as corn and grains) between about 7% and 65%, and meat products by between 5% and almost 15%. Russia experienced a surge of startup enterprises across all sectors of agriculture and horticulture - greenhouse vegetables, fish farming, cattle breeding and so on.

Russia is now adequately self sufficient in food production, and has become an exporter of foods and raw materials. with the countries of the Eurasian Economic Union the major market.

"Russia is one of the six largest exporters of vegetable oils, margarine, processed cereals; in the top ten world exporters of sugar and chocolate products, packaged tea (for black tea - in the top five), is the world's largest exporter of yeast, ahead of China [2-4].

Russian producers in the feed market occupy a significant share: the largest share in the export commodity structure is occupied by sunflower and rapeseed cake, sunflower and soybean meal, grain processing residues, beet pulp, according to which Russia is the world's largest exporter, and in terms of export of sunflower cake and oilseed meal. and grain processing residues consistently ranks second in the world."
A. V. Kuchumov 2022


Grains, pulses and other seeds; potatoes

Russia accounts for 24% of the world wheat market, 14% of the world barley market, and 23% of the world sunflower oil market. North Africa and the Middle East rely on Russia and Ukraine for 50% of their grain needs. 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 severe trade restrictions began. Trading the harvest starts in July. 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.

Over 1.1 billion USD is subsidies were given to the agriculture sector in the 2023 planting season for essential supplies such as fertiliser, sprays, agricultural machinery and parts, tractor fuel, specialised lubricants and so on.

Big plantings require big machinery. 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.

Seed supply
Russia's food security doctrine requires that it must be able to grow a minimum of 75% of the crop seeds it needs. As at early 2022, it meets this target in wheat, oats, barley, rice, and leguminous fodder crops - but there are major gaps seeds for other crops.

The head of the Federation Council Committee on Agrarian Food Policy and Environmental Management, Aleksey Mayorov, described the situation with potato 'seed' as "close to catastrophic". Only about 8.7% (2021) of the potato crop planted uses Russian varietal selections, the rest comes from 'seed' of of foreign potato varieties. His estimate is that 75% self reliance for potato 'seed' won't be achieved until 2030.

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. While Russia has long produced a significant proportion of its own seed of soybeans (about 42% in 2019), buckwheat, sunflower About 26% in 2019), 'other oil crop' (presumably canola) and other 'grain' crops, it has lagged in production of its own fodder crop seeds, and is highly dependent on imported sugar beet seed. Russia has a large sugar production industry, and in 2018, at least, 75% of the seed (3,200 tonnes) was imported (some figures suggested that as at 2019 less than 1% of beet seed was from domestic seed growers).

Vegetable seed breeding and production has also lagged. Most modern vegetable varieties are hybrid, and unless the parental lines are available, the hybrid seed for sale to farmers can't be bred. Russia will have to develop it's own modern proprietary varieties.

Russia has relied heavily on hybrid corn (maize) seed from overseas. In February 2023, Syngenta, Bayer and Nuseed advised their Russian customers that they will no longer supply seeds to Russia, and intended to exit Russia altogether (Syngenta later claimed they were not doing this). In response, Russia said it would not allow foreign seed companies to work in Russia (including producing foundation and certified seed for corn hybrid cultivars) unless they met certain conditions.

The draft rules include physically basing a subsidiary of the seed company in Russia, joint ventures must have 51% Russian ownership, breeding material must be located in Russia, and the company must give technical training to Russian staff.

Russian seed growers do not provide sufficient volumes of production of seeds of vegetable crops’ domestic varieties (Soldatenko et al., 2020). Modern breeding is based mainly on the gene pool at hand to both further improve older high-yielding varieties and to develop new varieties. But some of Russia's plant breeding capacity disappeared in the 1990's when Russia was abruptly opened up to foreign competition. Foreign vegetable seed companies (in particular the Netherlands, France, Germany, Great Britain and Denmark) soon overtook local breeders - and with a much reduced local industry state vegetable breeding institutions lost work, breeders, and institutional land. According (2022) to a tomato breeder, the Russian vegetable breeding enterprise can recover, but it will probably take 2 - 3 years to rebuild.

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.

Domestic potato consumption is increasing rapidly - an estimated 1 million tonnes was used in processing in 2022, 2023 is estimated to need 1.5 million tonnes, and the demand for processing is expected to hit around 3 million tonnes by 2026. While processing capacity has increased, domestic production lags. Officials say that unless subsidies are available to encourage domestic potato growers potatoes will have to be imported - especially if drought lowers production, a real risk for all European potato producers as the effects of global warming bite. Most Russian table potatoes for consumption come from 'friendly countries' - Egypt, Azerbaijan, Belarus, Israel.

The Ministry of Agriculture hoped Russian growers would respond to subsidies and increase production by half a million tonnes to a total of 7.2 million tonnes in the 2022 year.

Agricultural Exports
Russia's agricultural exports in 2021 were said to be about 38 million USD. As of early May 2022 there are theoretically no foreign trade restrictions on Russia's agricultural exports. But there are restrictions on Russian vessels - including bulk grain carriers - entering european ports. The Russian Agricultural Bank, which is involved in receiving payment for shipping grain has been blocked from the SWIFT inter-bank payment system. In addition, 'overcompliance' by insurers and shipping companies has meant they won't do business with Russia, even when it is permitted.

"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

"The “Ukrainian deal” is being more of less acted upon even though far less than 10 percent is going to the poorest countries, and the bulk (almost half of it) is going to the EU and about the same amount is going to well-off developing countries. The poorest countries are getting just a sliver of it, although Antonio Guterres promoted his initiative with precisely these countries in mind.

No amount of UN efforts has prompted the EU or the United States to lift barriers to our exports of grain and fertilisers.

Washington and Brussels keep saying that no sanctions on food or fertilisers have been imposed. Indeed, the adopted decisions do not mention “food” or “fertilisers.” There is a provision, though, that bans Russian ships from entering Mediterranean ports, a provision that bans foreign ships from entering Russian ports, and there is also a restriction imposed on our main agricultural bank, Rosselkhozbank, cutting it off from the SWIFT system. There is a problem with freight and insurance.

Antonio Guterres must be credited with highlighting these issues publicly. But things have not budged an inch.

The West continues to insist that food and fertilisers have not been sanctioned...the specific issues that Antonio Guterres proposes addressing (and we strongly support him in that) simply remain on the sidelines.

Just like our free offer of to deliver the fertilisers that are stranded at European ports (about 280,000 tonnes). After this cargo had been arrested at the European ports, the Russian owners of these fertilisers said they wanted to have these fertilisers sent for free to the poorest countries so as not to waste the product which loses its potency over time."
Russian Foreign Minister Sergey Lavrov 23 January 2023

Russian wheat and sunflower exports are doing very well. Most Russian wheat is sold in the Middle East, and demand is very high. Russia's 2022 season crop was expected to be larger than 2021 . 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.

In late June 2022 Russia introduced a requirement that foreigners must pay in rubles for wheat, sunflower seeds and sunflower expeller cake (used for animal feed). The Agriculture Minister had previously suggested that export crops would only be available to countries that refrained from restricting Russian trade. In 2023 the Agriculture Minister, discussing the expected 2023 harvest of 123 million tonnes of grain, said "...we see the potential for foreign trade with this harvest, about 55 million tonnes, so we will be able to feed our friendly partners." This might imply a hierarchy of supply, those who do not impose sanctions being at the head of the queue. (In August 2023 legislation was proposed that appears to require all purchases from Russia on foreign grain trading exchanges be made in rubles. Details are unclear as yet, but implementation is set for somewhere around the end on 2023.)

Russia imposes an export tax on wheat and other edible seeds. The idea is to raise the price of exported food high enough that it is profitable to sell these foods into the domestic market first, with only the excess to local market requirements being then exported. This tax, too, must be paid in rubles.

"...I would like to highlight one fact. As a result of non-fulfillment of Russia’s requirements under the grain deal, our transportation costs for exports have increased significantly. So exporters partly shift these costs to grain producers and our crop growers. We can say that the profitability of grain producers in Russia has almost halved over the year."
Minister of Agriculture Dmitry Patrushev, 19 July 2023 

It seems that in the choice between paying the growers less and charging a higher price on the export market, the growers lose out. The global wheat market was forecast to be well supplied following good global harvest expectations for the 2023 northern hemisphere harvest season. Russian wheat production (specifically) is expected to be down a little, at about 85 million tonnes. China is the world's top wheat importer, mainly for livestock feed, and it sources most of it from Australia. However, China's 2023 domestic wheat production have been hit by heavy rains at harvest, meaning more Chinese wheat will go to animal food rather than milling for direct human consumption. China may have to import more milling wheat, which may sustain Russia's milling wheat prices. This is bad for low income countries, but Russia has promised to donate grain to the very poorest people in food insecure countries free of charge. Russia's targeted food aid for the last quarter of 2023 will be 50,000 tonnes. These shipments will go to the most needy people in Eritrea, Somalia, Mali, The Central African Republic,Burkina Faso and Zimbabwe. 

"...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 years bad harvests. As we see already in both North American 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.

Wheat exports
Russian wheat exports are 20% of the global wheat market. Russia mainly exports to the Middle East, Africa, Southeast Asia, and Latin America. Among the largest buyers are Turkey, Egypt, Iran, Saudi Arabia,, Kazakhstan, Azerbaijan, and Bangladesh.

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 may well take Ukraine's 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.

As at November 2022 Ukraine is bankrupt and deeply in debt to the west. In the future, Ukraine will have to work with Kazakhstan and Russia if they want to maximise the value of their wheat exports. However, large parts of Ukraine's grain producing areas are now under Russian and Republican control, and some parts that are not in Russian new territories look to be falling into the hands of US multinational companies, including Blackrock. If Ukraine (or it's foreign owners) has surplus grain in future years (this is now somewhat uncertain), it can easily be sent to Europe by road or rail through Poland, or by barge down the Danube to Romania's Black Sea port. (The Romanian port of Constanta has already shipped nearly a million tonnes of Ukrainian grain arriving by barge down the Danube, but it will bottleneck as the European summer crop comes in for export through the Black Sea.) Most Ukrainian grain exports go to the west, mostly for animal feed.

In that case, Ukraine could join the Eurasian Economic Union, have a foot in both camps, accept a EEU index price, or use Eurasian Economic Union supply dominance to lever price to the west  - the ideal market play.

In 2009 Russia's President issued an executive order establishing the United Grain Company (UGC) and listed it as one of the Russian government's state-controlled 'strategic shareholding companies'. The Russian government owns 50% of the shares plus one share. The companies strategic remit is to implement state support for Russian grain growers, develop export infrastructure (including a Black Sea export facility that will reach a throughput capacity of 11.6 million tonnes a year), buy and sell grain, and create strategic grain food reserves. The Russian Ministry of Agriculture runs an 'intervention fund' which buys wheat for both food security and as a buffer for growers when there is a bad year (the aim is to have up to 3 million tonnes of wheat stored in 100 grain elevators spread across 24 regions of Russia by 2024).

The UGC moved to on-line auctions National Commodities Exchange for sale of wheat on the domestic market. This has allowed Russia to develop its own wheat price index, rather than use the indices of foreign exchanges like foreign exchanges like the Chicago Mercantile Exchange or the International Futures Market of France. This move helps dampen the manipulation of price by commodity speculators and the 'derivatives markets' with all their shenanigans.

Although there is supposedly no western interference in trade in agriculture, the UGC is working to 'fully bypass international trade mediation', in other words cut out the middleman, reducing the cost for importers of Russian wheat. Friendly countries will pay in rubles, meaning the Russian wheat export trade will be fully shielded from any future western trade restrictions on food.

"The company is also focusing on foreign trade. In 2021, exports amounted to almost 3 million metric tonnes. Our main goal is to fully bypass international trade mediation and work directly with the importing countries. Egypt is probably our main client. Over two agricultural seasons, we ranked highest among Russian exporters with 1.5 million metric tonnes of wheat.

Moreover, with our partners from friendly countries, we are transitioning to payments in national currencies. For example, we have signed several contracts with our Turkish partners. The latest of these, signed in March, is payable in rubles; the overall total will be about 3 billion rubles."
Dmitry Sergeyev CEO of the United Grain Company 6 July 2022

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 was down in 2022, and 2023 was expected 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. At April 2022, a rather severe price and supply disruption flowed into the markets. (A 2 part agreement allowed grain exports in 2023, but as Ukraine and the West did not fulfil any requirement in the Russian part, Russia suspended exports through the Black Sea until such time as the West first fully complies.)

India bought Russian sunflower to make up for shortfalls in supply of Ukrainian sunflower. No doubt they bought it at a discount.

The knock-on effect was a global increase in edible oil price. This in turn made edible oils unaffordable in poor Asian countries. This happened in Indonesia. So the Indonesian President banned the export of palm oil, starting 28 April 2022. The idea was to flood the domestic market, collapsing the price. Once domestic oil prices reached reasonable levels again, some oil capacity would be available for export again. The ban was lifted in May 2022, but new rules have limited export quotas to a set proportion of domestic supply.

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.

Ukraine's spring 2023 grain and oilseed crop looked to be a record crop, against all previous expectations. Originally production was projected to be down by 22%, but in fact 2023's crop shaped up to be up over last year by about 5%, in spite of a smaller land area under crops. This is mainly due to highly favorable weather conditions in 2023. The estimates for Ukrainian 2023 season harvest was : 20.9 million tonnes of wheat, 5.8 million tonnes of barley, 28.1 million tonnes of corn, 12 million tonnes of sunflower seeds, 4 million tonnes of rapeseed, 4.2 million tonnes of soybeans, and 13.7 million tonnes of sugar beet.

Russia's 2023 grain harvest was expected to be down a little on the 2022 season, but that was a record harvest. Initial (July 2023) projections were for 78 million tonnes of wheat, of which a surplus of about 55 million tonnes might be available for export.

Russia is following the world trend and becoming a nation of beer drinkers. Most major beers are brewed under license in Russia, using imported proprietary varieties of hop. But supply is difficult and expensive. Russia's few hop varieties are inferior to those produced in Europe and New Zealand from years of intensive hop breeding. Russia will have to develop it's own breeding program, a long term project. Once again, the sanctions act as a spur to the development of the very technical industries that any modern economy needs to prosper.

Backdown Record
#1 On 22nd July 2022 Russia came to an agreement with the United Nations to allow facilitate grain ships leaving Ukraine via the Black Sea. Turkiye and the UN will inspect the empty ships (with Russian and presumably Ukrainian observers) as they enter the Black sea in order to confirm they are not carrying weapons to Ukraine.
The price for this agreement is that the sanctions on Russian grains must be removed. This refers to sanctions on insurance, port access, and shipping companies, as well as on specific sanctioned products such as parts for agricultural machinery involved in grain production.

"Officially, the sanctions on our fertilisers and food have been lifted, but in reality certain restrictions remain. This is a complicated and insidious situation. It appears that there are no direct sanctions affecting our products, and yet there are restrictions concerning logistics, chartering ships, money transfers and insurance. Many of these restrictions persist, although credit should be given to the efforts of the UN Secretary-General and the United Nations in general: when it comes to chartering ships, many restrictions are being lifted despite the sanctions imposed on the ports we ship cargo from. Nevertheless, this sector is being released from the restrictions and the vessels can already call at our ports. So, the situation is improving.

There are still certain restrictions that prevent us from ensuring that the interests of all consumers in global food markets are being served. As a result, prices on the global markets are going up. But we hope that the remaining restrictions will be lifted. This is the first point.

Second. You may remember my meetings with our friends in Africa and African organisations. As I said in my speech, we promised to do everything we could to serve the interests of the developing countries – specifically, by ensuring supplies to their markets, including supplies of Ukrainian grain. When we discussed this, that was the understanding.

What we see is more audacious deceit. And they did not deceive us: they deceived the international community, their partners in Africa and other countries that desperately needed food. It is a con job, impudence and disgraceful conduct towards the partners who were supposed to benefit from the deal. It was a hoax, see?"
Vladimir Putin 7 September 2022

"Of the 87 ships that left Ukrainian ports carrying grain, 32 remained in Turkiye, and I believe that was a fair part of the deal because Turkiye was the country that arranged this entire process and therefore is certainly entitled to this. Three went to South Africa, three to Israel, seven to Egypt, 30 to the European Union, and only two ships headed for the poorest countries under UN food programmes – for Yemen and Djibouti. They carried 60,000 tonnes of grain, or a mere 3 percent.

I would like to ask the Foreign Ministry to take this into account when interacting with our partners, including the UN. True, we cannot influence this process, cannot direct how much food goes where, but nevertheless, we consider it right to increase supplies to the poorest countries...

In May-August of this year, the Russian Federation supplied 6.6 million tonnes of grain to world markets, including wheat, barley and corn, of which as much as 6.3 million tonnes went to Asia, Africa and Latin America. Overall, by the end of the year, we will supply 30 million tonnes of grain and are ready to increase our exports to 50 million tonnes or more, because thank God, this year's harvest is good."
Vladimir Putin 9 September 2022

"The Russian portion of this package, which is formalised by a special Memorandum between the UN and our country, is not being implemented at all. Our Türkish friends and the initiator of the entire package, UN Secretary-General Guterres, are sending calls and requests to Western countries, but in vain.
The obstacles to financing, logistical clearance, transport and the insurance of these exported Russian products remain unchanged and are even getting tougher.

Our Western colleagues do not tire of repeating, despite the facts well known to them, that neither fertilisers nor grains are on the sanctions lists. Indeed, neither fertilisers, nor grains are recorded in the sanctions column.

But everything else that my friend has just said is in evidence: disconnection from the SWIFT system, the inability to insure and reinsure cargo under normal conditions, the inability for Russian ships to enter Mediterranean ports and for foreign ships to enter Russian ports, and much more.

President of the European Commission Ursula von der Leyen and others who are “eager” to solve developing countries’ food problems can repeat like a machine that food and fertilisers are not under sanctions. This will mean only one thing: they are telling us that Russia must keep its food and fertilisers, sit on them but not take them anywhere, even though they are not under sanctions.

Having once extended this deal for a second term (120 days) and not seeing any signs that anyone can really solve these problems, and after tiring of appealing to the conscience of those on whom it depends, we were forced to escalate matters somewhat. We offered to extend the deal only for 60 days. We proceeded from the assumption that if there were no further progress in removing obstacles to the export of Russian fertilisers and grains, we would reflect on whether we need this deal now.

“Corridors of solidarity” are being implemented concurrently with the Black Sea Initiative which the European Union came up with and which imply exporting Ukrainian grain and many other goods to Europe and the EU over land. These goods enjoy the most favourable terms and conditions. In fact, they are discriminating against similar products made in the European countries. Major protests started there because the European market is flooded with cheap Ukrainian grain. All of that has degenerated into commercial exports to Western countries. If their countries are overflowing with cheap Ukrainian grain, which makes selling grain produced by the European countries an unprofitable proposition, they could give it to poor and developing countries. As we were told, this is the rationale for UN Secretary General Antonio Guterres’ “package” initiative. As a result, less than 3 percent of Ukrainian grain is going to the poorest countries with the bulk of it ending up in the EU.

If they choose not to take the approach that Antonio Guterres proposed and persistently promoted in an honest manner, let them continue to ship products from Ukraine by land, rail, or river. The West has the appropriate logistics in place and they are fully operational.

Russia will work, if it has to, outside the Black Sea Initiative. We can already work with Türkiye and Qatar.
The presidents discussed these plans. Russian exports to the needy countries will not be affected. I can promise you that."
Sergey Lavrov 7 April 2023

Looks like Türkiye acts as middleman for some shipments, but the noise from the west about the starving south can't receive grain due to Russia has been shown to be a lie. Very little of it was ever intended for those most in need. Russia will block the Black Sea as an export corridor for grain until the west unlocks its ban on SWIFT connection, insurance "and more". In the meantime, Russian grain will flow to re-export hubs in Turkiye and Qatar.

"The Rosselkhozbank, the main bank that services our agricultural exports, has been expelled from the SWIFT system, and there are no plans to bring it back in. Instead, we are offered a one-off alternative, where three American banks, as the Secretary-General requested, replace SWIFT and help Rosselkhozbank service export operations.

A few months have elapsed, and one of the banks kindly consented to finance one operation. But when we are told that we should continue our efforts on the basis of this principle, that’s not much to go on.

If you want to systemically resolve the issue of food shortages on the global market, then there is the need to bring our bank into the fold of the SWIFT system.

...Yes, we can see that the Secretary-General and his colleagues have been making efforts, but there have been practically no results, unless we are to view as results the glimmer of hope that, instead of normal provision of necessary products to global markets, each time there will be a need to make efforts manually and plead with American and European ports, banks and other structures, insurance companies and request that they be magnanimous.

That’s not the deal we reached on July 22 of last year when we supported the Secretary-General’s initiative which, as he has reiterated, is a major package that has many components....

...There are still problems with insurance, and yesterday I was told by the Secretary-General that the rates dropped significantly after his contacts with Lloyd’s of London, but this is all focused on maintaining and preserving control over everything that is happening, to prevent our fertiliser and grain from freely reaching markets and on the basis of market mechanisms, to prevent them from entering certain countries. All this, of course, complicates the work of the World Food Programme which has been helping the poorest countries...No, I do not suspect that UN Secretary-General Antonio Guterres was disingenuous when he proposed the deal. I believe his intentions were sincere. I know Mr Guterres quite well and can state this with confidence."
Sergey Lavrov, 25 April 2023

There’s no measurable progress under the Russia-UN Memorandum. There are obvious issues with the declared humanitarian component of the deal where Ukrainian grain is being exported through this sea corridor mostly to high and above-average income countries, including “well-stocked” European markets.

Countries that need it most have received hardly anything, 722,000 tonnes (or 2.5 percent) of the total amount of 30 million tonnes that had been moved from Ukrainian ports over nine months.

The export of Russian products, even donations of fertilisers to the neediest countries, continues to be blocked by various aspects of the illegal and unilateral sanctions.

Western capitals and UN platforms continue to talk much and in loud voices about global food security and the threat of hunger. These tasks are explicitly, and in detail, laid out in the Russia-UN Memorandum, which is being systematically sabotaged by Washington, Brussels and London. The Black Sea Initiative doesn’t say a word about it.

There is no progress either in resuming ammonia shipments mentioned in both Istanbul documents. In particular, this concerns the Togliatti-Odessa ammonia pipeline, which the UN Secretary-General focused on during his visit to Kiev on March 8, and a separate initiative, which, like the Russia-UN Memorandum, remains only on paper.

Given the circumstances, we are compelled to issue a reminder primarily to the United States, the EU and Great Britain, which care so much about food security in word only, about the need to actually remove Russian fertiliser and foods from the list of unilateral sanctions.

There are five systemically important issues that must be resolved as part of implementing the Russia-UN Memorandum and which have seen no progress whatsoever so far, namely, reconnecting Rosselkhozbank to the SWIFT system;
supplying spare parts;
unblocking transport logistics and insurance;
reestablishing the Togliatti-Odessa ammonia pipeline, and
unfreezing the Russian companies’ assets.

There can be no talk of expanding the Black Sea Initiative in principle without these requirements first being met. The agreement will be terminated after July 17.
Press release on renewing the Black Sea Initiative 18 May 2023

"...we are in contact with United Nations officials. I repeat ...: they are sincerely striving to ensure that Western countries fulfil the commitments they have undertaken, but they are not succeeding so far. And they say to us..'extend the deal again'.

We can do this in a different way: we will extend the deal exactly at the moment when the promises made to us are fulfilled.

Question: The deal expires on July 18. How long are we prepared to wait for them to start making good?

Vladimir Putin: As long as it takes to fulfil the promises made to us.
Vladimir Putin 13 July 2023

In a nutshell, the west continues to try to hold Russia's grain exports to ransom. The UN appears to be largely either impotent or secretly unwilling, in my opinion. The west is devious and untrustworthy. Its assurances on anything are worthless. Once the west has completely and fully fulfilled the other part of the deal Russia will extend the arrangement straight away. Nothing more to be said.

Meat and meat products

Russia set itself a strategic goal of becoming at least 85% self sufficient in meat and meat products. In 2022 they claim to have reached 100.8 percent, which means there is food for export. By the end of 2022 Russia will have exported 550,000 tonnes of meat, worth $1.5 billion.

Russia is opening up new markets in China for the first time, mainly in beef and chicken. Russia also exports poultry, beef and pork to Vietnam.

Russia is almost fully self sufficient in breeding stock of beef cattle and sheep breeds.

While around 16% or so of pig breeding germplasm is imported, most pigs are bred locally. As at June 2022, International pig breeding firms working in Russia have localised breeding of the main commercial breeds (Large White, Landrace, and Duroc). While 80% of elite genetics used to further improve existing breeding lines are imported, the 3 base-line commercial breeds are bred locally in 12 Russian breeding centers. Not only are foreign-owned breeding centers in Russia profitable, some have plans for considerable expansion. Only the Danish pig breeders Danbred and Danish Pig Genetics have stated an intention to leave Russia so far. If the International firms do leave, the breeding stock will be left behind, you can bet on that. Russian scientists have developed one new indigenous pig breed better adapted to Russian (especially Siberian) conditions, but so far there is no commercial uptake.

The poultry industry, both meat and egg, relies of highly bred strains of fowl. These are produced from elite breeding lines, and provide the hatching eggs for both aspects of poultry production. Hatching eggs for these highly productive elite lines are often traded internationally. In November 2022 Russia opened it's first Turkiye hatching egg facility.


Russia has a target of around 90% self sufficiency in dairy. So far (2022), it has reached 84%. The shortfall is made up with imports from Belarus, which - absent western incited color revolutions - has the status of ally with Russia.

Dairy cattle breeds are widely improved through use of superior genetics, generally using artificial insemination and semen from elite bulls. This high value semen is commonly traded (in liquid nitrogen) across the world. Russia is moving to establish it's own stock of dairy breeds with high genetic values. So far, Russia is 64% self sufficient in supplying it's own replacement dairy cows.

This is another lesson from the blockade on Russia. If a nation doesn't have it's own germplasm resources - plant or animal - then that nation's food security is at the mercy of foreigners, perhaps foreigners with malicious intent. It is not enough to support the breeding stock in a nation, it is essential to provide technological facilities and stable committed scientists to conserve and improve genetic resources for the climatic and soil conditions of the country, as well as the animal and plant disease situation endemic in the country.

Metallurgical Industries

"Let me add that restrictions on the operations of Russian metal and steel manufacturers are a clear act of unfair competition (I repeat, we can see this in other industries as well), they are attempts by Western countries to restrain Russian businesses as leaders in world metallurgy and redistribute the markets, of course, in their favour.

I would like to stress once again that Russia will always be a reliable and responsible supplier of metallurgical products to foreign customers and partners regardless of any current political troubles. We will also be reliable partners to those who are looking for beneficial, predictable business cooperation, but we will not act against our own best interests in relations with those who have adopted an openly unfriendly stance towards us. This applies not only to the metal market, but also to our other exports..."
Vladimir Putin, 1 August 2022


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. The Russian military response to terrorist attacks on the energy infrastructure of the Russian Federation damaged the thermal power plant that supplies the Indian-owned ArcelorMittal Kryvyi Rih (Krivorozhstal) Ukrainian integrated mining metallurgical plant. This is a globally important steel plant, producing rebar, wire rod, rolled steel products, and unique steels that are said to be important to the nuclear industry (and especially France at this time) as they are used in repairs to nuclear power plants. The ArcelorMIttal company closed the plant at the start of hostilities in March 2022, and had re-opened significant parts of it by June 2022.

The blockade has forced Russia to turn to it's own industrial base to supply specialist steels, especially cold resistant steels. These steels are used in arctic ice-breakers and in military vessels. So these supplies are strategic in nature, as well as being vital to the cold resilience of Arctic oil and gas structures and pipelines. As at 2021, the Motovilikha Plants, taken over by Rostec State Corporation now supplies 25% of the Russian domestic demand for cold resistant steel. Presumably Motoviikha provides all the steel for military applications. The blockade has given a new impetus to the metallurgical industry in Russia, especially for steels needed for the Arctic environment.

"Today, we have a high demand for cold-resistant steels in Russia, which are used in the construction of Arctic zone ships and vessels. The demand for AB2-PK steel exceeds 700 tons a year. The production of this steel at Motovilikha will allow for the domestic shipbuilding industry to be less dependent on imported counterparts. Entering this market is part of a program to get the enterprise out of bankruptcy proceedings and create a center for the manufacturing of innovative steels demanded by leading sectors of the economy. In the medium term, we expect to take 50% of the shipbuilding steel market and enter into industrial cooperation with shipbuilding companies..."
Semyon Yakubov, the RT-Capital CEO 6 October 2021

"Arc steels have not yet come into use among shipbuilders, but in future they are expected to replace many shipbuilding steels. The first commercial order in Russia for arc-steel was drawn up with the help of Rosatom. In the upper part of the icebreaker Leader hull, it will be used in the areas with the lowest operating temperatures. Arc-steels are one of the results of work in the field of precision, that is, precise, technologies for creating new materials.

Until recently, any changes in steel quality indicators were solved mainly by alloying - the introduction of various chemical elements into iron. But an increase in the content of alloying elements significantly increases the cost and complicates the production process. By fine tuning the technological process, it is now possible to obtain steels with different properties from the same workpiece. For example, a change in temperature at the end of hot deformation can affect the strength and ductility of the metal.

The of KM Prometey Central Research Institute, part of the Kurchatov Institute Research Centre, is Russia’s largest interdisciplinary materials science centre, specialising in advanced materials and technologies for industries where products, structures and equipment are operated in extreme conditions. These are shipbuilding, nuclear, thermal and hydropower, gas and oil refining industries, mechanical engineering and production of military equipment. In particular, within the framework of the design and manufacture of a new generation of VVER-type reactor plants, work is underway to create an austenitic, radiation-resistant steel for elements of in-vessel structures."
Nuclear Engineering International 6 October 2020

Iron ore pellet production in Ukraine is also 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. Canada is starting to produce 'clean' steel, using hydrogen gas derived from natural gas. In the longer term, the US & EU may apply carbon tax to all steel - including Russian - that uses fossil fuels in steel production. Canada, of course, will be exempt. The US has an ex-Russian owned steel manufacture plant that produces pipes designed to carry hydrogen. No doubt the US will be able to supply pipes suitable to carry hydrogen gas used in 'clean' steel manufacture in Europe.

But Europe itself imposes carbon costs on its own steel industry to achieve it's decarbonisation goals. In 2017 the cost of CO2 emissions was under €5 per tonne; by early 2021 it was over €30 per tonne. By 2030 it is expected to be somewhere between €50 to €100 per tonne. Steel prices will increase into a cooling domestic demand.

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 on 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.

As I have already mentioned, steel prices are driven by demand. Demand falls away in difficult economic conditions. The steel industry is not very profitable for investors, and with rising costs and economic downturn, ir will be even less attractive. All countries have had to expand their money supply to support people. Businesses saw their income plummet and debt skyrocket. Shedding staff reduced costs, but all these measures are recessionary. When the US dollar collapses - as it eventually will - US steel will become very cheap for importing countries that have stable money. But the problem of slack demand will remain.

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 to reduced demand 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. Metallurgical exports fell about 20% year-on-year in Q2 2022, steel prices are down due to muted global demand, sheet metal product demand in particular is down, domestic consumption is down. New markets are being found, but at a discount to export markets lost in Europe. For all these reasons, Evraz, Russia's largest steel goods manufacturer, is struggling.

But as Evraz makes 28% of all Russian railway wheels and 97% of Russian train-tracks, it has to be regarded as a strategic company. The more so that it has partnered with Gazprom to mutually explore pipeline transport of hydrogen gas, a process that requires 'high spec' steel and special welding techniques. The hydrogen gas is derived from re-formatted natural gas, and the CO2 waste stream from this process can be captured and stored deep underground in depleted natural gas reservoirs. Gazprom has a great deal of experience in carbon capture and storage. Hydrogen gas can only be transported in licensed gas pipelines, and who can produce and certify the specialised steel pipes has a strategic and economic advantage.  Russia generally takes majority control of strategically important companies by one means or another, so I expect Evraz to be added to the Russian government strategic asset list.

Currently Evraz North America is privately owned, with one major shareholder (who recently resigned as chairman), and the company is listed on the UK stock exchange. The UK has blocked trading in it's shares, and sanctioned the companies products and financial transactions (including dividends and repatriated profits from the US subsidiary). Clearly, Evraz Russia is ripe for de-listing and takeover by the Russian government - who will also inherit it's debt. The majority shareholders loss on assets of Evraz North America can be dragged for decades through the WTO and various courts.


As at 2022 tinplate (used in food canning, aerosoal spray cans etc) in Russia is in short supply due to 'sanctions'. Russia consumes around 266,000 tonnes of tinplate. In 2021 Russia imported 127,000 tonnes, almost half of Russia's domestic consumption. About 56,000 tonnes was imported from Europe (Germany, Slovakia, the Netherlands), about 33,000 tonnes from China, and 28,000 tonnes from Kazakhstan.

The remaining half of domestic needs came from MMK, the only Russian tinplate manufacturer, which in 2021 produced 169,000 tonnes. (MMK's small production excess was exported to Ukraine and the Central Eurasian Commonwealth of Independent States countries.)

In 2014 Belarus funded an enterprise (the Miory tinning mill) to make extra-thin tinplate (used in tin cans) to export to Europe, but it has fallen into bankruptcy. In August 2022 Belarus took on the company's debts, and nationalised it. As tin plate to Europe is now 'sanctioned', Belarus has turned east.

Belarus will supply it's own annual needs of about 30,000+ tonnes (previously all imported) first, and then supply tinplate to Russia, Kazakhstan, Africa and Central Asia instead of Europe. The plant is aiming to produce around 9,000 tonnes a month (108 tonnes a year) by November 2022, all of which will be sold to Russia, and reach the full capacity of 150,000 tonnes of tin plate annually by 2024. Belarus will probably have to wait for Russia builds another tin plating plant to increase Russian domestic capacity before it will be able to export beyond Russia.

In 2023 Rusolovo, a minerals mining company (gold, tin, tungsten, copper) operating in Eastern Russia, announced plans to build a tin processing plant to move 'up the value chain' from simply being an tin ore-concentrate producer to being a tin-plate manufacturer.

Rusolovo (a subsidiary of Seligdar Holding) has one of the largest tin deposits in the world.Seligdar produced 2,900 tonnes of tin concentrate, and hopes to be able to increase that to about 15,000 tonnes of concentrate by about 2030.

Russia's domestic market for Steel

International conditions for expansion of steel use are currently 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. A large amount of investment money is needed, and not all of it can be supplied by the rather carefully controlled Russian budget. Foreign investment is needed.

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, a lot of big projects. And that involves a lot of steel.

Coal Industry
Russia is the third-largest coal exporter, after Indonesia and Australia. Russia provides about 18% of world coal exports by volume. Almost 23% of Russia's coal goes to China (over 45 million tonnes a year), and about 22% goes to the EU (almost 39  million tonnes in 2021). South Korea and Japan took roughly 17 million tonnes each in 2021. 

The Elga coal deposit in Yakutia has reserves of about 2.2 billion tonnes. It is not only the largest coal deposit in Russia, it is also one of the largest coking coal deposits in the world. Coking coal is 'metallurgical coal', that is, it is the carbon source used in making carbon steel.

On April 8th 2022 the EU prohibited import of Russian coal, with the restriction due to come into effect on 10 August 2022. This is surprising given the EU's dependence on Russian coal imports. Maybe the eu will import it (at great expense) from Australia. On 21 July 2022 the UK also prohibited the import of Russian coal as from 10 August 2022.

Both China and India are increasing imports of Russian coal to take advantage of the reduced price. Turkiye has started importing larger than usual quantities of coal from Russia (1.8 million tonnes in June 2022, which, if annualised, is a bit over 21 million tonnes per year) If fact, Russian overall coal sales have increased slightly since the start of the Ukraine operation.


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.”" 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, but didn't ban imports of titanium, as such.

"Airbus has said it relies on Russia for half its titanium needs, while state-backed VSMPO-AVISMA provided a third of Boeing's needs under a deal renewed last November [2021]. Last month, Boeing said it had suspended buying Russian titanium. Aerospace officials say Airbus is partly concerned about the reliance on Russia at suppliers like France's Safran, which uses titanium to make jet engine parts and landing gear.Safran said in February it had reserves for several months and depended on Russia for less than half its needs."
Reuters 12 April 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. Well the French seem to have got cold feet, because on 22 July 2022 the EU abandoned the proposal to impose sanctions on VSMPO-AVISMA - mainly due to objections from France.

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

Uranium ore is relatively widely distributed around the world. As at mid 2022 Kazakhstan, Russia's neighbour, produces 45% of world supply, the next largest producers being Australia (12.1%), Namibia (12%), and Canada (10%). Russia has produced relatively small amounts of it's ore resource.

Long term, the largest economically recoverable resource is in Australia (28% of global resources), Kazakhstan (15%), Canada (9%), Russia (8%), and Namibia (7%). China's ore resources amount to 4%, and USA's are only 1% of global resources.

State-owned Rostatom mined a total of 7,000 tonnes of uranium in 2022. 4,500 tonnes of that were mined by a Rostatom subsidiary, the Uranium One Group. This company is involved in international uranium mining.

The Uranium One Group is nearly ready to start pilot mining and processing of the large Nyota uranium deposit in Tanzania, which has resource base of about 152 million tonnes of ore. The eventual production target is set at 3,000 tonnes of yellowcake a year. The Uranium One Group is exploring uranium deposits in Namibia, and once characterised, it hopes to start mining in 2029. The exploration and development license is for 25 years.

Power plant exports

There are 440 nuclear reactors producing electricity in 30 countries of the world. 92 of those are in USA, producing nearly 20% of US energy. Country dependence on nuclear power varies. France produces around 70% of its electricity from nuclear power, Slovakia about 53%, Belgium about 50%, Hungary about 47%, Czech Republic and Slovenia around 37%, Sweden about 30%, Finland about 33%. Russia, like USA, produces about 20% of its electricity from nuclear power. China and India (both major coal users) lag badly, producing 5% and just over 3% respectively of their current electricity demand from nuclear power.

Currently, nuclear power only supplies 10% of world electricity. Around 60% of global electricity generation comes from burning fossil fuels, and this has not changed much over the years. Demand for electricity is rising and will accelerate as the world warms. The lead time to build new nuclear power plants is fairly large. Older reactors are having their design life extended with repairs and modification. At the same time, new reactors 'go live'. Demand for both power plants and their 'consumables' will increase. There is no chance that nett carbon emissions by 2050 can be achieved without a massive build-out of nuclear power. (Nett zero simply cements in all global warming consequences until that equilibrium state, whether that is tomorrow or 2050. It does nothing to remove and thus reduce the dangerous level of fossil-fuel derived carbon dioxide buildup in the atmosphere).

While the US and Europe may want to 'onshore' and 'friendshore' all the elements of nuclear power plant construction and fueling in order to reduce dependency on Russia (in particular) for fuel assemblies, in reality the nuclear power industry is a complex and internationalised industry with many co-dependencies.

"When the commercial nuclear industry began in the 1960s, there were clear boundaries between the industries of the East and West. Today, the nuclear industry is characterized by international commerce. A reactor under construction in Asia today may have components supplied from South Korea, Canada, Japan, France, Germany, Russia, and other countries. Similarly, uranium from Australia or Namibia may end up in a reactor in the UAE, having been converted in France, enriched in the Netherlands, deconverted in the UK and fabricated in South Korea."
World Nuclear Org, April 2023

At the moment Russia dominates the export market for nuclear power plants. For example, it has new reactor projects in Belarus, China, Hungary, India, Iran and Turkey. Russia also has investments in power plant construction and operation in Jordan, Algeria, Indonesia, Bangladesh, Bolivia, Kazakhstan,Tajikistan, Uzbekistan,  Nigeria, South Africa, Bangladesh, and more.

"The Rooppur Nuclear Power Plant has been mentioned, the flagship of our cooperation. The Americans tried to disrupt it by putting 69 Russian ships set aside to deliver the equipment for the project on their sanctions list. It’s a modern version of colonialism. Our Bangladeshi friends and we have found other ships that are delivering the equipment on schedule. The ceremony of bringing in the first batch of nuclear fuel has been scheduled for October. Everything is proceeding according to plan.

The equipment-carrying Russian ships were also banned from entering the port of Chittagong...Today, the country, which rendered fraternal assistance, cannot send its ships for civilian purposes because the Americans have introduced sanctions. This is no democracy. Rather this is nothing short of diktat."
Sergey Lavrov 8 September 2023

The USA and west does its best to interfere with Russia's power plant industry, but so far work-arounds have been found. Rostatom commenced ground work on Bangladeshs Rooppur Nuclear Power Plant in 2016, with the Russian government providing 90% of the capital as a loan (not repayable until 10 years after operation commences). The two units, capable of generating 2.4 GWe were supposed to be operational in 2024 and 2025, but were slowed down by covid. The west used sanctions to prevent delivery of parts and technical crews, and blackmailed Bangladesh into banning Russian ships from docking in the port of Chittagong.

Recently Rostatom have built a floating nuclear power plant to provide electricity to remote areas of Russia (commissioned in 2020). Rostatom now plan to offer the concept to the world, with a number of countries already expressing interest.

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 also involved in building nuclear power plants in Turkiye, Egypt, and Brazil, which will inevitably use Russia fuel.

"Neither the pandemic, nor foreign policy pressures were able to obstruct the construction of the world’s largest nuclear power plant. The credit for this, which cannot be overestimated, is to be given to the leaders of our two countries, who sometimes had to intervene personally to help us resolve certain issues.

Construction on the first unit is nearing completion, with the equipment being assembled at the site. At the second unit, the reactor vessel has been installed. At the third unit, the melt localisation device is being installed. In the fourth unit, reactor housing foundation reinforcement is nearing completion, and work continues on a key piece of equipment for the plant, the low-speed turbines...

...The construction of Turkiye’s first nuclear power plant has become a true joint project: over 400 Turkish companies are taking part in it, and we can say that Turkiye now has its own nuclear industry cluster. The experience we have gained through cooperation will allow us to tap the potential of this industry at other sites, including international sites...

...Training and education for the power plant’s personnel is underway. About 300 people have already received educations in the professions needed by the nuclear power industry at Russian universities, undergone hands-on training and joined the project team. Education quotas will also be allocated for the coming academic years"
General Director of the Rosatom Atomic Energy State Corporation Alexei Likhachev 27 April 2023

Russia generally offers a 'full package' of building, repairs, and fueling, with operation eventually being left in the hands of locals. Russian-built nuclear power plants use Russian manufactured fuel assemblies, and it is technically challenging (but not impossible) for other enrichment and fuel rod manufacturers to manufacture compatible fuel assemblies. In other words, Russian-built nuclear power plants provide a ready market for Russian manufactured fuel assemblies for the design life of the power plant.

The El Dabaar nuclear power plant project will be Egypt’s first nuclear power plant. It has a design-lifetime of 60 years. When completed in 2028, the plant will have 4 reactors capable of producing 4,800 megawatts. The Russian government is meeting  85% of the $30 billion cost, but as a loan to the Egyptian government. The remainder is met by the Egyptian government and investors. Rosatom will supply the nuclear fuel for its design lifetime, and maintain and repair the reactors for ten years. In 2021 Russia started training Egyptian specialists to take over the work in full after the ten year period. However, political games sometimes puts an end to existing Russian commercial interests.

"We would like to highlight that the initiative from Fennovoima's management to terminate the EPC contract - which is such a major step for the project - was taken without any detailed consultation with the project's shareholders, the largest of which is RAOS Voima (an 100% subsidiary of Rosatom), with a 34% stake.

"The reasons behind this decision are completely inexplicable to us. The project has been progressing and we had established a good working relationship with our client."

Rosatom added: "We reserve the right to defend our interests in accordance with applicable contracts and laws."
World Nuclear News 3 May 2022

In late March 2022 Finland reneged on it's fixed-price contract with Rosatom to build a 1,200 megawatt nuclear power plant. No doubt Rosatom will sue them. The EU attempted to convince Hungary to in effect renege on its agreement with Russia to provide additional nuclear power capacity, but Hungary, as it is not as stupid as the rest of the EU countries, refused.

Rosatom has an agreement with Uzbekistan to construct two VVER-1200 nuclear reactors to be operating by about 2028. Russia has financed most of the 13 billion cost, and will train Uzbek technicians in all aspects of nuclear technology deployment. The reactors will meet about 15% of Uzbekistans expanding energy needs. (Currently, most Uzbek electricity is generated from natural gas. It also imports electricity from neighbouring countries.) Uzbekistan has the world's 7th largest uranium resources, mostly exported to USA, China, and South Korea.

On the April 12 2023 the US imposed 'sanctions' on Rusatom Overseas (a division of Rosatom) and Evgeny Pakermanov, its president. Rusatom Overseas is responsible for the development of small (under 300 MW) nuclear power plants suitable for supplying electricity to remote areas. These power plants can also be used to supply heat from the reactor coolers, a form of co-generation. Rusatom also deals in export of various nuclear tech products used in science, medical, and industrial sectors. So far, only Rwanda has signed up for a small nuclear power plant, whose principle use will be research and technical extension. Rwanda's growing population demands more power, and it's hydro sources have proven unreliable due to periods of poor recharge. No doubt more small plants will follow. Once proven for safety and reliability, there is likely to be a good market in Africa.

Nuclear fuel exports
An important element of Russia's nuclear industry is supplying nuclear fuel for power plants. This is in the form of low-enriched and purified uranium manufactured into uranium oxide fuel pellets. These pellets are assembled into banks of rods of appropriate size and shape for a given nuclear power plant reactor design. The design and building of enrichment facilities is complex and expensive, so relatively few countries have them. Russia is an important supplier of these assemblies (including to Ukraine - which it continues to supply in spite of the conflict). Recent Russian-built nuclear power plants have long design lives - the power plant being built in Turkiye, for example, has a design life of 100 years. That's a long-term customer. Given the rapidly emerging global warming crisis, nuclear power is certain to become much more important. Ironically, rising temperatures means accelerated demands for electricity for cooling.

"A single uranium pellet, slightly larger than a pencil eraser, contains the same energy as a ton of coal, 3 barrels of oil, or 17,000 cubic feet of natural gas. Each uranium fuel pellet provides up to five years of heat for power generation. And because uranium is one of the world’s most abundant metals, it can provide fuel for the world’s commercial nuclear plants for generations to come."
Hitachi Ltd 'Nuclear Power Basics'

While the USA is a minor player (7%) in enriching uranium for fuel, but Europe is a major player at about 33%. Russia has the largest capacity of all, supplying 43% of the world's enriched uranium.

In April 2023, US, Canada, and Europe announced plans to gradually stop buying Russian nuclear fuel - which will be awkward for the approximately 18 nuclear power plants in Europe that use Russian fuel assemblies.

Nuclear electric power generation - long term prospects
In the long run, the future must be nuclear. All countries in the world will need to cooperate. The USA and it's vassals are impeding coherent science-based practical steps to stop extracting and burning fossilised carbon. They play stupid political games in a climate emergency. For their immediate personal self interest, and to hell with the rest of us - and our children and grandchildren. The combined west are not just sociopathic fools, they are extremely dangerous fools.

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.

"As for the state defence order (SDO), this is the main goal for our companies because they are mostly in the defence industry. In fact, they receive about half of the entire SDO. Last year, in 2022, the SDO was fulfilled by 99.5 percent. This figure is high. We have increased production of all types of military products that are being used in the special military operation on a very high scale today.

Speaking about this operation, our products account for 90 percent of all military hardware involved in it.

This is primarily barrel and rocket artillery, light and heavy armour, transport helicopters, combat aviation, heavy fire systems, small arms and all types of ammunition.

The following hardware has demonstrated brilliant performance in the current combat operations: BMP-3, BTR MDM, T-90 Proryv (Breakthrough) tanks, Iskander missile systems, Kinzhal (Dagger) hypersonic air-launched missile systems, Ka-52, Mi-28, Su-57, Su-35, and Cube and Lancet drones. Today, we are producing everything the Defence Ministry needs. We are meeting the demand in full."
Sergei Chemezov, CEO of Rostec State Corporation 7 August 2023

By mid 2023, it had become obvious that government spending on Russia's burgeoning military-industrial sector was a major factor in sustaining the viability of the Russian manufacturing sector.

"At least one third of our industrial growth is ensured by the increase in consumer demand. About two thirds – let’s put it straight – are produced by the defence industry and related sectors and these sectors also work with a double and triple effect."
Vladimir Putin, 3 August 2023  

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.

The West's proxy war on Russia has meant Russia has had to re-invigorate it's defense production of missiles, and even at early January 2023 missiles factories are working 3 shifts, around the clock.

"...we produce annually three times more of the air defence missiles that you manufacture than the United States does.

Overall, our defence industry manufactures about the same number of air defence missiles of different designations as all of the world’s defence manufacturers put together.

Our production is comparable with global production. So we have something to rely on. All this is bound to fill us with confidence that victory will be ours."
Vladimir Putin January 18 2023

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

Rostec received massive stimulus from the special military operation in Ukraine, and has increased production of military materiels, working extra shifts, weekends, and public holidays.

Rostecs Russian Helicopters produced 134 helicopters in 2021, and more than doubled that number to 296 military helicopters in 2022. The lancet and cube drones are produced by Rostec subsidiary Kalashnikov, and are proving very effective - in fact helping change the nature of defensive land-based warfare. Rostec is involved in making many high tech war products:

"In addition, Rostec companies make anti-drone systems. For example, Ruselectronics manufactures anti-drone guns known as the Pishchal-Pro and Serp (Sickle) systems for countering UAVs. The KRET holding [Concern Radio-Electronic Technologies] produces radioelectronic warfare equipment.

Our holding company High Precision Systems is working on an airspace monitoring system. We have developed small radars capable of identifying small and slow targets – these are drones, to be clear, because today’s radars cannot always identify these targets since they fly low whereas radars are designed to intercept high-flying targets like aircraft or missiles."
Sergei Chemezov, CEO of Rostec State Corporation 7 August 2023

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.

The Russian grid is run by the national grid company Rosseti, which is 88% owned by the Russian government. Rosseti is one of the largest grid companies in the world. So far the west's trade restrictions haven't had a major impact. The Rosseti CEO says that "large-scale" transition to domestic equipment and "solutions"  has been accelerated by the restrictions, implying it was already under way. He says Rosseti is "giving a lot of our time to it" and has "accomplished quite a lot". Russia historically has produced most electricity from thermal generation (coal and gas). About 68% is from thermal sources, but many of the turbines and associated equipment is old and long overdue for upgrading. Upgrading had already started prior to the recent sanctions, but mostly affected small capacity turbines. It was cheaper and easier to buy foreign medium and large turbines (mainly Siemans and GE). Maintenance was done solely by overseas specialists, and parts of course came from overseas. The Russian government now has to build it's own large turbines, fund Russian scientists and technologists, find made solutions to technically challenging parts of turbine manufacture, solve technical problems, and subsidise the local manufacturers in perpetuity. All of which it can do over time. A step in this direction was purchase in 2022 of Siemens Energy's 65% stake in Siemens Gas Turbine Technology and Siemens Energy Transformers LLC by Inter RAO Russia.

Russia has long had the ability to make power station transformers, including for nuclear reactors and renewable energy. Russia in fact exports such products. Overall, the sanctions will accelerate the already-planned modernisation of Russia's thermal power generation.

As at 2021 electricity supply reached 860 billion kilowatt-hours, 56 billion higher than 2020. Time will tell if this growth rate (7%) in supply will continue. According to Kommersant, there are forecasts that electricity exports over summer 2022 may reach 1.35 billion kWh. The massive 2022 drought in China restricted China's electricity supply at a time when airconditioning was desperately need, and as a result, Russia's exports to China jumped by 35%. The value of electricity sold to China in the first 6 months of 2022 reached $125 million - more than fives times greater than for the whole of the previous year. Rosseti's revenue increased to 1.1 trillion rubles in 2021, 100 billion rubles more than 2020. A major focus of investment of some of this revenue is to 'de-bottleneck' distribution of electricity from the Murmansk Region (which has a surplus from it's hydro, nuclear, and wind power plants).

"Providing the Eastern Operating Domain with electricity, our largest project at the moment, is our top priority, no doubt about it."
Andrei Ryumin, CEO Rosseti 12 July 2022

The grid has also been extended to mining companies in isolated areas of Russia's autonomous regions and one of the republics in Russia's East - as well as port facilities in the Far East.

Aviation sector - civilian aircraft

Russia, the largest country in the world, is the world's 11th largest aviation market. 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. In response, the Russian government will provide it's own airworthiness certifications, has placed the leased overseas owned aircraft on it's own domestic register, has allowed the terms of existing leases to be unilaterally changed, and has allowed the Russian government to "add exceptions" to foreign aircraft ownership rights. The law was put in place days before about $10 billion of leased aircraft were to be re-possessed. Russia leases about 515 foreign aircraft.

"Not all of Russia's 35 airlines, about 15 of which represent 95% of the country's traffic, are relishing what experts have already warned could spiral into aviation's largest default.
"We hope to avoid registering our planes in Russia; we want to return them to leasing companies," a source at one of the airlines said."The airline would become an accomplice. The law provides a way to register in Russia, but does not oblige the airline to do so....It is the first step to the kidnapping of the airplanes."

Moscow's government insists special measures are needed in the face of sanctions on the economy that President Vladimir Putin has described as "akin to a declaration of war". Lawyers say a three-way legal battle between airlines, lessors and insurers could last for a decade."
Reuters 15 March 2022

As it turns out the major lessor, AerCap, terminated the lease on the aircraft and engines that it could not seize back, and 'wrote off' their value. Perhaps some time in the future the leases may be reactivated, but who knows what is in the contracts and what effect sanctions have on obligations by either party...

"In AerCap’s first-quarter report...the company said: “In response to the Russian invasion of Ukraine and sanctions imposed by the United States, the European Union, the United Kingdom and other countries, we terminated the leasing of all our aircraft and engines with Russian airlines. Prior to the Russian invasion, we had 135 aircraft and 14 engines on lease with Russian airlines, which represented approximately 5% of AerCap’s fleet by net book value as of December 31, 2021. We have removed 22 aircraft and 3 engines outside of Russia, and 113 aircraft and 11 engines remain in Russia.”
John Helmer 26 July 2022

In late December 2022 Aeroflot bought out 10 long range Boeing 777-300ER from the unnamed Irish company it was leasing them from (possibly Avolon, maybe SMBC). Russia already owns 9 wide-body 777-300ERs. According to Aeroflot this latest purchase was done under Russian government direction:

An airline representative told reporters..."The deal was implemented as part of the fulfillment of the Russian government's order 'to undertake measures to resolve legal relations with foreign lessors in order to ensure the transfer of ownership rights to the jurisdiction of the Russian Federation' and taking into account all necessary permits of Russian and foreign regulators...The company will continue to work "on further implementation of transactions for the buyout of aircraft in order to preserve the current fleet of foreign-made aircraft in its own operation and to expand the capabilities of their operation..." "
Interfax December 30 2022

At this time, it seems like foreign aircraft leasing companies are unwilling to set up a Russian registered company and transfer ownership to it in order to comply with the Russian government edict. Aeroflot has stopped flying most of it's fleet into China, as China requires clarity on ownership for all foreign aircraft entering the country. This deal will presumably open the door to Aeroflot to return to the Chinese market. As it turns out, these aircraft have been seized by the Russian government and are now owned by Russia. As a result, flights to China, Thailand, the Middle East and India are, as at early 2023, even greater than before the west's restrictions were imposed on Russia. (Spare parts for these aircraft allegedly are available through 'friendly country' intermediaries.)

Russia is already building it's own passenger aircraft, the MC-21/MS-21, the TU-214 and the SSJ-100 (Sukhoi Superjet 100).

Because of the sanctions affecting component availability, the United Aircraft Corporation (a Rostec subsidiary) 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 Government aims to deliver 18 new MC-21s by the end of 2025 (in September 2023 this was brought forward to 2024). Rostecs leasing company (Aviacapital-Service) signed lease agreements for 18 MC-21-310 aircraft and 34 SJ-100 with Aeroflot in late 2023.

Because the MC-21 is a short and medium haul aircraft (the largest market segment for passenger aircraft), if it can reach the international market it will compete with the Airbus A320 and Boeing 737 variants. According to Rostec, production costs for the Russian aircraft are lower, and the sale price consequently lower. To make the aircraft more attractive, it can be fitted with either the 'made in Russia' Aviadvigatel’s PD-14 engine, or the Pratt & Whitney PW1400G. The PD-14 engine develops 14 tonnes of thrust at takeoff. The United Engine Corporation (a Rostec company) owns a number of turbine, engine, and aviation related companies, of which Aviadvigatel is one. Aviadvigatel in turn owns the Perm Motor Plant, and on April 6 2023 UEC-Perm Motors announced the start of serial production of the PD-14 engine.UEC-Perm anticipates that 72 MS-21 medium haul MC-21 310 variant aircraft will be produced, and 160 PD-14 engines will be produced annually. This seems optimistic - unless the PD-14 wiull be used to replace the FrenchRussian engine in the SSJ.

The Sukhoi SSJ's contain almost no 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. Nevertheless, Aeroflot expects to receive 34 new SSJ's by the end of 2025. The Russian side is toying with the idea popular with the Germans, that is, some form of 'temporary' 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

However in mid November 2022, the Russian government allocated an additional 44 billion rubles (about US $723 million) to the United Aircraft Corporation to accelerate the production of fully Russian-built jet engines, aiming for 50 engines to be produced in order to meet the target date for a fully import-free version of the SSJ regional jet (2024). Engine versions will also be built for the TU-214.

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. In early 2023 Government officials said a total of 11 TU-214 will be delivered to Aerflot by the end of 2025. 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.

Aeroflot has placed an order for 339 aircraft, primarily for domestic use. The idea is to create economies of scale for the production of aircraft for the domestic regional network.

"Because if there is no big order for a domestic company, the cost will always be high. It will be individual custom production, as it were. But with a big order, the cost goes down and the final price goes down. In this case we are talking about a complicated product, an aircraft. A good, large order will certainly support the manufacturer of domestic aviation technology"
Vladimir Putin, 9 February 2023

"We can meet the current transportation demands thanks to a modern aircraft fleet. We still have 1,166 passenger airliners, including 94 long-distance ones.

This is enough to cater for domestic and international travel requirements. Our airlines have the necessary stocks of spare parts and consumable and expendable materials despite the more complicated supply logistics.

Maintenance and repair services are provided in Russia by three large, accredited organisations, which have the required number of personnel and the necessary equipment. The standards of flight safety requirements remain invariably high. We are closely monitoring the safety standards of our aircraft pool."
Vitaly Savelyev, Minister of Transport 19 July 2023 

In spite of what Mr Savelyev says, it seems there will be delays in meeting increasing demand for flights, and Russia can no longer lease foreign aircraft to meet that demand. If Aeroflot had ordered more planes domestically, this problem wouldn't exist, aircraft parts would be cheaper, and airfare would have been lower.

"Do you remember that I tried to convince you to buy more Russian-made planes when you were the chairman of Aeroflot? There were several heated debates between us then. You reasoned that our Western partners were reliable, that all was well and that they were good people. Today, our aircraft producers cannot increase their production capacities overnight. This will take time, even though there is a demand for their products now, and it is growing. It is one more factor linked to the increase in tariffs. Nevertheless, I very much hope that this problem will be resolved and that transportation requirements will be met..."
Vladimir Putin 19 July 2023

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 for 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. Russia's  Ka-62 and Ansat helicopters are larely locally built. The Ansat is already "widely used", and the Mi-38 should come off the production lines in the not too distant future.

The Rostec state-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, built, and certified, or it will be from a reliable partner.

In 2022 Rostec developed a new passenger helicopter, the Mi-171A3. It carries 24 passengers and has a range of 1,000 kilometers - and even further with extra fuel tanks. It can also carry cargo, for example to offshore oil and gas platforms. It can work in quite extreme temperatures, from −50 to +50 degrees. This is important for work in the very cold Arctic Circle regions, especially as oil, gas, and mineral extraction industries work there.

Rostec also produced a small (200 kg takeoff weight) unmanned helicopter (the the BAS-200) in 2022. It can carry a payload of 50kgs, has been tested at temperatures lower than minus 50 degrees C.It's main use will be to deliver mail to remote areas in Siberia. It is also being (2023) tested for use in the special military operation.

Russia certifies the overseas companies that do maintenance and repair on the helicopters that Russia has sold. NATO is a party to the conflict in Ukraine, and repairs Ukraine's Russian helicopters via companies in Bulgaria and the Czech Republic. As of 14 July 2022, Russia has suspended their certification, and stopped supplying spare parts.

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

"I would like to note that in general, Russian air carriers will soon be thoroughly re-equipped. Our airlines, including Aeroflot, have placed the largest order package in modern history, for about 500 Russian-made mainline aircraft. By the way, as far as I know, the United Aircraft Corporation and Aeroflot have signed a respective agreement on the sidelines of this Eastern Economic Forum, and the figures in there are quite impressive – over a trillion, I think.

This high demand should become a powerful incentive for aircraft factories and design bureaux, for many related industries, including electronics and aircraft components, and, of course, for the schools training professional personnel including engineers and skilled blue-collar workers in the aviation industry."
Vladimir Putin 7 September 2022

The aviation industry is regarded as strategically important. Building new aircraft will be funded from the National Welfare fund, at a very low interest rate - 1.5%. The fund will provide 175 billion rubles (roughly USD$2.5 billion) in 2023. The aircraft projects funded by the Government are structured in such a way that the Finance Ministry  provides capital to a government-controlled aircraft leasing company (Aviakapital-Servis), which in turn is a subsidiary of Rostec, a state-owned corporation.

It is obvious Russia will never be at the mercy of foreign aircraft leasing corporations again. The profits from aircraft leasing will flow into government coffers, not into foreign-owned, Irish registered companies.

'Unsanctionable' aviation is a strategic and economic priority for Russia. However, while investment money has been made available, there is a disconnect between drawing up technical specifications for contracts - particularly military contracts - and letting out the work to the various aviation related businesses. Some still have no work for 2023. Unusually, the Russian President publicly castigated the Minister of Industry and Trade for the delays.

"Mr Manturov, as long as there are no manufacturer's specifications (passports), as you mentioned yourself, and companies do not have those, just like they have no contracts, there is no understanding of what they will do or what they need to do.It is taking too long. I know no contracts have been signed with the enterprises, the directors told me so. What are you fooling around for? When will the contracts be signed? This is my point....I want all of this to be done within a month...Do we not understand the circumstances we are in? Please complete this work within a month. Okay?...No, do not try to do your best; please get it done in a month. It must be done in a month, no later."
Vladimir Putin 11 January 2023


Russia sees the unmanned aerial vehicle (UAV) business as having tremendous prospects, both for domestic use and for export. UAV's of difference sizes and sophistication have both military and civil applications, with new applications being developed all the time - from real-time adjusting fires of artillery to monitoring crop health, power lines and other infrastructure, through to the more mundane, such as pizza delivery. Given Russia's vast space and lack of transport infrastructure in the far East, UAV's could provide a cheap solution to urgent deliveries, such as delivering blood or critically important medications, as well as give early warning of outbreaks of fires in the vast conifer forests of the region.

"...this industry is critically important. Earlier in the meeting I said it is an exciting and greatly promising industry both from the perspective of the country's technological development and for ensuring our technological security and sovereignty, and from the business perspective. If this market is measured in one trillion rubles within the next few years, it means something.

Here is what I would like to say: the state has a stake in your success, and we will do our best to ensure this success...this technology can make any economy by far more competitive, and if we want structural changes – and we do – we certainly need to focus our efforts on developing this industry. be honest, many things no longer have any secrecy, because thanks to large resolution – and our ill-wishers have high-level resolution technology – there is nothing secret left. And if something remains, you can, as you said, introduce certain bans on territories. But it seems to me that almost nothing should be banned here either."
Vladimir Putin, at a meeting with representatives of manufacturers and operators of unmanned aerial systems at the Rudnyovo industrial park, 27 April 2023

"Importantly, Russian companies operating in the field of unmanned aviation have many technical solutions to present, including different types of UAVs and infrastructure designs for safe use in our airspace, as well as a range of innovations in related fields, including artificial intelligence and other end-to-end technologies. All these things are interconnected to the point where some areas of unmanned aviation cannot exist without artificial intelligence. That is why this synergy is extremely important and exciting.

I am convinced that we have the potential in a critically important area like unmanned aircraft to ensure the proper level of technological sovereignty. Frankly, this is the area where we can and should not just replace imports but be one step ahead of our competitors. Today, our business leaders made it clear that such opportunities are available. In fact, our manufacturers are way ahead of their competitors and we must support them.

We need to support technology companies, start-up businesses, small and medium-sized companies to literally and figuratively spread their wings so that we can have our own national champions and industry leaders in domestic and global markets alike, and so that Russian-made drones are widely used to conquer the skies in the broadest sense of the word. aviation is possible only in a digital environment, which is why, to reiterate, it is important to make wider use of digital platforms based on Russian software and AI technology...They will be used to store, process and analyse data received from unmanned aerial systems. it is clear that drones are in demand and are widely used for military purposes. But the real market for them is in their civilian use – this is what I meant when I talked about a one-trillion-ruble market.

One great tool for boosting demand for a product is the creation of special operators who will make large purchases and then lease the UAVs. Mr Ditrikh [CEO of State Transport Leasing Company] who spoke today, proposed making his company the operator in this area. Here we need to help business at all levels: at the state, federal, regional and municipal levels...we must make the industry economically appealing, and then investors will come.

Just as with other segments of the UAV market, it is essential to prevent monopolies, to preserve competition based on a balance of interests between entrepreneurs, investors and the state."
Vladimir Putin 28 April 2023

The Russians want to deal with UAV technologies in a systems approach. They want to limit barriers to widespread use. For example to work around 'prohibited aerial recording areas', and integrate UAV's into existing systems - air traffic control, digital topographic geolocation, mapping, and navigation - taking into account the advanced features of autonomous operation and the application of applied wide-spectrum integrated artificial intelligence.

"Monitoring systems are being implemented. International organisations accepted them with permits that expire in 2040 and beyond. This is a rather conservative niche in aviation, with technology changing slowly.

Similar systems are produced in Western countries, the United States, the European countries. Russia is the only manufacturer in the SCO and BRICS.

What do we have here in this country as of today? Since, due to external conditions, some of the air navigation service revenues were lost and the technology implementation rates in the air navigation industry are beginning to slow down, of course, we need your attention for the development issues of unmanned aviation in order to keep moving forward.

Second, in view of the current situation and the developing relations with Asian and other countries, I would like to propose these options for export because this technology is something we do well."
Andrei Potemkin, Aviatelecominvest, at the Rudnyovo industrial park 27 April 2023

While visiting Rudnyovo industrial park Vladimir Putin noted that he had a conversation with "colleague from China" recently, in which he had a "frank conversation" covering many issues. The President met with the Chinese Minister of National Defense, Li Shangfu, on April 16 2023 (along with Minister of Defence Sergei Shoigu). Mr. Li Shangfu noted at the time that "military and military-technical cooperation between Russia and China is developing very well", and that under Mr. Xi's and Mr. Putin's "strategic leadership" the two countries "are actively developing cooperation in practical spheres". It seems logical that China would be an export market for Russian flight monitoring and control systems, if not for military UAV drones. Given the continuing military cooperation regular joint exercises, it may be that the two strategic partners are working to integrate some aspects of their autonomous drone systems.

MIlitary UAVs

Russia is now routinely using small drones to locate enemy positions in order to direct firepower at that position. New military intakes are being trained to operate small UAVs as part of integrated arms operations. Russia has also had extensive experience in Syria on the 'flip side', detecting and destroying small drones operated by western-backed jihadi armed criminals attempting to overthrow the legitimate Syrian government.  On examination, some of these were clearly engineered by western technical experts, while disguised in relatively crudely made bodies. Russia has learned from these experiences, and now has sophisticated detection and destruction means, including electronic jamming.  As always, these do not provide a perfect defense when defending a large area, but they do cut the number of successful strikes dramatically. As at 30 April 2023 Russia has destroyed 3,901 "unmanned aerial vehicles fielded by the NATO proxy army, according to the Russian Ministry of Defense. You can be sure that some of these drones will contain sophisticated anti-electronic warfare components made by the west - in other words, test versions of the latest western drone technology.

The nett result is that Russia is accumulating vast 'real world' experience in creating drone that can avoid detection and avoid electronic jamming. Which means it is opening up a big market for export versions of such devices.

According to Eduard Bagdasaryan, general director of the defense enterprise JSC Aerocon, Russia already has an export version of the lightweight (about 20 kg) turbo-prop Orlan reconnaissance drone with a laser target designator and a limited precision strike capacity.  Swappable tech units enhance its utility. In 2021 Kazakhstan and Uzbekistan both bought Orlans. Earlier Orlon class drones have been available since about 2017 for export. Their main use was real-time aerial reconnaissance and surveillance, electronic jamming, and radio signal detection.

Russia's JSC Sukhoi is developing a large (20 tonne) strike UAV, which they are calling the Okhotnik (‘Hunter’). The Russian military also has an advanced reconnaissance UAV (Forpost-R), based on the  Israeli IAI Searcher.

It is early days for the Russian military drone export market, but as it is being built from the ground up, the Russians are making every effort to ensure all components are locally sourced, including " the production and improvement of components including sensors, gauges, optics, matrix electronic systems, and the elemental base for radio-electronic systems” according to Eduard Bagdasaryan.

Suicide drones, akin to the US switchblade type suicide drone are also manufactured in Russia, possibly using Iranian components. The Geranium-2 ('Geran') suicide drone has proven effective in the proxy war when used against targets unprotected by modern air defenses. However, this drone likely depends on imported parts, and is maybe unlikely to be exported.

The Lancet-3 suicide drone (loitering munition) has however, proven a cheap and effective destroyer of positioned artillery (and sometimes mobile) and military equipment. According to the Russian Defense Minister, of the 59 USA government-provided M777 howitzers that the Russian forces have destroyed (April 2023), 25% were destroyed by the catapult-launched ZALA Lancet. These drones have been upgraded in the course of the war, and are now fitted with 3 types of warhead and improved electro-optical systems. They seem to be used in conjunction with reconnaissance drones and other target identification systems (acoustic, radar, etc) to locate targets. The drone operators can then go to within strike range of the target before launching the drones, then relocate and await a new target. Because these systems are light, highly accurate (important in urban environments), and untrackable to source,they are likely to dominate destruction of artillery, mobile radar installations, troop carriers, tanks (using thermobaric warheads) and other heavy gear in future battle frontlines. Long distance artillery will be saved for destroying troop concentrations.

Aviation Backdown Record

#1 In early August the UK removed sanctions on insurance and reinsurance of aircraft, aircraft parts, and aero-gas turbine engines. 

Ship building

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. Russia's largest shipyard is the United Shipbuilding Corporation (USC), which is able to design and build large ships, including bulk carriers. The USC was established by presidential decree in 2007, and fully state-owned. USC needs funds to modernise its plants, meet expanding defense orders, and regulate it's funding flows. In August 2023, plans were put in place to put ownership in the hands of VTB Bank. The idea seems to be to increase the capital available to fund all the needed modernisation and production projects. VTB bank is 70% government owned, so this is only a 30% dilution of government ownership.

The Blockade has made the Russian Government determined to be self-reliant in building the ships it needs, from fishing vessels to commercial ships. It will apply it's usual mix of state subsidy, state custom, and easy finance for private enterprise, allied with a long-term plan of work flow that supports employment and the industrial training needed to develop technological competitive advantage in shipbuilding.

"I must note that recently Russian shipbuilding companies have faced difficulties with supplies of foreign equipment and parts for civilian vessels. We know the reasons for this: our Western partners are failing to comply with their commitments for purely political considerations...I recognise that the replacement of foreign equipment and components in the production of fishing and other civilian vessels may affect the parameters of current projects...

In general, let me stress that, as you know, the situation in the world and the actions of our Western partners have shown once again that we need be proactive in developing our own competences in shipbuilding. I have said this many times.

It is impossible to substitute every imported part, and there is no need to do this
, but it is necessary to achieve technological sovereignty in critical positions of ship equipment, and in the most significant production processes and technologies. We need to make sure that as many operations as possible to equip, retrofit and repair ships are carried out in Russia...

We need to set in motion the initiatives of Russian shipbuilders, their domestic suppliers and customers, to support the upgrading of our shipyards and offer convenient financial mechanisms so that new orders for high-quality, modern vessels, including ice-class ships, are completed in Russia in order to increase the capacities of the Northern Sea Route and our other Arctic projects. All this is necessary to increase the workload of domestic enterprises and to create jobs in this complex, high-tech industry...

Construction of high-tonnage ships is one of the main prospective areas in Russian shipbuilding. We have already decided to subsidise part of the costs of these projects when they are connected with the localisation of plants and the creation of cutting-edge Russian technologies in this area."
Vladimir Putin 18 August 2022

"We propose implementing a ...programme for low-cost water transport leasing. We would like you, Mr President, to support the proposal for issuing loans from the National Welfare Fund at 1.5 percent per annum and easing the requirements concerning return on investment. We have already formed an investment project, and the STLC [State Transport Leasing Company] in conjunction with the Finance Ministry have agreed on its parameters.

Our shipyards plan to build 260 civilian vessels in 2023–2027 as part of this order which will include a wide range of equipment of varying deadweight that can be used for various purposes. Cargo ships, such as tankers, container ships, barges, tugs, and dry cargo ships, including Arctic class vessels, will account for the bulk of orders.

The first two electric river boats that are part of a total order of 21 such boats placed by Moscow are undergoing trials.

We are focusing separately on building fishing vessels and dredgers to be used for breaking water artery bottlenecks which is particularly important with more logistics routes coming into service."
Deputy Prime Minister – Minister of Industry and Trade Denis Manturov 11 January 2023

In April 2023 Russia completed a new Aframax oil tanker for the Rosneft oil company. It it one of 4 being supplied Rosneft, and these ships are made by assembling and fitting out pre-made 'modules' from China and South Korea.

Russia is paying great attention to securing it's logistic routes, both for economic reasons and for security reasons.
'Ice-class' ships are needed by Russia to open up the strategic northern (Arctic) route to China and beyond. On the 22nd of November 2022 Russia launched the nuclear powered icebreaker Ural. Another nuclear icebreaker, the Yakutia, is ready to be put put into the water. It will be fitted out and ready for service in late 2024. Two more icebreakers in this series are already in service. A further nuclear powered icebreaker in the series is commissioned for 2026.

Russia is also building a unique nuclear powered icebreaker, the Rossiya,  which Vladimir Putin describes as a "super powerful icebreaker, one of a kind in the world". This vessel will be ready in 2027.

These icebreakers are built with Russian components and equipment as part of the Russian project to provide high technology jobs that contribute to creating an advance workforce while also providing the means and infrastructure for Russia to advance economically. The icebreaker project is "part of a serial project and are included in our large-scale, system-wide work on reequipping and expanding the Russian icebreaker fleet, and on strengthening Russia’s status as a great Arctic power" according to Vladimir Putin.

A Russian government consortium is investing $2.2 billion in building a new metals plant in Russia's Far East to supply the Zvezda Shipyards with steel sheet for building arctic class ships and steel pipes.

"In particular, following the amendments, the item concerning the development of infrastructure of the Arctic zone now provides for the construction at Russian shipyards of the following ships for operating in water area of the Northern Sea Route:
at least seven Project 22220 nuclear-powered icebreakers;
 the Leader nuclear-power icebreaker flagship;
and an additional four non-nuclear-powered icebreakers;
16 emergency response and rescue vessels of different capacity by 2024;
30 emergency response and rescue vessels of different capacity by 2030,
 three hydrographic survey vessels and two aids to navigation;

expanded use of LNG and compressed natural gas at sea and river transport in water area of the Northern Sea Route and domestic small nuclear power plants for supplying consumers with energy; comprehensive and interlinked development of maritime, air, railway and auto transport infrastructure of the Arctic zone; development of an automatic system for identifying vessels and monitoring them at a long distance; and provision of remote sensing data to interested customers in accordance with Russian Federation laws."
'Amendments to the Strategy for Developing the Arctic Zone of the Russian Federation and Ensuring National Security until 2035' Executive Order signed 27 February, 2023

The expanded icebreaker fleet will ensure safe navigation in this dangerous region, and help expand traffic on the northern route. Ships transiting offshore Russia will probably have to engage an icebreaker for safe passage, for environmental risk reasons.

Russia's United Grain Company (OZK), an exporter of bulk grains such as wheat, plans to order 14 dry cargo ships from Russian ship builders. OZK needs a mix of bulk carriers of 40,000 and 60,000 tons deadweight (DWT) to meet it's obligations to export grains to friendly countries, as well as for coastal grain logistics.This is primarily in response to real-world difficulty in chartering bulk grain carriers due to charter companies fear of the West's trade restrictions. Russian-owned fleets solves all problems of chartering and insuring grain loads, as well as solving the problem of excessively high costs of chartering ships. These ships are needed to ship grains to 'friendly countries', but they are unlikely to be available soon - the earliest might 2026 for the first ship.

Overall, the Russian grain export industry shifts 80% of it's grain harvest by sea, and to do this it needs 34 dry bulk carriers of 60,000 tonnes, and 27 bulk carriers of 40,000 tonnes. Even when OZK's bulk carriers are finally all built, Russia has to charter 47 bulk carriers every year. There is room to build more in the years ahead - and room to establish suitable charter operations with friendly countries.

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 medicines 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. Expanding 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 (2022) costs $9,000 to $12,000. The price of active ingredients for manufacturing generic drugs sourced from China jumped 50% to 200% last year (2021). This is an added incentive to domestic manufacture.

As at early January 2023, while Russia is producing about 70% of the medications on its domestic markets, some Russian patients are suspicious of the medications made by the domestic industry and prefer 'known' brands. There is a shortage of some in-demand foreign branded seasonal flu medications, as well as some foreign brands of antibiotics. The Ministry of Healthcare wants the government to promote local equivalent medications, but so far the government has not done the obvious thing - subsidise locally produced brands and drive down the market share of foreign brands.

In late August 2022, 3 new manufacturing plants were opened, and by mid 2023, were expected to reach design capacity by the end of the year. Production in the domestic pharmaceutical and medical sectors fell in 2022 as covid-driven demand started to fall away, but by mid 2023 volumes were gradually recovering.

Replacing medical equipment is more problematic. Much medical equipment these days is very high tech, and therefore imported. Even so, state-owned Rostec has made some advances. It was in a collaborative agreement to with foreign partners to develop a Russian 'computed tomography' x-Ray scanner (CT scanner). Of course they evaporated when the 'sanctions' started, and Rostec had to carry on alone. It did so, overcoming many technical challenges on the way, and now Russia has a CT scanner that is around 27% 'made in Russia from Russian components. The CEO of Rostec is confident it will be 90% 'Russian made' by 2029, with a hoped-for production of 100+ units a year.

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. (Accounting charges related to the sale and transfer of assets cost McDonalds $1.3 billion.) 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.

Manufacturing sector (processed goods sector)

This is a huge sector, and the impact of sanctions varies. Some generalisations can be made. As of late June 2022 many manufacturers had a shortage of either components or raw materials, and were stockpiling whatever they could find - while at the same time trying to secure more supply. The problem is related to the west's trade restrictions, refusal of shipping companies to carry stuff bound for Russia, lack of regular air cargo services, bottlenecks in transcontinental rail, and so on. But some of these problems are the same problems being experienced by the whole world - chokepoints and delays in the global cargo and container delivery system due to covid restrictions in China.

"Margarita Simonyan: Mr President, I would like to show you something that I have brought with me especially. It is juice, and it used to be so nicely coloured. It does not matter what sort of juice it is; you cannot even see the brand here, although it is a popular one. And now – do you see? A small picture and the rest is white. Why is that? And this is happening on a massive scale.Because we ran out of paint. The producer of paint for such packaging has left Russia, and the producer of the packaging also announced that they are leaving. I bought this two weeks ago, and soon this will disappear.

Vladimir Putin:
Whenever any decisions are taken, the key issues must be singled out. What is key for us? Being independent, sovereign and ensuring future-oriented development both now and for the future generations? Or having packaging today?

Unless we have sovereignty, we will soon have to buy everything and will only produce oil, gas, hemp fibre, saddles and sell rough logs abroad....

...The issue is not about import substitution, the issue is to establish our own capabilities based on progress in education, science and new promising schools of engineering.

We will always be given packaging materials and other simple things, event telephones and smartphones. What we have never been given and never will be is critically important technologies. We have never been given them before even though we had problem-free relations with our Western partners in the previous decades. This is the problem.

And when we begin to stand up for our rights, we are immediately slapped with some sanctions and restrictions; this is what the problem is all about.

Therefore, we must commit ourselves to that and have the capacity to reproduce critically important technologies on the basis of what I mentioned.
And with that base we will always be able to manufacture the goods you mentioned: packaging materials, telephones and smartphones. If we realise that and keep focusing on solving fundamental issues, we will resolve everything else without a problem.

Let me reiterate: others are already coming to that place – those who produce the packaging materials, those who produce the paints. We are also starting to produce paints and other consumer goods as well as goods employed in industry in a broader sense. We can make anything – I have absolutely no doubt about that.

Obviously, some things will be lost, other things will be made on a new basis, much more advanced – the way it happened earlier. Therefore, when we talk about import substitution, we will substitute some thing(s) while other things will have to be done on a totally new promising basis of our own making."
Margarita Simonyan, CEO RT News, and Vladimir Putin, President of Russia, at the St. Petersburg International Economic Forum Plenary Session 17 June 2022

Russia often has the raw materials to manufacture a needed item, but there is no local manufacture because it is cheaper to import it from elsewhere. And the supply lines from 'elsewhere' have innumerable problems. A very good example is the aluminium can used for beer and carbonated drinks. Russia's Rusal refines local bauxite to aluminium (and imports aluminium oxide - alumina - refined from bauxite), but no longer makes rolled aluminium.

Aluminium billets are exported, but the thin rolled aluminium for cans now has to be imported.

Economies of scale are great as long as the global market is open, but once restrictions are applied, processing has to be re-localised from scratch, which may not be economic for the size of the domestic market, or the extra capital costs may be prohibitive. And for more complex goods the knowledge base has to be built up through training or import of specialist technicians. At that point, Russia is competing with the rest of the world. Russia will have to subsidise and incentivise to solve the fundamental issue of building a highly trained manufacturing workforce that will stay in Russia.

The Russian President made an important point - when forced to start manufacture for the first time, state of the art equipment and techniques can be employed. And apart from better efficiencies and capacity, the door is open to innovative solutions - which can give a competitive edge to sales overseas. But of course this is a slow process - how can it be otherwise? But ability to manufacture high value added is not enough. There have to be markets.

For example, Russia's Kamensk-Uralsky Metallurgical Plant (KUMZ) is the second largest manufacturer of high value-added aluminum products in Russia, manufacturing aluminum products for aerospace, oil and gas, construction, and automotive industries. Export orders fell sharply (by 40-50%) in Q2 of 2022 because of EU, UK, Canada and Japanese sanctions on rolled aluminium plate - plus USA stiff tariffs on aluminium products from Russia. Even so, new markets are slowly being found, mainly in Southeast Asia. It will take time to build back to pre-sanctions levels, but progress is being made.

This story will likely be repeated across many manufacturing enterprises, especially where their export markets are mainly in the west. Adjustment will be slow, and not all businesses will survive. Workers will suffer.

Of course there are some exceptions. Some manufactures are in such high demand in the west that the west has not yet been able to bring itself to refuse them. Synthetic rubber used in tire manufacture is one example.  In 2021 Russia produced $2 billion worth of synthetic rubber with $700 million of that being exported to EU countries.

The domestic conditions are akin to being at war. As Joe Biden said on 26 March 2022 "Taken together, these economic sanctions are a new kind of economic statecraft with the power to inflict damage that rivals military might." And 'damage from military might' is a euphemism for war on Russia. War necessitates retrenchment.

But by mid 2023 the manufacturing sector was slowly recovering, although import substitution indutries were still slow to emerge.

"Both manufacturing and retail trade increased in April with output in the processing sectors growing 2.9 percent year-on-year in January-April. Let me remind you that it was manufacturing that suffered the toughest blow due to disruptions in cooperation and value chains...

...there was a lot of anxiety among business leaders a year ago. In fact, few people could anticipate how events would unfold. In this context, it was essential that we give businesses something they could rely on, build confidence in government policy, emphasise our unwavering commitment to fundamental market mechanisms, the freedom of entrepreneurship and guarantee that private property was protected."
Vladimir Putin June 16, 2023

Agricultural machinery is a particularly important part of the agriculture sector, which is a strategic sector. In 2021 Russia imported combine harvesters from Germany (27 million dollars), Belgium (24 million dollars), Poland (19 million dollars), United States (8.5 million dollars) and Belarus (7 million dollars). All figures rounded. The Belarusian products come from the Russia-Belarus joint venture Bryanskselmash. But the profit received by Russian grain producers in 2022/23 was cut severely.

"...Western countries used any pretext, or no pretext at all, to refuse to fulfill their obligations, including removing barriers to our agricultural exports.

This resulted in direct losses of Russian farmers and enterprises producing fertilisers. Now the Minister said that, due to a 30–40 percent discount on our grain on the world markets, the losses of Russian farmers, if converted into US dollars, amounted to $1.2 billion.

In addition to this, the growing costs of seagoing freight to carry goods, costs of international financial settlements and other transactions have resulted in the halving of profitability for grain exports."
Vladimir Putin 19 July 2023

Russian grain producers had less money to spend, and put off buying new combine harvesters (russia is the 7th largest importer of combine harvesters in the world). The Russian government was forced to subsidise the import of agricultural equipment via a program of the Russian Ministry of Agriculture.

At a meeting in early August 2023 the President convened a meeting of manufacturers to see how the sector as a whole was doing. His overall assessment was that the sector was 'stable', with employment at 2021 levels (about 10 million people). It is a general rule that employment in modern economies is dominated by the services sector, generally providing around 60% of all employment. Manufacturing and heavy industry generally provide fewer employment opportunities (especially as automaton increases). So it is in the Russian situation - manufacturing provides 14% of all employment. The indicator for the health of the sector are good in that employment levels are stable, and salaries rising - up by 20% overall over the 2022 year. However, salaries are rising largely due to worker shortages, made worse by larger manufacturers outbidding smaller enterprises for experienced technical staff. Nevertheless, the growth rate across the sector was over 6% in the first half of 2023 - mainly due to the military-industrial demand.

"What are the sectors reporting the highest, the best performance? Computer, electronics and optical products manufacturing with a 30.4 percent increase. Very good. Manufacturing of metallurgical products increased 29.7 percent, almost reaching 30 percent. Electrical equipment manufacturing grew 22 percent, while the production of transport vehicles, excluding automobiles, was up 22.1 percent. We will discuss cars separately, since this sector is a special case.

We have a slight decline in the production of medicine, and timber processing decreased. For timber processing ... it all comes down to logistics. Here, we need to lend a helping hand to those working in this sector."
Vladimir Putin 3 August 2023 

Government procurement programs form the support-backbone for the domestic manufacturing sector. The demand for all manner of goods to rebuild in the newly liberated territories will probably boost domestic demand for some years, as will the infrastructure needed for expansion of logistic capacity to export to the east.

"Understandably, state-owned companies acted as the main growth drivers through government procurement orders. Specifically, you have just outlined the core sectors: radio electronics, metallurgy, railroad rolling stock manufacturing, and importantly, machine tool manufacturing, which are at 35 percent this year, which means that growth for these sectors exceeded 20 percent. Leather products and clothing also reported substantial gains with growth above five percent."
Denis Manturov, Minister of Industry and Trade, 3 August 2023 

Cheap loans continue to be offered by the government. Industry can access ten year loans from the government's Industrial Development Fund with an interest rate of 1% and 3% in capital amounts from 5 million to 5 billion rubles. The government sells 'packages' of these "easy term loans" to commercial banks to increase the liquidity of the fund. Most of the taxes levied on foreign companies leaving the Russian market have been used to increase the capitalisation of the Industrial Development Fund.

Seven year "Industrial mortgages" of up to 500 million rubles have also been made available. As at mid 2023, 248 enterprises have used the industrial mortgage loan facility, for a total of  22 billion rubles.

The "cluster investment platform" is designed to provide loans of up to 100 billion rubles.The interest rate is "pegged to the Central Bank’s interest rate at 30% plus 3%". The government's target for 2023 was 2 trillion in loans for this program. Sber Bank is a major agent in what is a government mandated scheme, with the first loan issued by Sber in May 2023. The Central Banks interest rate is around the 5%+ mark in mid 2023, so the loans are around 1.5% plus 3%, so around 4.5% - a very favorable interest rate. These are long term loans, but the low interest rate is only available if they are used to produce 'priority products' within Russia. Priority products includes gaining of raw materials, materials processing, and end-product manufacture and component manufacture.

"You mentioned the cluster platform. We have selected 16 projects worth over 360 billion rubles for this form of support. I would like to mention several interesting projects such as a flat-rolled stainless steel plant in the Volgograd Region, a high purity polysilicon facility in Chuvashia, and the manufacturing of component parts for transport engineering, diesel engines and pharmaceutics. There are another 33 projects worth over 1 trillion rubles that we are considering."
Denis Manturov, Minister of Industry and Trade, 3 August 2023

The idea of the 'cluster project' funding is to develop industrial clusters, especially in the more isolated and economically depressed area, and so provide employment and benefit from the 'multiplier effect' that a stable regional income brings. These are hoped to be 'breakthrough' clusters that attract further investment, attract ancillary industry-support businesses, keep people in the area, increase workers real income, justify new educational assets (and especially vocational training), and bring the region to an overall more prosperous level. This level then supports the 'virtuous circle' of better jobs, improving living conditions, and sustainable growth.

Transport Infrastructure

"In the past 15 years, funding has increased six times over with your support, which affects the development rate of the entire transport infrastructure.

Since 2020, funding has increased by 69 percent. Our funding has almost doubled. These are enormous sums."
Vitaly Savelyev, Minister of Transport 9 February 2023
Russia is the world's largest country. It has 1,566,000 kilometres of roads – 64,500 kilometres of federal roads, almost 1 million kilometres of local roads, and 503,000 kilometres of regional roads. Massive amounts of money is being poured into Russia's notoriously dilapidated roads. As of 2022 Russia spends 3.2 trillion rubles a year on roads, 1.7 trillion rubles from regional and local budgets, and 1.5 trillion rubles from the federal budget. Spending almost doubled in the period from 2018 to 2022.

The civil aviation industry has been heavily subsidised (174.2 billion rubles) by the government, and has 1,163 passenger planes and 130 cargo aircraft (and 80 international airports and 145 civil aviation airports).  Government subsidies have enabled airlines to retain key staff, improve airports, and fully convert all Russian airlines to domestic software (presumably to reduce the risk posed by the constant US and EU cyberattacks on Russia's critical infrastructure).

"Notably, 84 airfields have been upgraded and eight new regional and hub airports have been built over the past 20 years. New Russian aircraft are being designed and promising, logistically optimised routes are being developed.

This work will continue. Airports will be retrofitted. The number of direct flights and modern transport hubs will increase. Special attention will be paid to renewing the airline fleet.

As I noted earlier, we will address these challenges relying on domestic technology and the capacities of domestic manufacturers. We will create and develop a range of new and upgraded aircraft and localise production as much as possible...our goal is to make the industry competitive, modern, and responsive to current demands and national development goals."
Vladimir Putin 9 February 2023

The capacity of the critical Eastern Railway has continued to expand in 2023, and further capacity expansion is expected in 2024

Russia has almost 102,000 kilometers of waterways suitable for cargo ships.Only China has longer waterways. The two main transport rivers, the Volga and the Don, are undergoing deepening. The strategic Kersch Strait linking the Azov Sea with the Black Sea will supposedly be deepened as a result of hydroelectric projects on the Don and the Volga. (The Strait is only 5.5.meters deep at it's most shallow point.) However the raised 'sills' at the hydro complexes may simply allow a deepening of the locks. The Kersch Strait still needs constant dredging.

One of the most important transport routes is the International North-South Transportation Corridor (INSTC) linking Russia and India via the Azerbaijan and Iranian rail networks. This is a massive project (7,200 kilometers long) and work has dragged on for 20 years. Progress in constructing the route has been held up by problems in financing the 162 kilometer long Iranian Rasht - Astara section of the rail line. Azerbaijan has already built a cross-border dual gauge rail link to the Iranian city of Astara. Russia has decided to finance and construct a dual gauge (1520mm and 1435mm) rail line for this stretch. Rail cargo can then continue across Iran to the Iranian port of Chabahar, then by ship to India.

Another corridor south to Iran crosses the Caspian Sea, but the Russian export ports are relatively shallow (in some conditions, down to 3.5 meters), meaning ships cannot be fully loaded. Russia is running a major dredging program to deepen the channels from the ports of
Makhachkala, Olya and Astrakhan.

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. As a result, Russia has focused on domestic air transport, subsidising domestic airfares until October 2022, which were then extended to March 2023. Russian airlines also received a subsidy in 2022 (174.2 billion rubles) to make up for lost international air routes and restrictions on flights to 11 airports in southern and central Russia associated with the operation in Ukraine. These restrictions will stay in place until August 2022, at least. Air cargo normally a profitable industry, has had to be subsidised for the first time.

The government's overall objective is for Russian airlines to carry at least 100 million passengers in 2022. By the end of November 2022 there were 71.4 million domestic passengers. The 'performance indicator' was changed to the carriage of about 102 million domestic passengers by the end of 2023, predicated on the 11 restricted airports re-opening (an indicator of the governments thinking on when the military operation would end, perhaps). These 11 airports would normally account for about 19 million passenger trips. Even so, based on trends to July 2023, the government expects to hit the 100 million passenger movement target by the end of 2023 - with 11 airports still closed. Government's 2023 projection is that once the 11 airports reopen, passenger journeys will increase to 120 million per year, not far off the 2019 pre-sanction level of 128 million.

Domestic transport remains heavily subsidised, with airfare prices being slightly cheaper in 2022 than 2021, even though Russian jet fuel is 45% more expensive in 2022 than in 2021.

As at early 2023 the government subsidises tickets "for socially important destinations, as well as fares for pensioners, people with disabilities, students, and families with many children".

Russia's low cost airline, Pobeda, while "operating in difficult conditions, including the pandemic and the current period of sanctions" carries little debt, and is profitable. It carried over 11 million people in 2022 and has grown into Russia's third-largest national airline.

By the end of 2022 Russia's fifteen International airlines were flying to 22 countries, carrying not only cargo, but 15.7 million passengers internationally. Total passengers carried, domestic and international, totaled 87 million people by the end of 2022.  Russia has flights from 25 foreign countries, encompassing 51 different companies. By mid 2023 direct flights increased to 24 countries, 20 million international passenger journeys expected by the end of the year - an increase of 12% over the same period the previous year. The restrictions on Russians travelling abroad has shifted demand in destinations. Cuba, which as of late 2022 accepted the Russian 'Mir' card, a VISA card equivalent, has seen a marked jump in Russian tourists. In 2022 there were only charter flights run by one Russian company, and now Rossiya Airlines flies twice a week from Moscow to Cuba's famous high-end Varadero beach resort.

Russia's flight booking system ran on American and European software, which meant the movement of Russian citizens both domestically and internationally could be harvested by American and European spy agencies; and no doubt was. In 2022 state-owned Rostec developed and launched 'Leonardo', a secure Russian computerised flight booking system, which is now used by more than 60 airlines.

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.

Longhaul Rail

Improving the rail system to the far East has become a strategic priority. This is because fewer goods are are being railed to Europe, rail transport transitting other countries could be blockaded by the EU, and because trade with China using the Far Eastern container terminals is expanding rapidly as the shift to trade with the East gains traction.

Around 60% of the freight capacity to the East is used for coal exports, which use gondalas - railway rolling stock with sides to contain bulk loads. While there is a lack of flat deck wagons to carry containers, the gondalas return empty. Russia has found a way to be able to carry containers on the empty gondalas, and this has gone some way to relieve congestion at the Eastern ports.

Even so, all other cargo, including containerised cargo - must all share the 40% of freight capacity remaining. The bottleneck means that imported raw materials and components used in manufacture of import-substituted goods (now in greater demand) cause downstream delays for manufacturing businesses.

In addition, the huge Udokan copper mine is set to start sending copper products to China in 2023. The first stage of mine development will see 600,000 tonnes of product requiring rail capacity. But according to the chairman of Udokan, as at 2022 there is a shortfall of overall "transport capacity" in the Far East. Mine production will increase as later stages are developed, and bottlenecks in the rail system will get even worse.

The government is now concentrating its efforts on increasing the capacity of some sections of the Trans-Siberian railway.

Congestion at the rail border crossing into China has meant Russia and China have had to start a project to open more border crossings. A new border crossing through Priargunsk, will allow the Trans-Siberian Railway to link with China's rail network to border provinces, Inner Mongolia and Heilongjiang (China's northernmost province).

The Delo Group (partially Government owned) has amalgamated  two freight terminals at the Zabaykalsk Russia-China border crossing. The newly merged terminal is being upgraded to improve containerised cargo throughput, the terminal infrastructure altered to create more capacity to handle Chinese trains bringing imported cargo into Russia.  China's trains run on 1435-mm gauge railway tracks, a different width to Russia's tracks.

If Mongolia is able to develop it's own rail infrastructure, Russia is interested in connecting the Trans Siberian Railway to the Mongolian rail network. This would create a further transit point for goods to and from China.

Work on the Northern Latitudinal Railway has been suspended. Work on this line is expensive due in part to extremes of cold, and not as urgent. This railway is intended to shorten the distance from mineral deposits in the far North (including the Arctic) to ports in the Baltic, Barents and Kara seas.

Sea Transport

"The changed conditions acted as a cold shower on many participants of the transport and logistics market and sobered them up. The departure of the world’s largest sea carriers from the Russian market, difficulties with chartering vessels and the closure of traditional routes, especially via Europe, forced us to look for new ways and options to ensure transportation.

Business solved this problem. As you can see, store shelves are not empty, businesses did not stop, foreign trade indicators, while declining, but there is no collapse. One of the recent months’ results is that the country’s transport and logistics system has become much more resistant to external influences. For example, Russia took the first steps toward building its own trading fleet, including a container fleet.

I believe that the country needs a “Russian Maersk”. Its creation would be the reasonable completion of the entire logistical chain we are building in our country and in the world today. We would close all its components and get not only great synergy effects, but also real logistical independence.

Besides, we would be able to distribute cargo flows between transport corridors evenly.

...I am sure that Russia, as a transit country, could play a much more important role in global logistics. Now it is 2-3% of the world’ commodity flows but, taking into account the length of our territories and transit opportunities, especially railroad transportation, well-developed port infrastructure, and new routes, including via the NSR, these results could be higher.

...the implementation and a multiple increase, for example, in container transit could become a separate, highly profitable sector of the economy.

The transportation of containers is always followed by the development of terminal facilities, engineering, traction rolling stock. There will be a multiplicative effect, giving a boost to the production of platforms and containers, which are still not being manufactured in sufficient volumes in Russia. We still buy the bulk of containers abroad, in China.

Can you imagine what the effect would be from transit operations alone? No doubt this is a question of the future, the conditions, including geopolitical ones, must mature."
Sergey Shishkarev, Board Chairman of Delo Group 22 November 2022 interviewed by TASS News

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 5 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.

In the meantime, Russia's Delo Group opened a new deepwater berth at their KSK Grain Terminal in the Black Sea port of Novorossiysk. The 2022 year should see 6 million tonnes of grain "transhipped", according to Delo Group Chairman. I don't know if he means it is simply shipped directly to the final customer or if it is first delivered to Turkiye and re-loaded on other ships, perhaps from other Turkish ports (Turkiye has infrastructure to store 8.5 million tonnes of grain, a large domestic grain growing industry, and already processes and ships wheat and other grains for the UN World Food Program).

Northern Sea transport route (also known as the Arctic Bridge Sea Route)
Russia's national development strategy includes opening up the North Sea cargo transport route as the Arctic sea ice shrinks due to global warming.

"This year we are going to draft and adopt a new strategy for the development of the Russian Arctic up to 2035. It is to combine measures stipulated in our national projects and state programmes, the investment plans of infrastructure companies and programmes for developing Arctic regions and cities."
Vladimir Putin 9 April 2019

The Northern Sea Route runs approximately 5,600-kilometers through the Arctic waters of Russia’s far North, and is the shortest sea route between Europe and Asia. In principle goods should be able to be shipped between Asia and Europe in about 19 days, which is 40% faster than shipping via the Suez Canal, and 60% faster than shipping via South  Africa's Cape of Good Hope.

Rosatom, the operator of the route, hopes to see 270 million tonnes of cargo transiting the route by 2035. Russia aims to have built 158 Arctic capable ships by then.

Russia has high hopes for the future of the Arctic region and for the Northern Sea route (NSR), and has invested accordingly:

"Russia has spent decades and billions of dollars shoring up its Arctic infrastructure, building or repairing 16 deep-water ports and 14 airfields, creating a Northern Arctic military command, and standing up regional air defense and search and rescue infrastructure to facilitate the security and safety of passage of commercial ships through the NSR."
Sputnik 22 May 2023

There are three drivers of the strategy.

First, and most important, the massive Russian sea shelf is rich in oil and gas resources, and Russia has developed unmatched engineering prowess in oil and gas extraction technologies that can deal with the extremes of the Arctic environment. Now that story has to be repeated with other minerals in an extreme environment and fragile ecosystem.

"We have begun establishing science and education centres in various Russian regions; they integrate the capabilities of universities, research institutes, the business community and the real economy.

One of our Arctic regions will certainly receive such a centre that will ensure the development of fundamental research and will help address the applied and practical tasks of developing the Arctic.

The Arctic offers us immense challenges. And we can only respond effectively if we do it together. One such challenge, as I have told you, is to maintain balance between economic development and preservation of the Arctic environment, conservation of its unique and fragile ecosystems, and, of course, clean-up of the environmental damage accumulated through the economic activity in the past decades, which was extensive from time to time. We have been conducting a major clean-up of Arctic areas for a number of years. Starting in 2012, we have removed and utilised over 80,000 metric tonnes of waste.

In the coming years we will liquidate six major environmental damage sites in Arkhangelsk and Murmansk regions, in the Nenets Autonomous Area, Karelia and Yakutia as part of the Clean Country federal project. We are also to clean up over 200 square kilometres in the Kola Bay area.

We will also develop a system of specially protected natural territories and reserves. Above all, I mean the Russian Arctic national park. It is important to take additional measures to develop civilised ecotourism and build the required infrastructure there."
Vladimir Putin 9 April 2019

There are rich land-based mineral deposits in the Arctic, but the colossal size of the Russian Federation works against cost-efficient land based transport. The 'blue (and white) highway' may be a viable alternative to rail - especially considering that as the permafrost melts, road and rail supply lines will sink. Repairs in that environment will be very costly.

"...we have discrepancies with Sauli [Niinistö,President of Finland] on data relating to warming in the Arctic. According to our data, the Arctic is warming four times faster than the rest of the world, and Russia is warming 2.5 times faster than the rest of the world. These may be different calculations, but both of these are really disturbing trends."
Vladimir Putin 9 April 2019

Second, the Arctic transport route is largely immune to American interference - although they will likely try an incursion into Russian territorial waters. Russia cannot be blockaded along this approximately 5,600-kilometer (km) route.

"Our goal to significantly boost the freight traffic and bring it up to 80 million tonnes by 2025 on the Northern Sea Route alone was outlined in the 2018 Address to the Federal Assembly.

Just 10 to 15 years ago, this figure looked absolutely out of reach, whereas today it is a realistic, carefully calculated and concrete goal.

As of last year, the volume of traffic on the Northern Sea Route already reached 20 million tonnes. This is three times – I reiterate – three times more than the Soviet record set in 1987, when the Soviet Union transported 6.5 million tonnes using this route. Now, it is 20 million tonnes.
Vladimir Putin 9 April 2019

The whole Russian Arctic shoreline territorial seas are highly strategic, both from a military and economic point of view. Russia will protect them by all means (probably including an upgraded and expanded network of undersea sensors), especially after the Russian submarine Kursk was accidentally sunk in the Barents sea allegedly by a NATO submarine 'tailing' it too closely. In 2020 the US navy 'sub-hunter' USS McCain intruded into Peter the Great Bay under a so-called 'freedom of navigation operation' (FONOP).

"Originally, ‘operational’ FONOPs  were designed as the next step to supplement diplomatic efforts to challenge excessive claims or when these efforts have proven fruitless. An example of this, the USCG did a FONOP 35 years ago in the North Western Passage, much to the annoyance of Canada.

As Odell stated, “the United States does not conduct FONOPs vis-à-vis all excessive maritime claims everywhere in the world every year”. The pattern, tempo and nature of ‘operational’ FONOPs has principally focused on those countries who happen not to agree with the “ order”, a concept exclusively promoted by Washington to uphold its global primacy.

While other countries who take umbrage at what they perceive as excessive claims, they go to the ITLOS [International Law of the Sea - US is not a party] to try to settle the matter, the U.S. sends in the navy. What does that say?"
Andrei Raevsky 01 December 2020

"...the USS John S. McCain, which entered the Sea of Japan several days ago, violated Russia’s territorial waters in the Peter the Great Gulf, "passing the maritime border by two kilometers." "The Pacific Fleet’s Admiral Vinogradov anti-submarine destroyer used an international communication channel to warn the foreign vessel that such actions were unacceptable and the violator could be forced out of the country’s territorial waters in a ramming maneuver. After the warming was issued and the Admiral Vinogradov changed its course, the USS John S. McCain destroyer returned to international waters..."
Russian Ministry of Defense

"...when ratifying the Convention on the Law of the Sea, it [the Russian Federation] does not accept the procedures provided for in Section 2 of Part XV, which lead to binding decisions on disputes regarding military activities, including naval activities by government vessels."
Maria Zakharova, Foreign Ministry Spokeswoman 14 October 2021

There is almost no doubt that the US will move into Russian territorial waters within 'Gulf-like' coastlines, as US does not recognise waters encompassed within the outer arms of the 'gulf' as territorial waters, whereas Russia does - fully in line with Article 10 (6) of the1982 United Nations Convention on the Law of the Sea (Russia is a party to the Convention). There is no doubt in my mind that Russia will use force to push vessels out of these waters, whether submarine or surface.

However, Russia has overwhelming force advantage in it's Arctic Economic Zone:

"Earlier this year, for example, it was reported the US Coast Guard was forced to delay the commissioning of a new polar-class icebreaker until 2027, while Russia’s Rosatomflot signed a contract on the construction of its sixth and seventh Arktika-class nuclear icebreakers, which will join the 50+ icebreakers of various classes already in operation. For the moment, the United States operates just two icebreakers, a state of affairs which should complicate its freedom of navigation ambitions for years to come."
Sputnik 22 May 2023

Third, the North Sea Route from Northern Europe to the East China Sea is 9,000 kilometers or more shorter than shipping to (or from China's Eastern ports than if the goods were transported through the Suez Canal.

"...Say it takes you 33 days to get from Yokohama to Rotterdam via the Indian Ocean and 20 days via the Northern Sea Route, as the distance between these cities via the Northern Sea Route is slightly over 7,000 kilometres – 7,300 – and is almost 12,000 kilometres via the Indian Ocean.

This is the point – it saves you a lot of fuel and time, and so, of course, it will be very attractive not only to China, Japan, South Korea and Indonesia but it may even evolve into a very interesting and promising area of international cooperation....

...our goal is to make the Northern Sea Route safe and lucrative for shippers, and appealing both in terms of the quality of services and price.

In particular, the icebreaker escort fee must be competitive and reasonable. The state invests in this operation in order to minimise the tariff burden on carriers and other businesses

We encourage our foreign partners to join us in our efforts to create hub ports at the end points of the route. I mean the Murmansk transport hub and port infrastructure in Petropavlovsk-Kamchatsky. In addition, we plan to upgrade the Arctic coast harbours, including the river-sea traffic." capabilities.

...If necessary, we will expand the capitalisation of the Far East Development Fund for selective financing of Arctic projects."
Vladimir Putin 9 April 2019

Backdown Record
#1 " part of the sixth sanctions package introduced last month, the EU prohibited European companies from insuring and reinsuring sea shipments of Russian oil and oil products to countries outside the European Union.
As a result, major energy players such as Vitol, Glencore, Trafigura, Shell and Total stopped trading Russian oil for third countries.

Now, however, they will be able to resume business with Russia. The legal details of the new provision will be published in the Official Journal of the EU"
RT 23 July 2022

#2 In early August the UK removed sanctions on insurance and reinsurance of ships carrying oil to third countries (not the the EU). The UK is the single major ship insurer in Europe. Russia has made it illegal to insure with 'unfriendly countries' anyway, and has developed it's own insurance businesses for it's own ships. For example, State-owned Sovcomflot, Russia's biggest shipping company, now insures it's own fleet itself. through 'Russian National Reinsurance Co'. (also state-owned). The Russian National Reinsurance Company has become the main reinsurer of Russian ships.
What this 'sanctions backdown' really means is that London is losing insurance business, and this is a futile attempt to rescue a bit of what little is left.

#3 "...we have provided clarity to industry and partners. This includes the UK’s publication of a General Licence  as well as the U.S. General Licence 6B ; and updated and detailed EU guidance  .  These provisions make clear that banks, insurers, shippers, and other actors can continue to bring Russian food and fertilizer to the world.

We call on our global partners, and on the actors, industries and services involved in agricultural trade, to take note of these provisions; to act in accordance with them; to bring Ukrainian and Russian food and fertilizer to meet acute demand; and to continue to advance the accessibility of food to all."
US - UK Govt. joint statement 14 November 2022

In other words, the Russians were correct when they repeatedly asserted that no one in the west would provide banking services, shipping services and insurance service to Russian efforts to export their grains and fertiliser. It may have been 'technically  legal' but no western company believed the USA or UK when they said companies could serve the export of Russian grain and fertiliser without any form of punishment. Western corporates have no trust, no faith, in the assurances of their own government. Why risk payment being locked up again on the whim of a politician? If it can happen once, it can happen again.

In the meantime, Russia turns East.

"As for containers, there has definitely been a full-scale turnaround to the east. Both exporters and importers want to deliver cargo via the Far East, so all infrastructure facilities there: railroads, land border crossings, and sea terminals, have become overloaded.

Our North-West direction has decreased from over 100 thousand containers per month to 10 thousand.

Now Ust-Luga and terminals in St. Petersburg are gradually coming back to life due to the growth of non-container cargo turnover and the beginning of vessel calls from Southeast Asia, particularly from China...We have a big investment program for the Far East. Last year we gave up coal transshipment in favor of containers...

In general, we should say openly – in terms of technological readiness for market reorientation, both our own and our colleagues’ infrastructure cannot cope with the current volumes...

...vessels stand for a long time at Far Eastern ports, waiting for loading (although this year VSC managed to reduce the average duration of the roadstead by a third compared to last year). And this leads to serious financial losses for marine operators, including us.

...the impact of negative external factors can last indefinitely, and emergency methods will not work anymore. In our opinion, it is necessary not to patch up the holes, but to prevent their appearance in the future."
Sergey Shishkarev, Board Chairman of Delo Group 22 November 2022 interviewed by TASS News

Delo Group took matters into their own hands to try to overcome some aspects of the bottleneck - in August 2022 they took a controlling stakeholding in the Far Eastern Sakhalin Shipping Company as "part of the Group’s strategy aimed at creating a multimodal operator with a full-fledged maritime component".

The Russian Government, recognising the problem of the bottleneck in the East, is working with Russia Rail, marine terminal operators and businesses to try to find a way to coordinate all the actors for most efficient and fair use of an already overstretched capacity.

In May 2022, Russia's Far Eastern Shipping Company (FESCO), which is involved in both shipping and logistics opened the 'FESCO Vietnam Direct Line (FVDL)', a container shipping line, which, as it's name implies, runs directly from Vladivosk in Russia's eastern seaboard, to Vietnam. It eliminates the need for transshipment, capitalises on the free trade agreement between Russia and Vietnam, adds in a China port stop on the Vietnam to Russia leg, slashes the time taken for a container to to reach it's destination, and has (marginally) reduced the cost of container hire.

In August 2022 the Danish Moller-Maersk-owned APM Terminals pulled out of Russia. It had held around 30% of the shares in Russia’s biggest container terminal and internal port operator, Global Ports Investments (GPI). Moller-Maersk's shares were bought by Delo group, a major Russian logistics and freight forwarding company. The Delo Group operates container terminals in the Azov-Black Sea area, the Baltic and the Far East of Russia It also operates a railway container terminal network.

Delo is 51% owned by Sergei Shishkarev (the founder) and  49% owned by the state-owned Rosatom company.

In December 2022 GPI did a share swap of some of it's foreign shareholdings for shares giving GPI all shares in several significant Russian freight terminals. This deal sealed GPI's ability " concentrate its full control over Russian terminals". Another landmark in 'bringing it all back home'.

Around the same time, RUSCON, a Russian logistics company, instituted a door to door containerised goods shipping service (warehousing, Customs clearance, etc) originating in Taicang China, transiting Istanbul Port cargo hub, and shipped by a small feeder vessel to NUTEP container terminal at the Novorossiysk Black Sea Port, where it is put on rail or road to the final customer in Russia. NUTEP is a subsidiary of DeloPorts, part of the Delo Group.

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.

At first, the cost of road transport within Russia not only increased markedly, but there was limited availability. By late June 2022 road transport was much more freely available, and prices dropped.

On September 29 2022 Russia prohibited transshipment of foreign goods across Russia by road.

"We do not support confrontation, we prefer dialogue. But we cannot ignore the restrictions they have imposed. Therefore, on September 29, a Presidential Executive Order was signed to ban international road transport across Russia by foreign operators from those countries that have imposed restrictions on our individuals and legal entities. Any new attacks will also not go unanswered. No one should have any illusions about this.
Sergey Lavrov 8 October 2022

On the 19th of September 2022 the EU had finally been embarrassed into allowing Russian fertilisers, animal feeds, 'essential goods', coal and related products to be transshipped through the EU to non-EU countries “to combat food and energy insecurity around the world”.

Nationally coordinated Logistics

The efficiency of the national transport system is an important component of an efficient and thriving economy.

Russia's economy continues to grow, and as an unusually large part of the economy is involved in 'real' goods, it has very large transport needs. Much of the transport infrastructure needs upgrading and expanding, especially in the East. There are other aspects of efficiency beyond providing adequate road, rail and shipping capacity in a growing economy.

Russia needs to standardise and digitise it's whole cargo network, ensuring digital documentation is compatible across all the transport means - road, rail, and shipping. More than that, it would be logical for these digitised descriptors and process tracking networks to be machine readable in other countries - and especially China.

In the meantime, Russia has a huge task to digitise, network, organise and coordinate it's existing systems.

"In our opinion, the transition to a single logistics ecosystem can be implemented in two stages. The first stage should involve the implementation of common standards for data exchange and the development of regulations for the processing of digital documents for all participants of the supply chain.

The second stage is creation of the digital services for logistics management, including optimization of routes for cargo movement, coordination of electronic transportation plans, and monitoring and coordination of their execution"
Sergey Shishkarev, Board Chairman of Delo Group 22 November 2022 interviewed by TASS News

Wood and wood product industry

"The Russian Industry and Trade Ministry has offered imposing a ban on exports of wood and a number of articles made from it until the end of this year. The ban will cover unfriendly countries that have been put on the list, including the US and EU countries. Birch raw wood (the main raw material for paper production) and chip fuel placed under the ban are critical goods for the European Union...In its turn, the ban on exports of peeler block (raw material for plywood production) amid the EU’s anti-dumping duties on ready plywood from Russia will prevent European producers from boosting capacities of their own enterprises using Russian raw materials"
Russian Industry and Trade Ministry 11 March 2022

If you look at forests only as an exploitable 'commodity', Russia has about 20% of global natural timber reserves.

"Russia has 82 billion cubic metres of timber, compared to 126 billion in Brazil, 47 billion in the United States, 30 billion in Canada, and slightly over 14 billion in China.

The actual felling volume in Russia is well below the annual allowable cut, while the timber industry’s contribution to Russia’s GDP is rather modest at about 1 percent, or 0.99 percent, to be precise.

Clearly, the industry has proper reserves and good prospects for long-term growth."
Vladimir Putin 10 February 2023

Russia has about 300 million hectares of what they call 'economically established' forest lands. This land will progressively be transferred to Federal ownership, and intensively managed in accordance with best practice (for example, using selective logging, rather than clear cutting). The aim is to stop the illegal logging that plagues the Russian industry.  Russia supplies about 11% of global supplies of softwood lumber (sawn timber). Over 50% is sold to China. In March 2022 Russia proposed prohibiting the export of its timber to unfriendly countries some time before the end of 2022. It hasn't done this yet. In 2020 Russia's exports to friendly countries were: China about US$3 billion, Uzbekistan $429 million, Egypt $386 million.  Some unfriendly countries importer significant amounts of Russian wood - (all figures are from 2020) Finland  bought $539 million of Russian wood, and Japan bought $369 million worth. Russia's exports of softwood (conifers and birch) to the EU included large customers in Estonia, Germany, and Finland. In total, the EU bought about  5.4 million m3 of Russia's softwood timber. On April 19 2022 Japan banned the import of 'selected' Russian wood products.

On April 8th 2022, the EU banned all wood from Russia - an easy target as only 18% of EU's wood imports come from Russia. In contrast, only about 22% of Russia's wood pulp exports to the EU are banned, perhaps because a quarter of the EU's total wood pulp needs come from Russia. However, 53% of Europe's timber supply comes from Ukraine, Belarus, and Russia.

By early 2023, the wood and wood manufacturing industry in northwest Russia were in trouble, with the industry declining by 21% and loss of jobs. In early 2023 the government decided to support the timber industries economic survival for at least until 2026. Conditions of the lease payments for forested areas will be eased until the market picks up again. This mainly affects northwest forests. Subsidies will probably be provided to ship timber out of the hard-hit northwest ports, whose normal export shipping industry has all but collapsed under EU sanctions. Siberian forests of the northeast are relatively unaffected, as they are very close to the Chinese market.

"The situation regarding wood processing is uneven. You are absolutely right in saying that it is necessary to support this industry and you made all the required decisions in February. We have already produced the necessary regulations for this support, especially concerning wood processing plants in the North-West.

Indeed, logistics is the main problem and we are now reorienting all flows from the West to the friendly countries. These include not only countries in the East, but also in Latin America and Africa, especially after the forum – we are getting an additional order from our friends.

We have increased our furniture production by 15 percent. This growth is within our plants. Western manufacturers are vacating their niches."
Denis Manturov, Minister of Industry and Trade, 3 August 2023 

The government would like to stop wood exports and shift to mainly supplying the local market only, while at the same time encouraging 'value added' products, rather than selling unprocessed round wood.

"We must certainly stay the strategic course for expanding the timber industry, which includes...increasing demand at home, expanding our own processing capacities and manufacturing high-quality products with high added value, including wooden houses, furniture, paper, and so on. Also, it is expand the use of biofuels in the housing and utilities sector.

Mortgage tools should be used more extensively in housing construction. Wooden houses are a good choice for relocating people from structurally deficient residential well as for rural health posts and other social facilities....the availability of the latest timber processing technologies and equipment is of paramount importance.

...wooden housing construction embraces all phases from lumber harvesting to completion of construction. Without a doubt, we need to expand these capacities. I would like the Government to draft a set of measures to support the manufacturing of wooden house kits.

And one more point. We have a lot of construction under national projects and other state and regional programmes. Urgent care centres, cultural centres, libraries, Russian Post offices, etc...I believe it is possible to resort to wood construction technology on a bigger scale and use common designs for building projects, while of course observing all safety requirements. "

Vladimir Putin 10 February 2023

As at early 2023 Russia remains heavily dependent on foreign technology and equipment for advanced timber processing, especially for pulp and paper manufacture.

As at 2018, Ukraine, deeply corrupt, exports more illegally logged timber "than any other country in the world, more than Latin American, African and Southeast Asia countries together" according to the Warsaw Institute.Illegally produced sawn timber exceeds legal production from the state forests by 75%. As 70% of Ukrainian wood exports go to EU countries it is obvious the EU was turning a blind eye to it's own regulations that prohibit the importation of illegally cut timber. Whether it is still blind in one eye (and can't see out of the other) is moot, as in May 2021 the EU warned not to import illegally logged timber, but no one can assess the effect as stats for imports from Ukraine are still missing. Given Russia accounts for 18% of European imports, perhaps Belarusian exports are not hugely more. Therefore, it seems to me (open to correction), Ukraine is a major exporter of wood and wood products (such as pallets) to EU. That trade is now disrupted.

"However, soon supplies to the EU could become questionable. The thing is that Belarusian enterprises won’t be able to obtain new international certificates of compliance of standards of sustainable forest management and certificates of conformity guaranteeing respect for the rights of wood industry workers known as FSC."
Belsat 4 March 2022

Belarus has, similar to Ukraine, extracted large amounts of timber from its native forest cover, using various pretexts. The EU is determined to 'punish' Belarus for not measuring up to EU standards (even although Belarus is not a member of the EU...). In (almost) any event, Belarus will never be able to obtain certification from its forestry operations, no matter how closely it adheres to international standards for the forestry industry. Timber from both Russia and Belarus has also been termed 'conflict timber' by the EU, even though it is produced within the two countries respective boundaries, not in Ukraine. 'Conflict timber' is banned in the EU. The designation won't change until the conflict stops. This also contributes to shortages of some timber products (Lithuania processes a lot of Belarusan timber for European furniture makers - but not anymore.)

The UK imports a bit less than 500,000 cubic meters of wood of all kinds from Russia, so it isn't surprising that the UK hasn't imposed a blockade on Russian wood imports - so far. The UK is an unfriendly country, and if wood exports from Russia to the UK are prohibited it will cause it serious hurt.

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 (which the Russian government refers to as "deep timber processing").

In addition, in early 2023 Russia was exploring the option of using wood pellets to fuel municipal boilers. Apparently there is a 'financing source' of at least 15 billion rubles that can be tapped for the conversions, if an economically justifiable case can be made. Subsidies for domestic boilermakers involved in doing the conversiosn were being mooted.

Processing includes kiln drying, cutting to a finished surface, manufacturing common finished wood components etc. Russia is also logging implementing an extensive electronic mapping, tracking and certifying system for its vast forests. Illegal logging costs Russia 'tens of billions of rubles a year'.

The end result of the west's sanctions is an increasing shortage of wood in Europe and, eventually, increase in timber prices (incentivising illegal logging all around the world). The Russian threat of a ban to unfriendly countries remains in the air. On the plus side, widespread destruction of indigenous forests in Russia, Ukraine and Belarus has been slowed down a little.

Fertiliser industry

"...we are a leader, and guarantor, of food security, and not just in the Russian Federation but throughout the world.

Over the past decade, we have increased production of all types of fertilisers by 40% – up to 55 million tonnes. We have surpassed the United States and India in this respect, and we are now second in the world after China. This is really an enormous achievement.

Of course, our priority is the Russian domestic market. We are fully meeting demand. In the past decade, fertiliser sales in the Russian market have increased by 2.5 times – to 13.2 million tonnes. This is an all-time record.

And, of course, we are now the world's largest exporter of mineral fertilisers, with an export capacity of about 37–38 million tonnes, although that was in 2021. In 2022, it is clear that we had a slight drop due to the sanctions and all the export problems that happened."
President of the Russian Association of Fertiliser Producers, Andrei Guryev, April 27, 2023

"...we are ready to fully meet the demand of agricultural producers in Indonesia and other friendly countries for nitrogen, phosphorous and potassium fertilisers and raw materials for their production. Russia’s share of mineral fertiliser in the world market amounts to 11 percent and exceeds 20 percent in some varieties. Last year, we sent abroad 37 million tonnes of these products.

We certainly intend to continue fulfilling in good faith all of our contractual obligations for the supply of food, fertiliser, energy resources and other critical goods. In this context, we consider it vital to restore the supply chains disrupted by sanctions"
Vladimir Putin, 30 June 2022

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. Russia and Belarus together make up a significant chunk of the global market for supply of certain fertilizers.

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. As a result of Lithuania's actions, new facility are being built at St. Petersgurg to export the Belarus production. Lithuania will lose it's lucrative port charge income.

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.

"Considering that Russia and Belarus are the biggest suppliers of fertiliser to the global market, I would like to discuss with you ways of satisfying the demand on the global market and our permanent customers.

I think we have 15 percent of the global trade, and 25 percent in some fertilisers, which is a very significant amount in the world markets.
Low use of fertiliser obviously brings down the next year’s harvest outlook. All that is very regrettable."
Vladimir Putin June 25 2022

In 2021 Russia produced about 58 million tonnes by weight of fertilizer (or 25 million tonnes by actual mineral ingredient), and about 16 million tonnes (by ingredient, not actual weight) of this was exported, as domestic needs are prioritised over exports. In the first 10 months of 2022 Russia produced 42 million tonnes of fertiliser, 12 million tonnes of which went to the domestic market. In November 2022, work was under way to institute fixed prices for domestic fertiliser. The prices will be inflation adjusted only with the agreement of both the Agriculture Ministry and the Industry and the Trade Ministry.

Uralkali-UralChem supplieis fertiliser to 26 countries across Africa, and, in spite of claims by the EU to the contrary, large amounts are blocked from leaving Uralkali European port storage in Netherlands, Belgium, Latvia and Estonia. It seems because the owners of Russia's fertiliser companies are personally sanctioned, the companies are not allowed to send money or to undergo business transactions for shipping services or insurance etc.

In March 2022 Russia’s ministry of trade recommended ceasing fertilizer exports.

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).

On June 30 2022, the Russian president commented in a meeting that "The level of fertiliser production in Russia is so high that we do not have any restrictions on the supply of this product to foreign markets." He was talking to the President of Indonesia. Perhaps he meant no restrictions on existing contracts (in early 2021 Russia had considered prioritising fertiliser to domestic markets, so perhaps some contracts would have to be broken). Perhaps the March recommendation was simply precautionary, and as production figures came in became unnecessary. Perhaps the March move was simply a method of applying pressure to bring the west to it's senses.

Whatever the case, 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. As an example, the longest ammonia pipeline in the world went from Uralchem's manufacturing plant in the Urals all the way to the port of Odessa in Ukraine.

"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

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.

Whats more, the EU, by it's actions, is killing the use of EU ports to export fertiliser. Russia's Uralchem, for example, exported ammonia (used in the manufacture of urea, a nitrogen fertiliser) via the world's longest ammonia pipeline (2,418-kilometers). This pipeline stretched from Uralchem's plant in the Urals to the Ukrainian port of Pivdennyi, on the Black Sea (near Odessa). It has a maximum capacity of 2.5 million tonnes of ammonia a year. The Uralchem-controlled manufacturer (Togliatti Azot) is the world's largest ammonia producer. The pipeline closed in February 2022 after the commencement of the conflict. Since then, the 'sanctioning' of the head of Uralchem has meant European ports won't handle the fertiliser. In an interesting twist, Russia allegedly devised a 'means' to buy out the British controlling interest in Togliatti Azot and transfer its incorporation to Russian territory.

"It is worth mentioning that Mazepin hadn’t owned ToAz for some time, he took control of it with a raid just three months before the war. The former British controlling partners, the Bkit consortium, complained that their representatives were blocked by the Russian special police forces, the Omon, at the entrance of the shareholders’ meeting, which voted to exclude them from the board in their absence. An appeal to the Dublin court is open against the raid on ToAz. But in the meantime, Mazepin has formally transferred control of the group to two close allies since it has been under sanctions."
The Odessa Journal, 21 October 2022

"The Executive Order was signed in response to unfriendly actions taken by the United States of America and the foreign states and international organisations that sided with it, seeking to impose restrictive measures on Russian citizens and legal entities in violation of international law, in order to uphold the national interests of the Russian Federation and in accordance with Federal Law On Special Economic Measures and Measures of Coercion of December 30, 2006, Federal Law On Security of December 28, 2010, and Federal Law On Measures (Countermeasures) Against Unfriendly Actions by the United States of America or Other Foreign Countries of June 4, 2018.

The President resolved to introduce a temporary procedure for making decisions by a general meetings of participants (shareholders), a board of directors (a supervisory board), or a collective executive body of a Russian economic entity on issues within their competence.

...If a body of a Russian economic entity includes persons from unfriendly foreign states, the participants (shareholders) of the Russian economic entity who are not nationals of unfriendly foreign states shall be entitled to rule that the votes of said persons shall not be counted when establishing a quorum or in voting. In such case, a decision shall be made notwithstanding the provisions of the founding documents of a Russian economic entity or its corporate agreement. The temporary procedure established by the Executive Order shall remain in effect until December 31, 2023, inclusive."
Executive Order On Temporary Procedure for Making Decisions in Certain Russian Economic Entities,17 January 2023

The USA devised a bizarre plan, via the UN, whereby ammonia would be pumped as far as the Ukrainian border, and then be bought by a US commodities trader (the US has not sanctioned Uralchem's owner, the EU has), who would become the legal owner, and thus circumvent the EU 'sanctions'. However Ukraine put forward a number of political preconditions that Uralchem is not competent to meet.

As a result, Uralchem is making very large investments in rail rolling stock. Switching to rail shipping of ammonia and other fertiliser products means Uralchem can no longer be blackmailed by Ukraine.

On June 5, 2023 a section of the Tolyatti-Odessa ammonia pipeline was blown up in the Kupyansk District of the Kharkov Region, an area controlled by the Ukrainian army. It is estimated to take 1 to 3 months to repair it, however Ukraine will not permit repairs to be made.

Uralchem is spending $820 million to build an ammonia processing plant with a capacity of 680,000 tonnes per annum at Taman, a Black Sea port on the Crimean Peninsular.

"We hope that we will open the port in Taman by the end of 2023, and that will change the situation where the Russian Federation – a major producer of ammonia for as long as the country has existed – has been left with… Well, not a single ammonia transshipment port has been built, and we are tied down, or dependent on other countries that have such ports.

Therefore, we want to close this gap. We are working jointly with the Ministry of Industry and Trade, with the Government of the Krasnodar Territory, and other agencies. But we would like to ask you to help – to temporarily include transshipment and transportation of ammonia in Odessa in the grain deal for us, so that our product can also go to developing countries, including Africa."
Dmitry Mazepin, Chairman of Uralchem, Chairman of the Commission for the Production and Trade of Fertilizers meeting with Vladimir Putin 23 November 2022

It also means European ports will no longer receive cargoes for shipment. And it means that European fetiliser manufacturers will have to buy their fertilisers from someone else. If 'someone else' exists. Whatever the ultimate outcome, fertiliser will have a longer trip to Europe, driving up the price.

Backdown Record
#1 On 22nd July 2022 Russia came to an agreement with the United Nations to allow facilitate grain ships leaving Ukraine via the Black Sea. Turkiye and the UN will inspect the empty ships (with Russian and presumably Ukrainian observers) as they enter the Black sea in order to confirm they are not carrying weapons to Ukraine.
Part of the price for this agreement is that the sanctions on Russian fertilisers must be removed. I think this refers to sanctions on insurance, port access, and shipping companies, as well as on specific sanctioned products.

"We are aware that the European Commission has lifted the sanctions on the supplies of Russian fertilisers, and we certainly welcome this decision. However, the European Commission issued a clarification on this matter on August 10, whereby only EU countries can buy our fertilisers, but we and Belarus cannot ship our fertilisers through the ports of European countries to the developing economies of Asia, Africa or Latin America, which is an act of discrimination against our partners from these parts of the world.

Massive amounts of our fertilisers (100,000 tonnes, I believe) are stored at the ports of some European countries. Our manufacturers – primarily of potash fertilizer – are willing to give them for free to the developing countries in dire need of these fertilisers. I want the Foreign Ministry to work through this issue"
Vladimir Putin 9 September 2022

I would like to ask the UN Secretariat – I discussed this matter with UN Secretary-General Antonio Guterres the day before yesterday – to use its influence on the European Commission’s decision not in word, but in deed and to demand that they, our colleagues from the European Commission, lift these clearly discriminatory restrictions on developing countries and provide access for Russian fertilisers to their markets.

Also, the day before yesterday I apprised Secretary-General Guterres of the fact that 300,000 tonnes of Russian fertilisers are stocked at the EU seaports. We are ready to make them available to developing countries for free."
Vladimir Putin 16 September 2022

262,000 tonnes remain blocked as at late November 2022.

Dmitry Mazepin "We have shipped a trial batch of 20,000 tonnes or less than ten percent of our impounded volumes to Malawi. The UN and Ms Rebeca Grynspan actively addressed this issue, and they helped us. The Netherlands is now ready to ship this batch to us.

We are facing a problem because we are unable to pay freight charges, even if we are delivering free fertiliser to Africa. We have reached an agreement with the UN that we will remit the money to the UN. They will charter a ship that will sail to the Netherlands, take on the free batch and sail to a port in Mozambique because, according to the UN, Malawi is now hard pressed for fertiliser.

This is why I would now like to raise this issue and to obtain your approval, so that we can reach agreement on the entire initiative. We would contact the UN and the African Union, in order to unblock our entire 262,000-tonne batch. By agreement with the Chairperson of the African Union, they will list countries that are hard pressed for fertiliser, and we are ready to make these deals.
Vladimir Putin: Are you talking about free deliveries?
Dmitry Mazepin:
Yes, free deliveries."
Dmitry Mazepin, Chairman of Uralchem, Chairman of the Commission for the Production and Trade of Fertilizers meeting with Vladimir Putin 23 November 2022

By January 2023, the EAU had released only one consignment of fertiliser, given by Russia to Malawi for free (and Russia paid the shipping). Russia is now pressuring the UN to stop 'slow walking' work to make the EU releases the fertiliser. Russia has pledged to give some of this fertiliser for free to the Kingdom of Eswatina (formerly Swaziland).

"Since UN Secretary-General Antonio Guterres strongly advocated the settlement of all issues related to unimpeded supply of Russian grain and fertilisers to the world markets, we agreed today that the Eswatini government and Russia will address him with a request to promptly resolve the issue of using part of the Russian fertilisers seized in EU ports for the needs of the people of Eswatini free of charge. These fertilisers are available for free."
Sergey Lavrov, 23 January 2023  

The truth is revealed. The EU is holding Russian/Belarusan bulk fertiliser to ransom in European ports, preventing the transhipment to their destination. Port storage charges will now be massive. So the companies are willing to donate the fertiliser to poor countries and write off the loss. The companies are most unlikely to pay the port charges (even if they could), and are most unlikely to ever use those european ports again.

Forcing Russia (and Belarus) to export through Russian ports might add costs for Belarus, but exports via the Black Sea is probably the shortest and cheapest route anyway, even if infrastructure might be a bottleneck.. This EU restriction gives Russia the high ground - Russia will not supply Europe with any fertiliser so long as Russia cannot send fertiliser to the global south via European ports. Once again, the Europeans are over a barrel - either totally remove the sanctions without any conditions (and possibly wipe the port charges), or go buy fertiliser from 'somewhere else'. Of course, Russia may hold out for full restitution - payment for the fertiliser, cancellation of port charges, and complete wiping clean of all sanctions.

"Another eloquent example of the Western sanctions’ disruptive effect is that they are even preventing a free transfer of some 280,000 tonnes of Russian fertilisers to the poorest countries. The products are now stranded in the ports of Latvia, Estonia, Belgium and the Netherlands. It must be emphasised that these Russian products are intended as a donation to those in need, while all the transit costs are being covered by Russia...However, most of the products are still being held in Latvia. That country’s authorities are refusing to give our fertilisers to the poorest countries, for purely political reasons."
Deputy Foreign Minister Sergey Vershinin 17 November 2022

Russian fertilizer producer Uralchem-Uralkali has agreed with the Netherlands, Estonia and Belgium to supply cargoes of fertilizers stranded in those countries to Africa, TASS news agency reported on Saturday.

It cited Uralchem’s head Dmitry Konyaev as saying the group was “actively working with the U.N. to organise free deliveries to Africa of more than 262,000 tonnes of mineral fertilizers that have been ‘frozen’ in EU countries”.

The Netherlands said on Friday that following a request from the United Nations it would allow shipment to Malawi of 20,000 tonnes of Russian fertilizer that had been stuck in the port of Rotterdam because of sanctions against a Russian individual, whom it did not identify. It said a condition of the agreement was that the sanctioned person and the Russian company would earn nothing from the transaction.
Reuters 12 November 2022

The 'sanctioned' individual that Reuters mentioned is, of course, the owner of Uralchem-Uralkai, Dmitry Mazepin. The UN has organised the shipping, and Russia has paid the cost of shipping. Did the UN pay Netherlands, Estonia and Belgium the cost of storage of the illegally seized cargoes?

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. Depositories are central to 'squaring up' transactions in securities such as equities. 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.

On the 23rd of May 2023 Novatek completed a capital raising bond issue denominated in rubles. The USD 332 million (30 billion rubles) offering pays 9.1% p.a., and was oversubscribed. The issue has an AAA credit rating, issued by Russia's own credit rating service.

"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 were 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 although 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.

Insurance Sector
Insurance is usually a very profitable business. US-owned Marsh & McLennan, the world's largest insurance company, officially 'quit Russia', but 'transferred ownership' of its various businesses to the Russian local managers in March 2022. In other words, they have left, but they will be back. The local managers are simply 'bookmarks'. Aon, the world's second largest insurance broker 'suspended' Russian operations in March 2022. Other insureres with minor involvements in Russia, such as the Zurich Group, have also left, generally leaving the business in the hands of local staff under a different brand.

Foreign insurers have increased costs as claims have been made for Russian expropriation and local re-certification of foreign-leased aircraft. As a result, aviation hull war insurance rates have increased by an average of 200%, on average as at August 2022. (Unsurprisingly, this raises the cost of airfares worldwide.)

In early August 2022 Generali insurance, the third largest European insurer, quit Russia and put their Russian assets, including their 38.5% shareholding in Russian insurance company Ingosstrakh. Generali's net profit for the first half of 2022 was 1.4 billion euros. They will barely notice the loss.

No one will write insurance for political risk and credit risk in Russia, Ukraine, and Belarus at the moment. Russia and Belarus may be able to profit from capturing this market segment as an investment in the post-conflict world.

On the domestic front, the Soglasie insurance company has insured the Soyuz launch vehicles and manned spacecrafts for  loss, damage, destruction, and aborted ignition. Claims are relatively rare, but when they are recognised, the money involved in paying out can be large. Soglasie spread the risk involved in recent flights with reinsurance with Russian National Reinsurance, Ingosstrakh, and AlfaStrakhovanie. Previously, western reinsurers also participated, but it is not clear whether or no they are still involved. I suspect not.

Banking sector

See Freeze Russian bank accounts in the US and EU

There are 326 licenced banks in Russia, 225 of which have a 'universal licence'. I assume this allows them to deal in all currences, as well as precious metals. The Russian banking sector has been hit hard by the western restrictions. Some bank customers have fled Russian banks entirely. Most of the 15 biggest banks are still solvent, but only because they are being heavily subsidised by the Russian government. Almost half of Russian banks have to be subsidised to survive. On the plus side, the crisis has caused as massive and on-going cleanup of shadow banking, "shady operators" and accounts receiving proceeds of crime. The Russian Central Bank has a 'know your customer' platform, and in January 2023 extended access to those starting up small to medium businesses so that they can avoid business dealings with criminal fronts trying to launder money.

Generally, small and medium sized banks are vital to a developed economy. In the United States of America for example, small and medium sized banks provide 80% of commercial real estate mortgage lending, 60% of lending for residential houses, 50% of loans for commerce and industries (including essential industries such as agriculture), and 45% of lending for retail consumption (car loans and similar). I am guessing it is somewhat similar in the Russian Federation.

"Some clients and financial assets have left the banks that were hit by the sanctions and gone to banks with foreign participation and sanctions-free regional banks that are comfortable for businesses now. The number of flows has increased five-fold.

Looking at our financial sector overall, there are about 320 banks operating in Russia, including about 115 banks working with budget funds.

Today, we are monitoring about 20 trillion rubles. About 80 percent of all budget funds are concentrated in our 15 largest banks

...we managed to cut the share of budget funds being channelled through high-risk banks to a third, and the involvement of 'technical firms', fly-by-night companies, by about 40 percent. More than 43 billion rubles allocated from the country’s budget has been saved; 32 billion has been transferred back to the budget, and the assets of officials who were implicated in criminal cases have been seized – assets worth about 7 billion rubles. We have helped initiate over a thousand criminal proceedings.

As for countering the financing of terrorism, we have officially identified about 1,500 people as terrorists, including legal entities and terrorist groups linked with nationalists in Ukraine.

Reciprocal “freezing” works particularly well...Reciprocal “freezing” is when our foreign colleagues give us their lists of terrorists that they believe to be in our country or are wanted. In turn, we give them our lists of people who we think are abroad. We have received lists with about 1,500 names from them and have given them lists with about 2,000 names.

Over 280 cases on terrorism have been initiated and are being conducted with our participation.

Unfortunately, I must say that non-profit organisations are being used today to raise funds and then give them to terrorists. We are also working with the FSB on this."
Yury Chikhanchin, Head of the Federal Service for Financial Monitoring, 9 March 2023

The sanctions have caused a large outflow of banking to "banks with foreign participation" probably means banks owned by friendly countries that operate in Russia. The most significant of these are HSBC Bank, ING Bank (Eurasia), SEB Bank, Bank of China (Russia), and China Construction Bank (Russia), although strictly speaking they are fully foreign owned. The Swedish SEB Bank announced in January 2023 that it would "scale down" operations in Russia as it cannot repatriate profits to the Swedish head office due to the West's sanctions (notably, it did not say it would leave Russia). ING Bank is a Netherlands -owned wholesale banker involved in supplying liquidity to commercial enterprises and finance to International trade agreements, government to government trade financing, Foreign Exchange and money market operations, hedging instruments, and so on. ING also provides services to enable insurance, payment cards operations, private and small business loans.

The VTB bank is about 70% Russian government owned. VTB bank is sanctioned in USA. In December 15 2022 Rosbank, a major commercial bank was sanctioned by USA (it is already sanctioned by the UK and Canada). Both VTB and Rosbank have US exemptions which permits them to trade energy, agriculture, fertiliser, medicine with USA. 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.

Sberbank of Russia is one of Russia's leading banks. On April 6, 2022, the US Department of the Treasury’s Office of Foreign Assets Control added Sberbank and Alfa Bank to the 'Specially Designated Nationals and Blocked Persons List' (SDN List), which fully block both banks from any operations touching the American banking system, and thereby freeze all Sberbank and Alfa Bank foreign currency reserves held in American correspondent banks, and prevents payment for IT services for services based in USA. Prior to this date, Sberbank was 'only' under partial restrictions the the US government.

"We are past the period of losses, which was an incredibly difficult time for us. We incurred a major loss since we lost almost all of our foreign assets, except in the CIS countries. Without a doubt, the SDN sanctions made it impossible for us to operate on exchanges in any currency, be it US dollars or euros.

So, over the past period, we have fully formed the reserves to cover all existing issues. We are beginning to operate as usual, and there can be no doubt about our sustainability, since we will show financial results. With the Central Bank’s permission, we began to disclose our financial results, because we want everyone to see that all our problems are in the past.

We have ensured the bank’s functioning in challenging conditions, meaning the border areas, as well. I traveled around our border areas, and saw that our employees continue to work in extremely difficult circumstances...We are the only core bank for the people in the small towns in the Belgorod, Kursk and Voronezh regions. A situation where we stop providing financial services is unimaginable and we will continue to provide the full range of financial services there.

In this sense, you are absolutely correct and the groundwork that we created by building our own platform based on proprietary solutions led to the fact that, in general, we are unscathed by the vendors’ departure from the market, since 80 percent of our solutions are based on in-house IT products. In 2023, over 90 percent of the services that we use will be our proprietary services."
German Gref, CEO and Chairman of the Management Board of Sberbank, 7 March 2023

On the 25th of February 2023 the EU placed restrictions on Rosbank, Alfa-Bank, and Tinkoff Bank.

The Promsvyazbank bank is one of the 5 largest banks in Russia, and has become the main financier of Russia's military-Industrial complex. Unsurprisingly, as at early 2023 it reports that it is doing well. It has maintained profitability and expanded it's ability to extend credit. The bank has been directed by the Russian Government to provide cheap loans to the Military Industrial complex of a size, duration, and continuity sufficient to meet current and future Defense needs in full - without need of Government subsidies. The  Bank-Government scheme has now also been extended to Roscomos, whose research and development work also includes military projects.

Promsvyazbank also provides preferential loans to military personnel for housing at a preferential rate (8%). This rate seems high to Westerners, as mortgage interest rates in the West in early January 2023 are from around 3% (France) to 6.5% (USA). On the other hand the average house price in early 2023 was about $348,000 in USA and about $268,000 in France, whereas the average house price in Russia was very approximately from $60,000 to $120,000. The median household income in Russia is much lower - maybe around $23,000 - but healthcare and education are free. 

Promsvyazbankis increasingly involved in providing loans to businesses right across the board - small, medium, and large enterprises. The bank is a keystone enterprise for bringing banking services to under-banked areas and new territories. It allows one stop utilities payments, mortgages, business loans, and payment of government pensions and subsidies etc.

The Russian Central Bank is introducing a programme to assess risk when banks lend to small to medium businesses (SME's), and at the same time the Central Bank will itself also provide subsidised loans to those SME's involved in development of Russian infrastructure.

The Central Bank of Russia reported that for the year ending December 2022 saw the growth rate in mortgages issued fell back by a third, although the December month saw a record surge. Foreign currency revaluation (by the Central Bank) along with a weakening ruble saw some bank profits 'juiced up', at least on paper. The Central Bank is also providing Russian banks with more ruble liquidity, and providing increased credit lines for domestic ruble accounts. Maybe this is part of a government increase in liquidity in difficult times.

Overall, given government support, banks are doing relatively well, in spite of buying up additional Russian Government OFZ bonds in 2022, presumably to help hold up their slipping price as foreign holders sell out (existing OFZ bonds in bank portfolios have had to be marked down to the 2021-2022 current market value, resulting in a 200 billion rouble loss of asset value across the banking sector). This trend will probably reverse as Russia consolidates the move to free markets in the East and Middle East and non-Anglo Americas.


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.

"Today, the only producer of fibre for telecom in the entire EAEU is Optic Fibre Systems, a company in Saransk (Mordovia). Its production capacity was increased to 4 million kilometres of fibre per year, which meets almost half of the domestic demand. To fully cover the market, the company drafted a comprehensive investment project. It will expand the company's capacity to 10 million kilometres of fiber per year, allowing it to meet the requirements of not only Russia but also other EAEU member-states. There are already agreements with the Republic of Belarus."
Denis Manturov, Minister of Industry and Trade, 15 February 2023

Russia, like most developed countries, has a 'Digital Economy' programme, with high-speed data transmission the key enabler. Russia has been late to digitise it's economy, which is fortunate because it can both modernise and fully indigenise critical infrastructure. Unlike almost every other country, it will become fully able to function in any condition of blockade or war.

It is also leveraging digital services to improve speed and efficiency of services such as healthcare (an rea in desperate need of funding and modernisation).

"Again, we still have a lot to do to ensure that every Russian, regardless of the region they live in, receives high-quality and up-to-date medical care. This is not only about better medical equipment and facilities.

Other key priorities include building up capacity to provide specialised and high-tech care, improving the education level of medical personnel, as well as the wider use of advanced information technologies, including so-called digital assistants, which help doctors make diagnoses and reduce the time spent on paperwork.

People who are not versed in the industry still find it unusual that big data systems can help in diagnosing patients. This is amazing but true, and it improves the quality of the work."
Vladimir Putin 15 February 2023

Electronics Industry

"Military and aerospace markets are the most closed both for foreign companies and private Russian designers and electronics manufacturers. However, in many cases technological inferiority of enterprises controlled by government doesn’t allow them to fulfill tasks of Defense Ministry and it makes them to get private companies as subcontractors of the second level to take part in most projects on designing and manufacturing military equipment of new generation. In this year the first precedent of direct interaction was set between private company and military customer."
Ivan Pokrovsky, Electronica Publishing House 2008

 Globally, the high-tech end of electronics manufacturing is worth $1 trillion, and it is dominated by China. Not only is it hard to compete on a global market, the area is capital intensive and crowded. The Huawei 5G wireless network debacle shows that even if you are big, cheap, and cutting edge, the 'unfriendly countries' will find a reason to block your products. (On the other hand, perhaps Huawei were simply naive.) Russia does have a prescence in manufacture and sale of 'electronica' in general, but it is rather small. In the Soviet days it was more advanced than the US, but no longer.

"...Russia's semiconductor technology was also brilliant in the former Soviet Union. At that time, the Soviet Union did not have any channels to obtain technology and equipment from the West, but it still achieved good results in the early days. With the strong support of the Soviet Union's planned economy, the gap between the Soviet Union and the United States in the semiconductor field was not large in the early 1957, the world's first semiconductor company Fairchild was born in Silicon Valley, and the Soviet Union also had its own first semiconductor manufacturing plant in 1959...

Judging from the current state of the semiconductor industry in Russia, its technological accumulation in the upstream design and manufacturing of semiconductors comes from the legacy of the former Soviet Union on the one hand, and the upgrading of backward western production lines on the other hand. Products appeared, but eventually disappeared in the long history due to various reasons, and its semiconductor industry was eventually reduced to extensive sales of rare materials...

...It is difficult to cultivate world-leading products on the barren semiconductor industry soil. By October 2020, MCST announced its latest CPU - Elbrus-16C, which uses TSMC's 16nm process, which consists of 12 billion transistors. However, at this time, the mainstream CPUs on the market already use the 7nm process, and the Soc of the flagship mobile phone uses the 5nm process"
MinNews 17 August 2022

Russia has about 3,000 businesses involved in the electronics industry (2020). Of these, 500 are state controlled and work on government-related projects. Nearly 40% of total industry sales ($1 billion) are to the military and aerospace (in 2007 it was 60%). Some privately held enterprises involved in contracting for the defense industry have been taken over by the State, for obvious reasons (for example Konstradt, a subsidiary of the Sistema Group).

Communications equipment sales are the next biggest by value ($230 million), but make up only 10% of total sales.

Security systems are the third biggest sector by value ($215 million), but make up only 9% of sales.

Commercial equipment and medical electronics sales are fourth biggest by value at $100 million, but together make up only 4% of the market. Automotive electronics are worth $80 million in sales and make up 3% of industry sales volume. Consumer electronic segment was about the same. Industrial electronics make up 20% of sales (worth $50 million).

Total market value of electronic products in 2019 was "estimated at $2.74 billion". These figures are for 2020, via 'Expo electronica'.

However, according to the (presumably Russian) Electronics Developers and Manufacturers Association, annual sales of domestically-built 'electronica' equipment comes to $15 billion, and exports of Russian-made electronics bring in about $1 billion. "Overall, the industry’s gross income stands at $6bn". In 2007 the total Russian 'electronics' manufacturing - equipment, components and units - was valued at over $8 billion [pdf]. That was 15 years ago, $15 billion today sounds reasonable. Maybe there is a difference between 'electronica' equipment and electronics.

State-owned Rostec has taken over the scannable bar code labelling system, with great results. Rostec now produces branded product labels for 570,000 companies in Russia, and now also in 5 "allied" states. The scannable labels cover 10 products groups from tyres, tobacco, and medicines to to water, perfumes, beer and softgoods. Obviously, this list will grow over time.  All cash registers in Russia are connected to the system. Since launch in 2019 to 2022 the system collected 435 billion rubles in sales tax.

An unspecified 'number' of branches of major global manufacturers work in Russia (or at least did, in 2020).

"Amount of electronic components manufacture in Russia made up to 400 million in 2007, a quarter of which is due to export deliveries. Average annual growth for the last five years is about 10%. In 2008—2009 we expect much higher figures related with the beginning of IC manufacturing for smart cards at the new 0.18 EEPROM line at NIIME and Mikron (Sitronix) company and extension of technological potential of a number of state enterprises financed according to the national target program."
Ivan Pokrovsky, Electronica Publishing House 2008

According to Expo electronica, 36% the electronic industry are involved in either production of custom items or purchase and resale of components, 30% work in marketing and development of electronic devices, 18% specialise in development and marketing of modular components, 8% of companies are involved assembly and testing of modules and equipment, 5% are involved in 'completing production' (whatever that means), and 3% are involved in manufacturing cases for equipment. The Russian government would like to eventually replace all government PC's (and presumably servers) with Russian designs and components. Annual sales of domestically-built products were $15 billion in 2020. Only about 15% of this is due to military equipment exports (built with Russian electronic systems). The Pantsir air defense system and the Krasukha mobile electronic warfare systems would be examples.

"Russia’s state arms exporter Rosoboronexport sealed defense deals with international companies worth roughly $2.35 billion at the Army-2020 international military-technical expo held in the outskirts of Moscow. Rosoboronexport has inked contracts to deliver cutting-edge electronic warfare systems (EW), such as the Krasukha mobile EW system and the latest mobile Repellent-Patrol electronic countermeasures complex — for the first time in the history of military-technical cooperation between Russia and foreign states. ...the mobile electronic warfare system “Krasukha” protects command posts, groupings of troops, air defense systems, and vital industrial, administrative and political facilities. The Krakusha-4 system analyzes the signal type and impairs enemy radar stations by powerful jamming emissions at ranges of up to 300 kilometers (186 miles). As a result, enemy aircraft lose their capability to detect targets and aim their precision weapons against them." 29 August 2021

The electronics/electronica industry employs 360,000 people. The Russian Ministry of Industry and Trade confirms the 'domestic civilian electronics sector' is worth $15 million.

Sales drop off in years prior to 2020 were attributed to "mainly due to a reduction in orders from the Russian military-industrial complex. Delays in financing and a lack of large-scale military projects explains the slowdown." This may have changed recently, but I suspect only to an extent. Practical military equipment needs 'sturdy' workaday processors that can survive shaking and jarring when in the active military environment. At the military workstation (and probably missile) level lower 'spec' microprocessors - which Russia produces - are more than adequate.

Russia has been shut off from 'high end' semiconductors, at least from unfriendly countries. Russia probably could quietly acquire the relatively small number of very advanced semiconductors it needs from friendly countries, but strategically, it seems more likely they have developed their own. It would be a big - but not impossible - task to start cold to reach the extremely high level of technical competence to make these very advanced chips. Small numbers of these specialist chips for limited-run advanced projects may well already be made by Russia's research institutes contracted to the Russian military industrial complex. If so, the Government is unlikely to mention it.

"In general, the semiconductor industry of the Soviet Union, whose main purpose is military industry, does not pursue the power and commercial possibilities of pure semiconductor technology. It only needs to be practical and durable enough to ensure the effectiveness of military units. From the military industry [point of view] it is said that this move [breakup] of the Soviet Union is actually not a problem. Even today, semiconductors used in the industrial and military fields are not advanced process chips, but mature ones with higher reliability and durability in various extreme environments.

For example, the temperature ranges required for normal operation of civilian chips, industrial chips and military chips are very different. Civilian grade requires 0°C~70°C, industrial grade requires -40°C~85°C, and military grade requires -55°C~125°C. This is only an indicator of temperature. Industrial and military grade chips also have anti-interference and impact resistance. Even aerospace-level radiation resistance and other requirements, these are difficult to achieve with more sophisticated and smaller advanced process chips, so even if today's Russia is almost out of the global semiconductor industry chain, it can produce [them] to a certain extent."
MinNews [slightly edited for sense] 17 August 2022

At the moment, Russia relies to a large extent on Taiwan, a major semi-conductor patent holder and producer is the Chinese province of Taiwan. However, the provincial government has applied trade restrictions on Russia, and has stopped shipping semiconductors to Russia. As a result, Russia's The Moscow Center of SPARC Technologies (MCST), is considering moving it's production line from Taiwan to the Mikron plant in Zelenograd. MCST produces the Elbrus microchip used in computer workstations (PCs) and servers.

"Defense and commercial companies in Russia rely heavily on foreign-made microchips. While Russian engineers provide the design specifications, the technology is assembled by Taiwan Semiconductor Manufacturing Company, or TSMC. Following the Feb. 24 invasion of Ukraine, TSMS ceased production of Russian-designed Baikal and Elbrus microchips."
DefenseNews, 9 June 2022

There seems to be a lot of dispute within the Russian industry and bureaucracy about whether or nor Russia should attempt to produce high end microprocessors. Russia produces 600-nanometer microchips for military use, even if, up to now, the Russian designed processors using these chips are assembled in Taiwan. There is no reason beyond cost why Russia should not assemble these modules domestically. Taiwan can produce very high capability ultra-small chips of down to 5 nanometers, but whether these are essential in the military context seems dubious.

"Microelectronics manufacture, particularly semiconductor one, is most attractive for investors. While establishment of modern manufacture for electronic equipment costs
several million or tens of million dollars, establishment of semiconductor manufacture needs several hundred of million or several billion dollars."
Ivan Pokrovsky, Electronica Publishing House 2008

Russia has several companies involved in production of semiconductors for one purpose or another, including paycards and the like. Mikron chips are internationally certified, and Mikron is already producing chips for the Russian automobile industry. According to one Russian social news website Mikron already produces microcircuits for automotive instrument clusters and has presumably 'generic' components "body electronics and engine management systems, driver assistance systems and lighting equipment". Mikron says it is developing, or intends to develop, around 72 kinds of microcircuits (both generic and bespoke) for Russian car manufacturers, a range which will allow 80% of electronic components to be domestically sourced.

 In April 2022 Russia announced a $38.3 billion digital transformation plan which includes $5 billion to design and manufacture its own 90-nanometer process nodes by December 2022 - and produce their own 28-nanometer node by 2030.

The Mikron Group is Russia's largest producer and exporter of microelectronics. It is based in the “Moscow Technopolis”, a special economic zone with favorable conditions for business. It is jointly controlled by Rostec and Sistema and produces products for both military and civilian purposes.

Japan finally joined in the west's trade restrictions on the sale of semiconductors to Russia in late January 2023.  Russia imported about 100 million USD of microchips in 2020. Import statistics will now cease to be visible to the west. This makes it easy to import specifically configured lower-level chips used in industry (perhaps including for some missiles) from friendly countries (possibly as very well-paid intermediaries).

"The statement did not accuse these or any of the other countries named – a diverse group that included Armenia, Georgia, China, Brazil, Israel, India, Singapore and Taiwan – of facilitating sanctions-dodging...the nations were among “certain common transshipment points through which restricted or controlled exports have been known to pass before reaching destinations in Russia or Belarus.”

“In some instances, controlled U.S. items may be legally exported to these and other jurisdictions as inputs for the production of other finished goods. However, further export to Russia or Belarus of those finished products and goods, potentially through additional transshipment points, may be prohibited,” the statement read...

...Washington imposed punitive measures on an Uzbek company over its dealings with a sanctioned Russian firm that it said 'amounted to' collusion in sanctions-dodging. Promcomplektlogistic company “has actively supported” Russian company Radioavtomatika in its “effort to evade U.S. sanctions,” the State Department said at the end of June.

Its transgressions included “providing electronic components such as microcircuits to Radioavtomatika,” which procures foreign items for Russia’s defense industry.""
eurasianet 12 July 2022

The west may cut Russia off from some specialised products, but it is impossible to cut it off from a reliable supply of all the electronic components it needs.

"At present, Russia’s electronic market accounts for 0.4% of the worldwide market, according to the EDMA.
At such a small scale, Russian companies do not have the opportunity to provide a high level of guarantees, and comprehensive offerings, customers require.
The dependence on basic foreign technologies is very high, which increases the risks associated with sanctions.

Maintaining competitiveness is also an issue. Public firms operate on a contractual basis, receiving [Government] budget financing. This deprives them of incentives to increase their production’s economic efficiency. On the other hand, private companies are forced to compete against multinational corporations, which does not allow them to develop, due to high Russian demand for foreign-manufactured products."
Expo electronica 13 January 2020

Russia has announced (April 2022) an accelerated plan to increase it's domestic digital capabilities, in line with it's strategy for it's digital economy. About $33 will be spent on the development of technologies needed for semiconductor production encourage the further development of domestic chips and local electronic modules, build out infrastructure for datacenters, develop the skills of the technical workers, and market it's own electronic products and solutions.

Russia has a relatively low level of involvement in industries producing technically advanced electronic equipment for the public. Perhaps this will slowly change. Right now, Russia is likely to focus on state-sponsored production of those electronic components and manufactures that are critical to Russia's security. In 2018 the production of "electrical equipment, electronic and optical equipment"  amounted to less than 5% of industrial output overall. Russia imported 73% of its 'electronics' and electronic components. I doubt this will change for quite a long time, particularly as there will likely be an oversupply of 'electronica' in the world.

There is increasing global competition to sell electronics and components. For example, India announced in 2021 that it would develop a semiconductor manufacturing business (it is also developing an electronic repair industry). The US is also trying to develop a domestic chip manufacturing capacity. Russia is flush with money, and is a reliable customer. The rest is predicable.

It's true that the electronics sector can be a large employer, especially if you look at it in the widest sense, including the other industries enabled by it. And this area may end up being its strength. Employment in good tech-related jobs is one of the goals of the Russian government, and Russia is very strong in Science, Technology, Engineering, and Maths education. The program to develop the tech industry is ambitious. The Russian Ministry of Industry and Trade's draft strategy for the Russian electronics sector out to 2030 includes these elements:

It is clear that Russia has a long term strategy to bring digital technology to everyone, right across the vast country. It has the vision and the money to do it.

"In 2022, 355 companies (vs 282 companies in 2021) from Russia, Austria, Armenia, Belarus, Germany, China, and Norway exhibited at ExpoElectronica and ElectronTechExpo. The trade shows were attended by 16,435 industry professionals from 20 countries and 70 regions of Russia, among which 8,151 visited for the first time. The number of visitors increased almost by 50% compared to last year. The share of visitors from Russian regions also increased by 45%...experts discussed import substitution, consolidation of the industry to overcome the sanctions, and use of domestic products."
ExpoElectronica and ElectronTechExpo 18 April 2022

Looking ahead, there is no reason why Russia cannot further develop it's own rather modest electronics sector and increase sales to friendly countries. Friendly countries may well be interested in Russia as a trade partner for some electronic products, because they can bilaterally trade for Russia's raw materials. There are already some 'runs on the scoreboard'. Russia's facial recognition system (developed by state-owned Rostec) has turned out to be a world beater.

"...The face recognition system: it was first used during the 2018 FIFA World Cup Russia and has been recognised as one of the best in the world. In 2021, NtechLab was recognised as the most accurate face recognition neural network in the world, especially in light of the terrorist threat. In 2022, we implemented it in 36 countries, including at the FIFA World Cup in Qatar. We are using the system in many Russian cities to ensure security. It has become easier to find criminals or missing persons, because all surveillance cameras have been equipped with the NtechLab system."
Sergei Chemezov, CEO of Rostec State Corporation, 7 August 2023

What are the results? We have reduced the volume of illegal goods turnover and increased tax revenues for the treasury. According to preliminary calculations, 435 billion rubles have been transferred to the budget from 2019, when the system was launched, to 2022.

Right now, Russia simply doesn't need the west's products. In principle, and in the long run, Russia may open up to the wests low-end disposable consumer electronics - if they are competitive. But friendly countries will always receive the most favorable treatment.

Intellectual Property (IP)

"It remains only to adopt rules on the use of their intellectual property. Without any licenses and payment of royalties. This, among other things, will be our retaliatory sanctions on their property rights. For everything from movies to industrial software. Thanks, by the way, to those who have developed various programs for the unlicensed use of their expensive intellectual products. In short, for pirated use in the mode of personal sanctions 😄. And what, à la guerre comme à la guerre..." [note: this means something like 'all's fair in love and war',or ' in times of difficulty do your best with what is at hand'.]
Dmitry Medvedev (in his Telegram Channel January 2023)

On March 22, 2022 the United States Patent and Trademark Office (USPTO) broke off ties with both the Russian Patent Office (Rospatent) and other Eurasian Patent Offices. The US Patent Office will no longer police infringement of Russian patents in USA (or any other country). In addition, restrictions on remitting money to Russia will likely prevent American patent holders from paying Russian and Eurasian agents, and protection of US patent holders will end. If annual fees payable in Russia for IP protection aren't paid, IP protection ends.

In response to the US trade restriction, on 6 March 2022 the Russian government, under provisions for emergency measures in the Russian Civil Code, decreed that Russian companies (and individuals) can use any inventions, industrial designs without the consent of the patent holder, or paying any compensation.  The Code requires payment of “proportional” compensation, but in the case of patent owners from foreign countries which perform unfriendly actions 'in relation to Russian legal entities and individuals' will have the compensation level set at zero.

Foreign portfolio investment into Russia

"The Presidential Executive Order says federal and regional government authorities, other government authorities, local self-government bodies, and organisations and individuals under the jurisdiction of the Russian Federation shall operate on the premise that special economic measures are to be applied to certain legal entities, individuals and organisations under their control, starting on the day the Executive Order comes into force.

The document introduces a ban on government authorities at all levels, as well as organisations and individuals under the jurisdiction of the Russian Federation, implementing agreements (including foreign trade contracts) with legal entities, individuals and organisations under their control that are subject to the special economic measures, and on executing obligations under existing agreements (including foreign trade contracts) to individuals under the sanctions where such obligations are not satisfied or are partially satisfied.

The Executive Order also bans conducting financial operations whose beneficiaries are individuals under sanctions.

In addition, the document imposes a ban on exporting products or raw materials manufactured or extracted in Russia when they are delivered to individuals under sanctions, or by individuals under sanctions to other individuals"
Executive Order On Imposing Retaliatory Special Economic Measures in Connection with the Unfriendly Actions of Certain Foreign States and International Organisations
3 May 2022
As the above regulation outlines, the Russian government, Russian individuals, and Russian businesses, are prohibited by law from fulfilling existing agreements and obligations to foreigners and foreign businesses where those foreign businesses or individuals have been sanctioned by the Russian government. The Russian government can turn the supply of raw materials to foreigners on and off like a tap, simply by the government designating those foreign importers as now being under Russian sanction. As at early August 2022, this tool has barely been used. The most consequential raw material to shut down would be uranium to USA for its nuclear power plants. The fact they haven't done this could be interpreted several ways.

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 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 in Russian businesses 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 2.1 trillion 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 Mubadala 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. It also prevented foreign businesses taking out loans with Russian banks and forwarding the money and debt obligation to legal 'entities' in other countries (which may not pay off the loan). 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.

In August 2022 strategic energy-related and mineral related enterprises were blocked from selling their shareholdings to subsidiaries or other entities if the direct or beneficial ownership was to persons or entities from 'unfriendly' countries. This ruling remains in place until December 2022. The energy equipment manufacturer Siemens Energy, a Russian-based subsidiary company of Siemens, and a major supplier of energy equipment in Russia, will cease operation in late 2022. As a result Siemans will lose about 400 million euros of operating income from Russia. Siemens European mother company is the biggest shareholder in Siemens Energy (Russia) at 35% of the shares. Siemens also owns 65% of 'Siemens Gas Turbine Technologies', a joint venture with Russia's Power Machines. Siemens is blocked from selling it's shares in any of these countries to subsidiaries and other constructed entities of it's choice. It will be told who it can sell to. And it won't be anyone from an 'unfriendly' country. (Siemens Gas Turbine Technologies was later sold to the Russian Inter RAO company.)

So some 'non-strategic' foreign assets remain stuck in Russia until conditions normalise, whenever that may be. Those foreign companies involved in the strategic minerals sector will now have to 'become Russian'. On June 28 2021 a law was passed requiring all foreign companies involved in mining minerals in Russia to register their holding within Russian jurisdiction, as all licenses to subsurface mine will only be available to Russian registered companies.

In July 2023 a Presidential decree was drafted amending the August 2022 decree and giving the Russian governments Federal Property Management Agency power to pre-emptively buy certain assets sold by foreigners "at a significant discount for subsequent sale at market price and transfer of funds received to the federal budget". These assets are shares in strategic enterprises and strategically important joint stock companies, as well as companies on a 2003 government 'special list'. The companies affected are generally subsidiaries of joint government-private companies, as well as joint stock banks.

Not only does the Russian government finally achieve full Russian control of foreign-owned component of these critical industries and resources, but the government is making the west 'pay'. The government-set 'discount' is a form of reparations exacted from the western shareholders. The 'market price' is virtually dictated by the Russian government, and as the assets are a 'stranded asset' with a very small number of possible buyers, the market price is a lot lower than it would be normally.

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 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 sold it's Salym stake to Gazprom Neft in late December 2022). Shell France's Total, the UK’s BP, and Norway’s Equinor also announced pullouts.

BP had a stake in production of gas in the oil and gas fields of the Yamalo-Nenets Autonomous District of northern Russia. In 2018 BP acquired a 49% stake in project operator Kharampurneftegaz via a subsidiary company 'Russian Investments Ltd' (registered in UK). A Rosneft subsidiary company, RN-Gaz LLC, owned the remaining 51% of shares of the operator company. (Rosneft also marketed the oil and gas). In February 2022 BP said it was leaving Russia, but as of June 2022 it had still retained its shareholding in the Rosneft-BP jointly owned operating company. 

In January 2023 one of the contractors building the pipeline and processing infrastructure for the Kharampurneftegaz project took the operating company to court for non-payment of money due (about $2.6 million). Rosneft complained that timely payments couldn't be paid because financing from foreign partners had been stopped due to 'trade restrictions'. The Russian court rejected this argument as "…BP Russian Investments Limited is established in the UK, and therefore the general reference to the restrictions of other unfriendly states is unfounded.” (USA bans companies from dealing with Russian oil and gas. The UK is not USA).

Rosneft had previously stated that BP's share of dividends from the joint venture would acrue to a "special account". On 03 March, 2023, an Executive Order was issued providing for 'temporary' regulation where it involved securities acquired from non-residents of non-friendly companies and which are entrusted to a Russian Settlement depository. These securities include shares of any Russian joint stock company, Federal or Russian company issued bonds, and rights issues.In addition, "The Executive Order also sets out certain procedures for transactions with documents if they result in a transfer of title to assets, their transfer into trust management or pledge." Taken together, it seems to me that dividend payments to BP will likely sit in the Russian Settlement Depository at the Russian Government's leisure (they might be seized in future for reparations for damage done). In addition, BP will eventually be forced to sell its 'non-performing' asset, at which time Russia will dictate to whom it may be sold, and what 'damages' should be deducted from the sale price. We can guess, based on precedent, that Rosneft will be the buyer. Decolonisation continues.

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

In August 2022 the operator of Sakhalin-2, the 'Sakhalin Energy Company', registered in Bermuda, was changed to the new, Russian-owned operator - the 'Sakhalin Energy Investment Company', in line with the Russian Executive order. Until August 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. Japan has retained their shareholding in Sakhalin-2 under the new operator. Presumably, the operator company is now 100% Russian government controlled.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 have one month to find a buyer - but only after the Russian government has assessed the damage that Shell has done to the project 'ecological, technological, or other damage'. The value of Shell's share is assessed by the Russian government at $1.6 billion. Any 'damage' caused by Shell will be deducted from the price paid to Shell. You can bet the government will discover something needing expensive remediation...reparations come in many forms.

In any case, the ultimate buyer had to be approved by the Russian government. Russia's Novatek was the strongest contender, mainly because it has the technical expertise to take over the mooted hydrogen production plant planned for Sakhalin Island. Additionally, Novatek would be able to buy gas at below the Asian spot price, and possibly by long term contract benchmarked to oil prices. 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.

And this is exactly how it played out. Shell had a long-term off-take contract for a million tonnes of LNG from Sakhalin-2 up until 2028. However as the contract was with the former operator, and wasn't renegotiated with the new Russian government operator, it became void effective August 2022. Shell still had 2 long term contracts for Russian LNG, one with Yamal LNG, but LNG supplies under one of the contracts stopped in late 2022. Finally, in April 2023 the Russian government announced Novatek would sell its share in the Sakhalin Energy Investment Company at the Russian government approved price of US$1.21 billion.

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.

"Americans stand to lose heavily too, as the production sharing arrangements dating back to the Yeltsin era had been forced out of Russian government when it was in dire economic straits during the transition from the Soviet period and was in no position to negotiate optimal deals. Come to think of it, something like 262 such so-called production sharing agreements (PSAs) were squeezed out of the Russian government by western oil companies by the time Yeltsin retired. 

After coming to power in 1999, President Vladimir Putin set about the mammoth task of cleaning up the Aegean stables of Russia’s foreign collaboration in the oil sector. The “decolonisation” process was excruciatingly difficult, but Putin pulled it through and got rid of as many as 260 (out of 262) PSAs. In fact, Sakhalin-1 and Sakhalin-2 are the very last remaining two PSAs harking back to post-Soviet Russia’s decade of humiliation under Yeltsin."

Any surprises why the Biden Administration hates Putin so much and wants him out of power in Moscow? "
M.K. Bhadrakumar 10 July 2022

According to M.K. Bhadrakumar, the Russian government plans to take control of the Sakhalin-1 offshore oil and gas project. In 2021, prior to the trade restrictions, production was over 200,000 barrels a day, but when the American ExxonMobil left, production dropped to 10,000 barrels a day, mainly due to the exit of Americans expert in the techniques of extracting hydrocarbons from this difficult oil and gas field. Exxon Neftegaz (subsidiary of ExxonMobil), owns 30% of the shares, Japan's SODECO (Sakhalin Oil and Gas Development Co.) owns 30%, India's ONGC Videsh owns 20%, and the Russian government owns 20%. Presumably the blueprint will be the Sakhalin-1 takeover, with Rosneft holding 50% plus 1 share. The Japanese, however, seem to be of the view they can keep their 30%, which will be impossible if Russia is to regain majority control of their asset.

“Sakhalin-1 is a valuable non-Middle East source for Japan, which depends on the Middle East for 90 per cent of its crude oil imports. There is no change in maintaining the interests of Japanese companies in it.”
Industry minister Koichi Hagiuda, August 2022

The twist, according to M.K. Bhadrakumar, is that not only will India be exempt, but 29% will be available to approved companies, with other Indian companies being given preference. As MKB puts it "India has seamless opportunities here to make investments and reap windfall profits. In strategic terms, India’s energy security will also be guaranteed for decades to come."

Norway’s Equinor has a 30% share in the Kharyaga onshore oil project in Russia's Arctic. France’s TotalEnergies has a 20% share, and the Russian government's operating company (Zarubezhneft) has 50%. As Both Equinor and total had decided to exit Russia, the Russian government directed their respective shareholding be transferred to Rosneft's subsidiary company (the project’s operator), Zarubezhneft. As a result Zarubezhneft's stake is increased to 90% and a local Russian company, Nenets Oil, will buy the remaining 10%. Equinor announced an impairment of $1.08 billion on it's balance sheet as of 31 March 2022. Neither foreign investor may be unhappy, as the Kharyaga field is known for 'difficult geology', a less desirable type of (waxy) oil, and relatively high levels of undesirable Hydrogen sulfide gas in the stream of natural gas associated with the oil reservoirs there. At 30,000 barrels of oil a day, production is good, but not huge.

In August 2022, the Gazprom Neft and Shell joint venture company developing the Salym group of oil fields in West Siberia (about 17,000 barrels of oil and about 750,000 cubic meters of associated petroleum gas a day) was compelled by law to change from a Netherlands registered company to a Russian registered company. In addition, Shell was prohibited from selling it's shareholding, prohibited from retrieving it's capital contribution, and Shell, as 50% shareholder with Gazprom Neft, had its shareholder voting rights annulled. The courts order applies until December 2023. While the oilfield is on the downslope of production (it peaked at 100,000 barrels a day), production is being maintained with enhanced recovery techniques.

Oil from Kazakhstan's 3 main oil and gas fields is pumped via the CPC pipeline (one of the world's largest pipelines) to the Russian Black Sea port of Novorossiysk. The Kazakh crude is blended with a small amount of Urals crude to make the CPC blend. At the same time, Russia's heavy Urals crude exports from the Black Sea (and the Baltics) are blended with 300 kbd of Kazakh light crude. The participants in the Caspian Pipeline Consortium are: Russia 24%, Kazakhstan's KazMunayGaz 19%, Chevron Caspian Pipeline Consortium 15%, Exxonmobil 7.5%. From there oil is shipped to Europe, with Italy the main customer for the light sour crude (the primary Kakakh oil grade). As of 2022 throughput reached about 1.2 million barrels per day. This volume represents about 1.2% of global oil supply.

In January 2022, members of the Eurasian Collective Security Treaty Organisation quickly crushed a foreign-backed attempted coup in Kazakhstan.

Russian oil, presumably with some Kazakh crude blended, is sent from Kazakhstan to China via a pipeline which has a capacity of + 200,000 barrels a day.

On 22 March 2022 Russia claimed storms had damaged some of the berths at Novorossiysk, and the pipeline flow was reduced for a month (costing Kazakhstan $337 million in lost revenue). The berth was repaired within a few days of a meeting between Russian and Kazakh officials.

Two days after Kazakh President Tokayev told European Council President Charles Michel that Kazakhstan would look at sending more oil to the EU Russia found 'environmental violations' at the port of Novorossiysk, and the port was ordered closed for 3 months. After a telephone call with the Russian President, it appears oil started flowing as normal on July 7. The message is clear. My conclusion is that nothing will ever again be done to help NATO countries, the instigators of the crisis in Ukraine-Russia relations, and the organisation whose bloody hands are ultimately responsible for the needless death and maiming of thousands of Ukrainian and Russian soldiers.

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 in April 2022. 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. How will this mini drama play out? The day after the Nordstream 2 pipeline was blown up, Poland connected to the Norwegian 'Baltic Pipe' for its gas supply. It has a capacity of 10 billion cubic metres per year, but the initial contract with Norway's Equinor is for 2.4 bcm, which covers about 15% of Poland's gas use. I think that answers the question.

The Baltic Pipe will also interconnect north into Lithuania. In August 2022 Poland connected via Slovakia to the European gas network that connects the 'East Mediterranean', the Black Sea, the Aegean and the Adriatic. These pipelines are intended to ultimately carry hydrogen gas from 're-purposed' natural gas facilities, as part of Europe's linking of European energy infrastructure - including using hydrogen driven fuel cells to make 'clean energy from natural gas. What part (if any) will Russia play in that? What part - if any - will US LNG play in it ?

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 Food industry

On the 16 July 2023 Danone Russia, a subsidiary of the French - owned Danone Agri-food company, was put in temporary Russian governmental management by Presidential decree, as was Baltika Breweries, a subsidary of the Carlsberg Group of Denmark. All foreign owned shares in the locally registered entities (which in both cases is nearly all the shares) will now be controlled and voted on by Rosimushchestvo, the Russian Federal Property Management Agency . 

Baltika Breweries is/was one of the largest breweries in Russia (and employs 8,400 people), but, under shareholder pressure, it has decided to sell its Russian  investment. This has to be approved by Russian regulators.

Danone bought Unimilk, the second largest Russian dairy products company. Unimilk had a 21% share of the Russian domestic market. Danone, which now has 13 factories, 7,200 employees, and €1.2 billion in sales in Russia (5% of Danone's global sales) said in October 2022 that it would sell its Russian business, taking a hit of up to $1 billion. But at the same time, it wanted to retain a right to buy its shares, retain 'up to' 25% of the capital of the company, and have a seat on the board. It seems to be dragging its feet on the sale, with statements it won't be sold until 2024. Presumably it is hoping for a miracle.

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.

In late 2022, the Toyota auto parts joint ventures Tsusho and Atsumitec (Atsumitec Toyota Tsusho Rus LLC, or 'ATT Rus') notified AvtoVAZ, its main customer (almost its only customer) that it would stop production in mid 2023. The ATT Rus joint venture was established in 2016 at the Togliatti Special Economic Zone at a construction cost of 750 million rubles. Its design capacity was for 400,000 gearboxes and automatic transmissions, almost all for AvtoVAZ. As a result, AvtoVAZ took control of all the shares, with 99% going to 'AvtoVAZ JSC' and 1% going to AvtoVAZ's spare parts distributor, Lada-Image JSC.

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

The market for electric vehicles is tiny, with the usual problem of recharging stations not being available until a certain critical mass is met. AVTOVAZ has started testing it's Lada e-Largus, which has a 400 kilometer range. It has both a passenger and station wagon version. About 50% of the parts of this electric vehicle are Russian made, the highest of any e-vehicle so far.  In the meantime, the Chinese company Skywell has introduced the high end luxury 'crossover' electric vehicle, the ET5, with a 400km range and 30 minute fast charge ability. Another Chinese high-end electric vehicle, the Voyah, has also entered the Russian domestic market.

Domestic Automotive Industry

By November 2022 Russia had managed to keep the local automotive industry sufficiently alive to retain key staff and maintain technical competencies.

"...the situation in the industry has indeed gradually stabilised. All major Russian manufacturers have been increasing the load on their assembly lines. This includes AvtoVAZ, GAZ, KAMAZ, UAZ and Ural. The Tula unit of China’s Haval is also boosting production."
Deputy Prime Minister – Minister of Industry and Trade Denis Manturov 16 November 2022

The Russian government focus has shifted to ensuring the economic viability of small businesses producing  components that fully substitute in quality and price for the components that can no longer be imported from overseas. Component manufacturers will receive preferential loans from government, and viability bolstered by "demand support programs". The manufacturers of "gas engine equipment" will be subsidised. I'm not sure if this means 'gasoline engine' or equipment to allow vehicles to run on compressed natural gas (or hydrogen gas, for that matter). On the consumer demand side, programs of preferential car loans - including to miliitary personnel, families of mobilised conscripts, and pensioned former military and low-cost lease options are being introduced to make car ownership affordable for Russian families. In May 2022 12,000 vehicles (all types) were manufactured in Russia, but by October that number had quadrupled - primarily due to state subsidies helping offset increased car prices. These subsidies have continued, and amounted to 50 billion rubles in "benefits and loans for the manufacture of automobile components and units"  over 2022 and beginning 2023.

In September 2022 the Motorinvest plant began production of Evolute electric vehicles, aiming for production of 2,000 units by the end of the year. Buyers of the 'Evolute I-Pro' are eligible for a 35% preferential loan. As at late November 2022, several internal combustion engine vehicle production facilities are ready to re-open - Moskvich passenger car plant, and the Sollers light commercial vehicle plant.


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.

Initially, the closest the West 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." 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.

In an apparently pointless response, on 25 February 2023 the EU prohibited Russian nationals accessing from any gas storage capacity in the EU (except for storage in LNG facilities). This might be aimed at opening of the proposed Turkiye-Russia gas hub, which might ultimately serve southern Europe as well as network into other gas distribution systems. They of course inserted an 'escape clause', allowing Russians to send gas to the EU if the EU was desperate for it.

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? In the case of the Schwedt refinery, the answer came on 16 September 2022 when the German government expropriated it. (The German government also expropriated Rosneft's shares in the MiRo and Bayernoil refineries). Rosneft Deutschland majority owns - or rather owned - the Schwedt refinery, with a 54% shareholding. The Schwedt refinery supplies 90% of the city of Berlin's fuel, and the Russian crude feedstock is supplied via the Druzhba pipeline. No doubt there are supply contracts between the oil transit company and the German Rosneft subsidiary. The German government is unlikely to be able to enforce itself as now being party to the existing contracts. I believe that what the Russian President said about a proposed price cap on oil is relevant to this situation:

"Will there be any political decisions that run counter to contract clauses? We will ignore them and suspend deliveries if these decisions are inconsistent with our interests, our economic interests in this case. We will then stop supplying gas, oil, coal, or fuel oil, suspend all our deliveries and fully comply with our contractual obligations. Notably, the people who are trying to impose things on us are not in a position to dictate their will to us. Let them come to their senses."
Vladimir Putin 7 September 2022
The German government was of course aware oil from the Druzhba was likely to be shut off. The German Chancellor (Scholtz) said they had "gamed" this eventuality, and that Germany was negotiating seaborne oil supply from Khazakhstan, and oil imported through Polands Gdansk oil terminal. Germany has an oil terminal at Rostock port, and there is an oil pipeline going directly to Schwedt. But the oil terminal at Rostock can only handle about 9 million tonnes of oil (2016), only relatively small 'aframax' tankers can be handled (at 6 berths), and the pipeline to Schwedt has limited capacity (about 7 million tons per year). Rosneft says the refinery capacity would be cut in half in if supplied only from Rostock via pipeline. Even if chokepoints can be overcome, this will be expensive oil, it is still imported oil, and it has to be of a certain grade (equivalent to medium sour Urals) to suit the Schwedt refinery configuration. Apart from Khazakhi oil, the needed 233,000 barrels of the correct grade of oil a day are 'planned' to come from Norway, Saudi Arabia, UK and the U.S...

Russia has been investing in oil and gas production and refining for many years. State-owned Zarubezhneft energy company has been active for almost 50 years. It has built large-scale oil & gas projects in 35 countries. Zarubezhnef has in developed offshore oilfields in South-East Asia and has unique experience in developing difficult Arctic fields in Russian. Zarubezhnef is currently developing joint venture oil and gas projects, development and operation of both onshore and offshore oil and gas fields in Vietnam, Uzbekistan, Egypt, and is involved in refinery operation in the Balkans. The Company is on the list of strategic enterprises of Russia. As these are all 'friendly' countries, there is little risk the assets there can be seized.

But there is more than one for the west to acquire Russian assets. Western governments can prohibit trading in the shares of Russian companies. The shares of course, are probably majority held by Russians.

"We are the largest North American producer by volume in the rail and large diameter pipe markets. We also hold leading positions in the West Coast plate as well as the Western Canada oil country tubular goods and small diameter pipe markets.

Our diverse range of manufacturing capabilities allows us to produce a wide array of specialty steel products: plate, coiled plate, welded and seamless pipe for oil and gas applications, rail and wire rod and bar. We take a dynamic approach to manufacturing, using the geographic accessibility and production flexibility of our facilities to respond quickly to changes in the market for maximum efficiency and cost savings. Our Product Technology Centers in Pueblo and Portland and our Research and Development complex in Regina enhance our ability to develop high strength steel products for the most demanding applications."
Evraz North America

One of the more consequential subsidiaries of Russian companies is Chicago-based specialty steel company Evraz North America. It employs
1,400 people in the US and 1,800 in Canada. Evraz is Russia's largest steel products makers. Shares in Evraz are listed on the UK stock exchange, but the UK prohibited trading in Evraz shares in March 2022 on the pretext the company may produce steel for Russian military purposes. Evraz denies this. UK formally sanctioned Evraz in May 2022. In August 2022 Evraz announced it would sell it's business in North America, including the massive solar-powered Pueblo steel mill in Colorado. As Evraz is 'sanctioned', it cannot repatriate income. At the moment, there is no buyer waiting in the wings. Evraz free cash flow is all but non existent, the company as a whole has high debt, and markets for steel are weak. Most likely Evraz US will be sold for pennies on the dollar, or fall into bankruptcy, and be sold by the courts to a US company at negligible prices.

Of course, it can't be excluded that a fund run by a friendly country, such as the cash-rich
United Arab Emirate's Mubadala sovereign wealth fund, might not buy it. Especially as Evraz's strategy in North America leans heavily to renewable-assisted steel production (via solar and geothermal energy sources) and producing steel for hydrogen gas transport.

"ENA [Evraz North America] will be the first North American line pipe producer qualified for high-pressure, 100 percent hydrogen pipeline transportation.
Testing is being conducted at a RINA-CSM S.p.A, a leading independent European research center specializing in hydrogen and fracture mechanics. All pipe samples are produced in Regina, Saskatchewan and made from steel at ENA Regina Steel, the Company’s EAF-based steel mill.
Hydrogen is a core component of ENA’s alternative energy strategy, which also includes carbon capture, utilization and storage (CCUS) and geothermal energy."
Evraz, 11 July 2022

Space Industry

"Russia paved the way into outer space for the entire world, and I believe that every Russian citizen is proud of our space achievements. Many generations of Russian engineers and designers created a tremendous scientific and technological basis, and it is necessary to convert this basis into specific services that the Russian economy needs today.

The sector is facing a difficult situation, and the main task of my colleagues and myself is to increase, rather than reduce, specific standards. We need to provide the Russian economy with essential space services, in the first place. This includes navigation, communications, data transmission, meteorological and geodetic information, etc. These are the services that are in greatest demand today, and it is impossible to imagine our everyday life without them."
Yury Borisov, Director General of the Roscosmos State Corporation 26 July 2022
The quote above came in response to the Russian President asking the DG of Roscosmos (the Russia state-owned space corporation) "What aspects should we focus on?" Taking the comment to it's logical conclusion, the primary goal is to create a reliable system of space-based communications and data transmission services to Russians, whether citizens, industry, or military. In other words, to continue the work to create a self-reliant Russia, free from interference from the west.

It is also clear from this meeting that the aging international space station will be abandoned as soon as Russia has started building its own
space station (the Russian Orbital Service Station), apparently starting 2024, and the first module possibly being able to be put into space in 2028. In any event, the Russians will have fulfilled all obligations to the ISS by end 2024, and they will abandon it to the Americans. Who, it seems, will have to spend very large sums of money to keep it in correct orbit once the Russians have stopped their contribution. The ISS was to function until 20230, but the required capacity for orbital stability is unlikely to be built much before then, meaning the US will likely have to abandon it earlier than planned.

"Angara-A5M launch vehicle in 2028, General Designer of the Energia Rocket and Space Corporation Vladimir Solovyov said.

"If the decision to build it [a space station] is made before the end of the year, the first stage will begin in 2028 with the launch of the Research and Power Module by the Angara-A5M carrier rocket... The interlinked node and airlock modules will be launched by the Angara-A5M launch vehicle from the Vostochny [Cosmodrome]," Solovyov said in an interview with the Russian Space magazine, an official publication of the Roscosmos state corporation.

The module will have to be "retrofitted with various systems, including a gyrodyne block, to be able to use it for several years as the main module," he said.

After that, a basic unit should arrive at the station, making it possible for the station to have four cabins and two toilets, Solovyov said."
Interfax 26 July 2022

Roscosmos have mentioned some details about the planned 'Russian Orbital Service Station' (ROSS). According to RT,"
ROSS will consist of four modules and a spacecraft-maintenance platform". While the station is planned to be able to take from 2 to 4 crew, the concept is that the station will be automated, and the crew will only be used to service and replace equipment. While it appears the Russian space station will do manned research programs, the emphasis appears to be on distant space. But the primary purpose remains services, including commercial services, to Russia.

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.

Russia has competition for launch of such satellites as the low earth orbit satellites used for internet services. Russia's Roscosmos built Soyuz rockets were to launch 36 low earth orbit satellites on as launch service provider for Europe’s Arianespace (the Russian Glavkosmos is launch partner). The satellites were to be launched into low earth orbit orbit on behalf of the OneWeb group (now owned by the European Eutelsat group). But dispute over the possible military use of the satellites has meant the satellites remain grounded at the Baikonur Cosmodrome in Kazakhstan (OneWeb took a $229 million 'writedown' on the failed launch). The British government, which sees OneWeb's constellation as a strategic asset, paid $500 million to help OneWeb out of bankruptcy.

"... the head of the Russian space program has demanded that the British government divest its shares in OneWeb and that the broadband satellite operator not provide services to foreign militaries in order to launch a new batch of spacecraft...In November 2021 OneWeb and Intelsat revealed that they had demonstrated the constellation’s capabilities to representatives of the U.S. Army and Department of Defense."
Parabolic Arc 2 March 2022

On March 4, Rogozin ordered a stop to preparations for the launch of a Soyuz-2.1b rocket carrying OneWeb satellites from the Baikonur Cosmodrome. The decision was made because "OneWeb has disobeyed our lawful demand to provide necessary information as to whether or not the system will be used for military purposes for the benefit of the Pentagon and military agencies of NATO member states."
Interfax 13 April 2022

The Eutelsat group (Britain and France are major government shareholders, with 11% and 10% respectively) will now build and launch new satellites using the U.S. SpaceX Falcon 9 and the Indian GSLV rockets, probably late in 2022 and then on into 2023. As a further result, Glavkosmos has ended up with 2 now redundant Soyuz rockets at the European-owned Guiana Space Center spaceport in South America. The future for commercial satellite launches when 'unfriendly' countries are significant shareholders doesn't look that bright.

Russia's specialist aircraft that transport satellites to launch sites have probably lost their business, and unless a 'work around' is in place, this will delay launching some 'unfriendly country' satellites.

Heavy launchers are booked out for this year at least,
Northrop Grumman’s Antares booster uses Russia's RD-181 engines, the US's United Launch Alliance Vulcan Centaur has yet to have flight ready engines for it's first stage,  Europe new Ariane 6 rocket is now delayed to 2023, Japan's new LE-9 H3 rocket engine is still undergoing tests as at 2022, leaving India's ISRO - but it is likely booked out. So the commercial market is there, but the future for Roscosmos commercial operations seems likely to be limited. In addition, foreign insurers will not write insurance for Russian satellite launches or for launches from Russian-built launch sites.

Regardless, Russia is proceeding with building the world's most modern space launch center in Russia's far East Amur region. Construction of the
Vostochny Space Launch Center was started in 2011, and the second stage launch pad for the heavy lift Angar rocket is under way.

"all installation and launch preparations to be completed by the end of the year, as set forth in your executive order."
Yury Borisov, Director General of Roscosmos State Space Corporation, 19 January 2023  

The site for the Vostochny Space Launch Center was chosen to avoid the sort of problems mentioned above, and because it is closer to the equator (allowing a greater umber of payloads to be put into orbit), and because falling booster stages will land either in the sea or on Russian territory, removing the need to come to agreement with other countries with regard to falling stage-components. In addition, the airfield needed to receive the heavy lift cargo planes needed to fly in the assembled rocket and satellite components from West Russia is nearing completion.The benefits are obvious.

Roscosmos 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 International have been "suspended", presumably by suspending their licence to broadcast in Europe. France has already censored RT. In late February 2023 the European Council suspended the broadcast licences of RT Arabic and Sputnik Arabic. Anyone wishing to find the Russian point of view in Europe will now have to use a VPN (virtual private network). The 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 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 11 May 2022

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.

The counterargument is that Russia was clearly dependent on the European market, but no one was concerned for Russia's vulnerability - or even mentioned it. Until that is, Europe cut Russia off from it's major western markets. Russia was forced to turn further East for reliable trading partners. Suddenly the West became worried on Russia's behalf - after rudely shutting it's trade door in Russia's face. But the west's foot wedging it closed has a big hole in it. And it has dawned on the west that Russia is not pushing against it anyway.

"At the peak of Russian energy supplies to Europe not a single Western analyst was trying to scare Russia about its dependence on the EU. Just the other way round, the US warned Europe against hydrocarbon supplies from our country in a bid to replace them with its own shale oil and gas. Now that we are re-orienting our exports to Asia, they suddenly decided to take care of us and give us a “friendly” reminder about potential dependence on China.

Thanks for the advice, but we will use our own judgment and rely solely on national interests and our reliable Chinese friends who are tested by time and real-life actions.

Over the past two years, bilateral trade was growing by a third annually and reached a new record-high level of $185 billion in 2022. We supply each other, on a mutually beneficial basis, with the products that our countries need. Importantly, over half of the settlements between our countries are denominated in national currencies. Our cooperation is not limited to trade, but covers a very wide range from energy and industry to agriculture and space exploration.

We have developed a relationship of positive interdependence with China in trade and economic ties, and this outcome of our work cannot but satisfy us."
Sergey Lavrov 4 April 2023

In any case, any 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 probably 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, Turkiye, 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  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.

"Last year alone, we opened five new offices in Latin America, South-East Asia, Africa and the Middle East. In total, we are now represented in 78 countries."
Denis Manturov, Minister of Industry and Trade 3 August 2023

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." 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.

In 2023 Rostec's Nacimbio released BioGam, a new immunodeficiency drug, "the first Russian immunoglobulin administered intravenously" according to the Rostec CEO. This material is used in immunomodulatory therapy, such as HIV treatment, treating infectious diseases and in organ transplantation.


Turkiye is the top destination for Russian tourists (about 4 million in 2021). While you could hardly say that Turkiye is a friendly country when it comes to Russia, Turkiye 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 Turkiye. Turkiye sells a lot of citrus to Russia, as well as dried fruits. Vehicle parts are also a major export. Turkiyes exports to Russia in 2020 amounted to USD 4.5 billion. In turn, Russia is a major provider of wheat, petroleum products and coal. Turkiye 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.

Turkiye is putting up USD 302 million for loans to Russian tourist operators to bring Russian tourists to Turkiye 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 Turkiye. 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. MIR cards have no connection with unfriendly countries banking system and are therefore unaffected by so-called 'sanctions'. (in September 2022 the US threatened to 'sanction' Turkish banks allowing MIR card transactions. We will see what happens.)

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.

Turkiye 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 Turkiye, they may well come back in years ahead, all thanks to the western sanctions, and due to Turkiye 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.

The arms industry, in the Russian government view, should also develop products for the domestic market. One of the government's goals is to achieve a military industry whose production is 30% local market goods and 70% military material. As at 2023, most of the military production goes to the war effort, but when peace returns, the military industries will once again be able to export military equipment. Examples of local products include 4 wheel drive trucks, medical equipment, 3 D printers, and training simulators for air-traffic control training.

"Just now during my conversation with your executives, one of them said, “We feel more stable when we stand on our own two feet, two supports. And the second one is civilian equipment.” Yes, the task is to reach 30 percent – 30 percent of what defence companies produce should be civilian. In 2021, the figure was 27 percent, which is close to the goal of 30 percent

Probably, now the share of combat equipment is growing but our requirements are also on the rise. However, we will resolve this task of producing civilian equipment gradually. There will be military orders, while also growing the civilian side."
Vladimir Putin 18 January 2023

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 Turkiyes 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 Al-450 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. (Russia has destroyed a number of Baykar Bayraktar drones entering Donesk and Lughansk, and also destroyed facilities storing these drones.

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 euro and dollar exchange rates for the first time in 20 years caught up. Predictions about the onset of a systemic crisis in the euro area are beginning to come true.
First, the EU members shot themselves in the head with a sanctions pistol. Now they are reaping the bitter fruits of a decline in production, supercritical food inflation, the loss of competitiveness of their goods and the expectation of winter in ice dwellings without our gas.
In global terms, this is confirmation of the extremely ill-conceived nature of the sanctions against Russia. Sanctions don't work. Sanctions are harmful to the Europeans themselves. The euro is weakening."
Dmitry Medvedev deputy chairman of Russia's Security Council 12 July 2022

In late September the US Treasury, the office that implements 'sanctions", advertised for an economist to work on sanctions to try to avoid 'unintended consequences' such as "potential collateral effects". 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, Asia, and Africa. 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.

"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
The consumer price index for goods (excluding energy - gas for home heating, diesel, gasoline etc) in the eurozone spiked to 7% in November, 2022. With energy included, the CPI was 10%, the second worst since the eurozone started collecting data in 1997. The Baltic countries (Latvia, Estonia, Lithuania), which once relied on Russia for energy supplies, had CPI inflation of over 21% in November 2022.

"Recent events have laid bare the extent to which critical supplies depend on stable global conditions… In response, governments are legislating to increase supply security, notably through the Inflation Reduction Act in the US and the strategic autonomy agenda in Europe. But that could, in turn, accelerate fragmentation as firms also adjust in anticipation. Indeed, in the wake of the Russian invasion of Ukraine, the share of global firms planning to regionalise their supply chain almost doubled --to around 45%-- compared with a year earlier. This “new global map”… is likely to have first-order implications for central banks.

One recent study based on data since 1900 finds that geopolitical risks led to high inflation, lower economic activity and a fall in international trade… ECB analysis suggests similar outcomes may be expected for the future. If global value chains fragment along geopolitical lines, the increase in the global level of consumer prices could range between around 5% in the short run and roughly 1% in the long run."
Christine Lagarde, ECB President, 18 April 2023

Christine Lagarde uses 'code phrases' such as "geopolitical risk" and "fragment along geopolitical lines" to hide the fact that these 'risks' and 'fragmentation' are entirely caused by the west - the USA, Germany, France and UK in particular.

The increased costs and crimped access to important minerals and services are a deliberate self-harming choice by the EU.

The choice was made knowing full well it would drive up costs in Europe. The choice to lock in increased costs was made by the eurocrats knowing full well that longstanding and beneficial European business with Russia would end and that Russia would be forced to find new and reliable partners.

Knowing full well that while the European elite will eventually 'allow' some trade with Russia, it will never return to the beneficial terms that they deliberately trashed.

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 hard 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."
Russian Ministry of Foreign Affairs 9 June 2022

"The spike in gas prices was also driven by the systemic strategic mistakes of the European Commission, which has pursued the irrational policy of abandoning long-term gas contracts in favour of spot contracts (in September 2021 the price per 1,000 cubic meter exceeded USD 1,000 and reached the record high of USD 3,600 in March). Meanwhile, according to experts, Russian pipeline gas in Q1 2022 would have been 40% cheaper for Europeans than spot prices. It is important to note, that, in line with the EU energy model, whatever the buying price of Russian gas, EU companies sell it to downstream to power generators and companies (and therefore to citizens) at spot prices, making super-profits. As a result, generating companies go bankrupt, energy shortages are preprogrammed, and, consequently, prices for regular consumers grow. Yet the EU authorities fail to explain this to citizens."
Permanent Mission of the Russian Federation to the European Union 3 June 2022

"...we are proposing today to tighten our hard-hitting EU sanctions against the Kremlin, enforce them more effectively and extend them until January 2023. Moscow must continue to pay a high price for its aggression.
Ursula von der Leyen, President of the European Commission 15 July 2022

First, Germany and France, in cahoots with the Ukrainian government, deliberately sabotaged every step of 8 years of diplomatic effort by the Russian Federation in order to buy time to arm and NATO-train the Ukrainian armed forces to launch an attack on the rebel Ukrainian provinces. And Europe sanctions Russia.

Second, and astonishingly reckless, the plan was to then attack Russian Crimea. Apparently they have not learned the lesson of history. This brutal US-German-French-British aggression used the bought and paid for Ukrainian government as their tool. The plan has failed at very great cost to the Ukrainian people, and at cost to the Russian, Donetsk and Lughansk peoples. And Europe wants Russia to sell it gas - on Europe's terms.

The third point is that even while sending US-German-French-British weapons and 'military advisors' to kill Russians, the German government would still like to continue to receive Russian gas at cheap longer-term contract prices (while selling that gas to it's own citizens at the much higher spot price) and still not pay a price for the death and destruction they have engineered. At the same time, this very cheap and reliable Russian gas subsidised German industry for many decades, and made German industry internationally competitive. What is the other side of this 'golden' Euro-entitled coin? End of the Russian low-price subsidy, and thus decreased European export competitiveness, for one thing. That must have been obvious to the politicians. If it wasn't, their analysis of the Russian Federations political and military strength was absolutely inadequate.

Fourth, the 'cheap gas subsidy' that Germany had is gone - but it is re-appearing in Asia. The economic advantage of cheap gas will go to China, India, and other parts of South East Asia. The advantage will also go to Turkiye. Products from these countries will have the same export boost that Germany used to have, and will possibly never have again.

But it is necessary to make an important fifth point that most people ignore. As far as Russian natural gas (and later, hydrogen gas) export sales are concerned, Europe provides Russia a degree of 'strategic balance' between Eastern and Western markets. Russia will not abandon the western market. Politicians come and go. Many of the current european 'brilliant minds' will soon be gone - and forgotten. Their wrong policies will go with them.

Sixth, and finally, I must point out that Russia will never ever forget what the West has done. The history will be memorialized down the generations to come. But unlike most arrogant, noxious, rude and hysterical western countries, Russia does not 'do' revenge. Instead, Russia will extract reparations for years and years to come. This is the concept of fair re-balancing, setting things right, paying for wrongs done, causing political punishment while avoiding too much collective punishment of those who elected these inadequate politicians.

The German government 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. On 7 March 2022 natural gas April futures at the Netherlands TTF hub hit $3,899 per 1,000 cubic meters (about $374 per megawatt-hour). Both the EU and the UK increased their LNG imports by 63% in the first six months of 2022. Some of the LNG comes from the Middle East, some from the US. By July, about 70% of US LNG exports went to the EU and UK market. According to Russia’s Energy Ministry, US LNG is at least 30-40% more expensive than gas from the Russian pipelines.

By late August 2022, LNG supplies remained tight. Unplanned stoppages at Norwegian facilities meant reduced supply to the UK, made worse by limited gas storage capacity there.  The UK was even buying LNG from as far away as Australia. Italy's Adriatic LNG regasification terminal shut down for repair work until the end of August, removing around 25 million cubic meters a day from parts of the gas transmission grid in Europe (reducing normal capacity use by about 10%). In other words, 2022 saw the European politicians remove spare capacity from the gas system - turning what would previously have been relatively minor technical hitches into major problems.

Gas supplies to Germany via Nordstream 1 had a planned interruption in July 2022. This turned into an unplanned 60% cut in throughput when Canada refused to return a refurbished pump for the pipeline. Germany ignored the Russian statement that even if the pump was returned, gas supply would be further reduced, as the gas set aside to supply Germany would be diverted to filling Russian winter stores. Idle time is money lost. When the pump finally returned to Germany, Gazprom said it had unresolved issues "regarding sanctions imposed by the EU and the UK, which need to be resolved to bring the turbine back to Russia and to carry out urgent repairs of other gas turbines at the Portovaya compressor station."

On July 27 2022 the flow of gas to Germany was cut to only 33 million cubic meters per day (down to 20% of normal supply). Commentators observe that the level of gas available to Germany is so relatively low that not only are the winter stores not being built up, but gas is also being withdrawn from the winter stores in order to meet current summer time needs. In midsummer 2022 from 10% to 25% of the gas was diverted from industry to residential, mainly to produce electricity for cooling. Summer is usually a period when gas reserves can be built up for winter.

There seems to be a critical point before which all normal gas deliveries from Russia must be restored in full or winter will be harsh and critical German industries fail. Some suggested this 'tipping point' would be October 2022, as this is when offtake began last year. Instead, the European Union stepped in and mandated that priority be given to underground gas storage. By late August 2022 underground gas storage reached 77.5% full -  the level at which gas offtakes started in mid-October last season. By late November 2022 the 'winter buffer' was said to be at 100%. But it is only a buffer, an extra supply over and above the normal daily gas volume - much of which is pipeline gas from Russia.

Regardless, Russia will always find technical/procedural pretexts to stall the gas flow. (For example, pumping was "stopped for maintenance" between August 31 and September 2 2022, and then an 'oil leak' was discovered on September 2 and all gas flow was stopped.) In late September 2022 one of the two Nordstream 1 pipelines was blown up. As at 27 September 2022 no gas reaches Germany from Nordstream. That leaves only the Turkstream pipeline and the Russian pipeline that transits Ukraine.

The Ukrainian pipeline is embroiled in a commercial dispute, and instead of 40 billion cubic meters a year, as of October 2022 was only supply Europe with 15.5 billion cubic meters a year. Naftogaz, the Ukrainian gas distributor, claimed force majeur due to the armed conflict and sought an arbritration ruling from the International Court of Arbitration.

The Russian reverse price cap
The natural gas for Nordstream 1 comes from the massive resources of West Siberia - the Yuzhno-Russkoye field, one of the world's biggest gas and condensate fields, with a natural gas of unusually high purity.

The gas in the field and the development company is part owned by Germany's Wintershall Dea (35%) and Austria's OMV (25%). (Wintershall Dea is also a 15.5% owner of the Nord stream 2 pipeline, but has 'written off' its 175 million euro investment, as well as it's 1 billion euro ongoing financing of the pipeline.)

The gas from this massive resource can now be redirected elsewhere.

The Gazprom/Wintershall Dea/OMV joint venture is structured in a manner that while Gazprom is the ultimate sole customer for the gas produced, foreigner determine the price Gazprom must pay. This is because the joint stock trading company that buys the gas from the gasfield's 'operating company' (
Severneftegazprom) and 'trades' it to it's sole customer (Gazprom) is dominated by the 2 foreign joint venture partners (Germany and Austria), which, together, hold 60% of the shares in the trading company.

On the 22nd of December 2022 the price at which contract gas was sold to Gazprom was regulated by Presidential decree such that the maximum price that could be charged for gas would be decided by the Russian Government (except for spot market gas).

Any amount
Severneftegazprom imposed above the government 'cap' would, by law, be regarded as irrelevant, in other words the decree requires whatever low price the government comes up with to be the price, regardless what the foreign controlled operating company says. And the government price is considered full contractual payment. This move also prevents the foreigners from appealing to arbitration on the basis of force majeur. In other words, Russia is placing a 'reverse' price cap on Germany. Given the German hierarchy deviously joined the US government plan to destroy Russia by proxy - killing as many Russians as possible on the way - why would Germany think it would be able to dictate to Russia the price of Russian gas extracted from one of the largest gas fields in the world? Reparations will come in many forms. Some non-obvious.

On December 30 2022 the Russian government announced the maximum price that Gazprom will pay for gas and services from the joint ventures. The price cap is effective from December 31, 2022. There are different price levels, reflecting the differences in two different joint venture projects and the different conditions at the various deposits in the fields.

The maximum that will be paid for gas from the
Urengoy field (Achimov deposits) is 2,550 rubles (about USD $34) per 1 thousand cubic meters. The maximum that will be paid for gas condensates (liquids associated with the gas that condense out with gas production) is 16,370 rubles (about USD $221) per ton (about USD $47 a barrel).

The maximum that will be paid for gas from the Yuzhno-Russian field is 2,390 rubles (about USD $32.40) per thousand cubic meters (for production) and 5,464 rubles (about USD $74) once it enters the gas distribution pipeline.

The price Gazprom will pay for services involved in producing the gas and condensate at the various deposits at Achimov are also capped - 
800 rubles (about USD $10.80) per 1 thousand cubic meters, at site 4A, and 1,600 (about USD $21.70) rubles at 5A.

Services involved in producing gas condensate liquids are now capped at 1,300 rubles (about USD $17.60) per ton (about USD $2.36 a barrel) at 1A and 5,070 rubles
(about USD $68.75) per ton (about USD $9.25) at sites 4A and 5A.

Interestingly, the price cap will "apply to obligations that are due after March 1, 2022, and apply until October 1, 2023". On the face of it, this seems to be a back-dating to the start of the West's proxy war on Russia...

(In addition, an amendment to a June 30 2022 ban on foreign companies selling out their shareholding in strategic fuel and energy sector without Presidential permission was also made on 30 December 2022. This closes a peculiar loophole in the mechanics of the original joint venture share distribution which might have allowed the Germans and Austrians an escape hatch.)

Will price caps be applied elsewhere? And how? Turkstream is still operational, and it could deliver more gas, possibly via an additional pipeline across the Black Sea to a mooted gas hub in Turkiye. Russia will have some control of it, as it is a joint Turkiye/Russia project. Any way you look at it, at the moment Gazprom has the upper hand. The EU has a choice: come to Gazprom terms or suffer the economic consequences - some of which may be irreparable.

Natural gas is also 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 global economic boom after covid is under satisfactory management, or will the current price inflation in goods and covid-driven supply chain bottlenecks work to create a recessionary spiral and falling demand?

Starting 1 January 2023 the UK will ban all Russian LNG imports.

Russia's contract to use the Ukrainian pipeline expires in 2024.

This is the major supply pipeline for Germany (given the Germans have invented a pretext not to use Nordstream 2).

The Utransit pipeline from Russia through Ukraine is badly in need of both repair and upgrading to take higher gas pressures. A previous offer by Russia and various European countries to form a consortium with Ukraine to repair and certify the pipeline was rejected - by Ukraine.

It seems to me the Ukrainian pipeline will have to be repaired by Germany once the Ukrainian operation is over. 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 2 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 of the pipeline opening (time is money) and still provide gas to Germany more cheaply than anyone else. Maybe they would add punitive damages to the bill, given Germany's proxy aggression against Russia.

"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."
Permanent Mission of the Russian Federation to the European Union 3 June 2022
The United States is planning to replace the Russian pipeline gas with it's own burgeoning exports of US LNG. (At the expense of their existing Asian customers.) But this gas is much more expensive. As a result, European businesses are fleeing to the USA where energy is cheaper.

"Nor should we forget that Europe is now doing more than the United States. President of France Emmanuel Macron flew to Washington to try to convince US President Joe Biden to make concessions to Europe during the implementation of the Inflation Reduction Act that creates unprecedented advantages for US-based industrial companies. The French Minister of the Economy has repeatedly noted the fact that [US] industrial enterprises pay four times less for gas than their French partners. This act promotes the deindustrialisation of Europe because industrial companies will rush to obtain subsidies and more privileged terms in the United States."
Sergey Lavrov December 7 2022

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? The reason why not is the utter inadequacy of German politicians - they prefer to deliver the political and business agenda of the United States rather than deliver energy security for their own people. Their preference raises many questions.

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 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 (they are at about 71% full in early August 2022). The German firm Siemens provides the compressors (built by Rolls Royce) 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 (and in early August 2022 Siemans flagged it's intentions to pull out of Russia entirely). 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.

In July 2022 Canada agreed to return the turbine to Germany, and to maintain further Russian turbines, but reserves the right to refuse to return them at any time. As the turbines weren't delivered in accordance with the contract Russia has refused Germany permission to be the delivery agent, at least as at 20 August 2022.

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 2022. 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.

German industry loses production

"the Association of German Chambers of Commerce and Industry (DIHK) said on Monday. "A total of 16% of industrial companies are forced to respond to the current energy situation by reducing production or partially abandoning some areas" businesses, where readings are twice as high as the average across industry, are hit particularly hard, with a total of 32% of energy-intensive companies forced to cut all or part of their production...many companies had yet to purchase significant volumes of gas for the current year, and only half had already covered their needs through contracts.
Sputnik 25 July 2022
The Russian government previously warned the German government that if the installation of the Nordstream 1 pipeline compressor was delayed, then some of the gas set aside for Nordstream 1 will be diverted to filling Russian domestic winter stores. Nordstream 1 would run on half the previous volume, presumably until Russian stores are full. At July 26, the newswires claim Nordstream 1 will be reduced to 33 million cubic meters a day from July 27 2022. Since then, on September 26, 2022, the Nordstream 1 pipeline has been sabotaged. One of the 2 pipes has been destroyed (Nordstream 1 has an 'A' and a 'B' pipe), and Russia has devised reasons not to supply gas via the remaining undamaged pipe. Worse, the Russian gas transitting Ukraine has been disrupted by the conflict, and instead of 40 billion cubic meters a year, as of October 2022 was only supply Europe with 15.5 billion cubic meters a year.

Higher global-warming carbon release from coal

As the EU instigated gas crisis continued in mid July 2022, Hungary was forced to introduce emergency measures to conserve energy, as well as re-start full use of the coal-fired Matra electricity generation power plant partially shut down since January 2021.

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 the US knew that from a military operational standpoint, Russia would have to take control of the Black Sea coast around Odessa. If NATO built a base there it would both threaten Russia access to adjacent ports, and allow NATO permanent access to the Black Sea - there are claims the Brits were intending to build a naval base there.

The US knew Ukraine grain exports would be severely hampered as a result of Russian intervention, just as they knew the NATO supported attack on the rebel territories would result interference in new season planting. Made worse, of course, by the wests self-defeating restrictions on Belarus and Russian fertiliser exports. At the same time, the west was fully aware of supply chain disruptions (due to covid) in the flow of fertilisers coming out of China.

Ukrainian wheat production was down by about a third in 2022 due to the military operation delaying access to some fields, and due to 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 hindered Ukrainian sunflower oil exports, causing a shortage. The 2022 harvest of 9 million tonnes was about half the previous year. Sunflower meal and oil-pressing residue was 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 was said to have over 15 million tonnes of corn in storage in 2022, corn which should already have been exported. However, the export ports on the Black Sea were blocked by the ongoing Russian special operation within the 2 new republics. Mine-free channels were in place for many weeks, but  at early May 2022 Ukraine still blocked 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 2022) Russia blocked rail access from Romania and Poland. On June 2 2022 a section of the double rail tracked Beskydy 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. By mid May 2022 relatively little grain flowed 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 Turkiye. 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

"Currently, the Joint Coordination Centre (JCC) in Istanbul is indeed experiencing difficulties with registering new vessels and conducting inspections. They arise solely as a result of actions by Ukrainian representatives as well as UN officials who are apparently unwilling or unable to stand up to them.

Having finally discarded not only humanitarian considerations, but even elementary human decency, they are striving to make the most out of the Black Sea Initiative stooping to anything from outright abuse of the rules of procedure to demanding bribes from the ship owners, doing all of the above for the sake of maximising commercial profits.

As a result of these actions, the share of recipients of Ukrainian food in poor countries has fallen to the lowest level (out of 28.3 million tonnes of exported grain, those countries received only 742,000, or 2.6 percent).

The owners of incoming ships who refused to pay a bribe are forced to wait for registration for many months. Outgoing dry cargo ships that have paid also have to wait for the inspection, because once they receive the money the Ukrainians lose interest in them.

This situation stems from the fact that in line with the current practices (importantly, not the rules of procedure), the process for obtaining applications for registration under the Black Sea Initiative is in the hands of the Ukrainians, while the UN is in charge of the inspection plans (for the entry and exit of ships).

Under these circumstances, the registration of ships, which Russian experts carry out strictly within the approved rules of procedure and their respective powers, is the only way to restore order to some extent and to build a fair and transparent basis for participating in the initiative.

However, our proposal to add to the registration lists the ships which will then sail to the countries in need, in particular Africa, as well as those that have been waiting in line for more than one month, was met with hostility by Ukrainian representatives. Kiev was not ready to jeopardise its commercial corruption schemes.

As a result, the Ukrainians first blocked the registration process having disagreed with our proposals, and then suspended all inspections, including inspections of outgoing ships (27 ships with 1.2 million tonnes of cargo on board). It is clear what they are banking on: launching a propaganda machine and playing the food card with the help of Westerners and the UN.

Brussels and Washington wasted no time: first, the High Representative of the EU for Foreign Affairs and Security Policy, Josep Borrell, and then US Secretary of State Antony Blinken announced that Russia allegedly broke its promises to the countries in need of grain and blocked 50 ships in the Black Sea.

The EU did not stop there and expressed a belief that is striking in its absurdity and amateurishness: the sanctions imposed on Russia are so well calibrated and balanced that they do not interfere with Russia’s agricultural exports, an example of which is the supply of Russian grain under the Black Sea Initiative.

Unfortunately, Brussels still has not figured out that only Ukrainian food is being exported across the Black Sea under the grain deal."
Russian Foreign Ministry Spokeswoman Maria Zakharova 19 April 2023

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 had 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. (Russia's english language rebuttal of the west's propaganda that it is somehow responsible for food shortage is here - 'Busting European Union myths on causes of global food and energy disruptions', Ministry of Foreign Affairs of the Russian Federation, 9 June 2022 , a copy of Vladimir Putin's further rebuttal on July 19th 2023 is reproduced on my site here.)

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 (and sometimes interrupted), there is an issue of unreliability, and the price of gas has gone through the roof. In early August 2022 spot prices were around $2,000 per 1,000 cubic meters. Germany, in particular, relies on cheap Russian gas for industrial production. High gas prices add costs to its products. This makes some German products noncompetitive. Most make less profit. Some German companies may go out of business.

The USA has much cheaper natural gas, making their export industries (including to Europe) more cost-effective than overseas rivals. While ample LNG will probably be available to Europe from 2024-5 as new Qatari fields come on line and new LNG carriers built, some European businesses will bankrupt by then. No doubt shipped LNG prices will be much more stable (and much cheaper) at that time. but European industry wil be working with a permanent higher price structure for gas. The only advantage they might be able to arrange will be to use cheaper Russian pipeline gas. But Russia's gas, pipeline or LNG, it will never be cheap again. Except to Russia's industrial base.

Lost profit from foreign-owned Russian based businesses

Since February 2022 around 15 non-food retail businesses have announced plans to abandon the Russian market. Some, such as Japan's Uniqlo, have 'closed up shop' and remain closed, but have not announced they are actually leaving. More than 180 foreign businesses have scaled down their Russian operations in one way or another. Those retail brands that have left Russia, plus those that have ceased trading or reduced trading in Russia have in total lost an estimated $2 billion in profit. Russian media report  Ikea nearly $400 million, H&M Group lost $363 million, Inditex around $300 million,Decathlon $140 million, and the high end fashion retailers Hermes and Moncler together lost more than $200 million in profits.

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.

Restriction on foreign ownership of common minerals

The Federal Law improves the procedure for granting subsoil plots of local importance for exploration and production of common useful minerals, and also specifies the range of persons who may be subsoil users.
In particular, the Federal Law provides that minerals may be used by legal entities established in accordance with legislation of the Russian Federation and individual entrepreneurs who are citizens of the Russian Federation, unless otherwise provided by federal laws.
The Federal Law sets out the procedure for the transfer of subsoil rights from subsoil users who are foreign persons to legal entities established in accordance with legislation of the Russian Federation, and in this case, for reissuing a subsoil license.
Vladimir Putin signed Federal Law On Amendments to the Law of the Russian Federation On Mineral Resources. June 28, 2022

Russian subsoil rights are not transferable except in some specific cases, such as from a subsidiary to a parent company. Looks like Russia is tightening control of some of Russia's mineral resources. This law builds on the law passed in May 2022 preventing sale of raw materials extracted in Russia to entities from 'unfriendly' countries that Russia has embargoed. Perhaps the rights will be transferred to joint-stock entities featuring Russian majority ownership, or joint stock companies run in conjunction with friendly countries.  'Common minerals' probably means bitumen, rock, gypsum, loam, and sand. Large volumes of soil in East Russia have been mined and sold into China.

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 byproduct 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 large quantities of neon, simply because of the huge scale of its operations. It will be a long time before 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 controls 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 in the older less technologically advanced steel plants (such as those built in Ukraine and Russia in the Soviet era).
The Ukrainian Cryonin Co. is in Mariopul (not far from the now destroyed Azovstal steel works), so it is no longer part of Ukraine. Before the conflict Cryonin produced about 10,000 to 15,000 cubic meters of neon gas a month. Ingas produced 15,000 to 20,000 cubic meters of neon gas a month. 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 inert gases (neon, xenon, crypton, argon etc) until the end of the year. Exports will be allowed on a 'case by case' basis. (Russia supplies 30% of the world market for inert gases, as it uses only 5% of it's production domestically) 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.

"New production of high-purity neon used in the production of microelectronics for smartphones, card and other equipment has been launched in the Bauman Moscow State Technical University in Russia.

It is planned to reach a production level of some 70,000 cubic meters of neon a year by the end of 2022, which will increase Russia's share on the global market of this inert gas to 10% (the current share is one percent), Russian Deputy Prime Minister and Industry and Trade Minister Denis Manturov said at a meeting between Russian President Vladimir Putin and the government on Monday."
Interfax 26 July 2022

This new Russian production will process
a neon-helium mixture which is produced as a byproduct of domestic metallurgical facilities. It presumably is in response to the Azov steel work supply of inert gases having come to a close. The Russians plan to increase the volume of high purity neon by 2.5 times in 2023, which will be about 25% of world demand. Current (2022) demand is estimated to be about 632 million litres. Neon use is increasing, and global demand is projected to increase to about 892 million litres by 2027.

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. Perhaps the new Russian production will be able to help. But will it be available to 'unfriendly countries'? And if it is, at what price?

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 Russian business relationships

"According to our data, in 2022, trade between Russia and the UAE increased by 68% and reached $9 billion. This is a record level in the history of relations between our countries."
Denis Manturov, Deputy Prime Minister and Industry and Trade Minister 21 February 2023

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. In 2022 Russia's exports to Dubai increased by 71% to $8.5 billion. UAE exports to Russia increased 6% to 500 million. 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.

In addition Russian citizens, fearing their bank accounts in Switzerland (and the UK) may be seized, transferred their assets to the UAE. Russian purchase of property in UAE skyrocketed in late 2023, indicating that the center of Russian offshore business and personal investment had shifted - probably permanently.

Costs of leaving Russia

Exxon (oil and gas) took a $4.6 billion 'impairment charge' on it's balance sheet in 2022 because, as a business owned by an 'unfriendly country' (USA) it was required to leave it's Sakhalin-1 joint  venture. It is basically the same story for the other oil and gas businesses.
Shell (oil and gas) took a $1.6 billion impairment on Sakhalin-2 in its first-quarter 2022 earnings.
Equinor (oil and gas) took a $1.08 billion impairment on the Kharyaga onshore project of as of 31 March 2022.
AerCap’s aircraft leassors terminated the leasing of all of their aircraft and engines with Russian airlines, in May 2022 writing off a $2 billion loss on it's Russian operation, accepting a total loss on it's assets remaining in Russia. AerCap has lodged claims with it's insurers (probably western insurers) of $3.5 billion for the aircraft and engines. How much - if any - will be paid out (and when), is uncertain.

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 didn't appear 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.

Political support for the Russian government strengthened.
"As many as 11,160 sanctions have been imposed on Russia. No other state has ever faced so many challenges. Therefore, for us it is a moment of truth. We must see our work differently and, as you rightly said, today we have only one party, which is our country. The interests of the Motherland must be superior to any party programmes, and we aspire to achieve that."
Vyacheslav Volodin, Speaker of the State Duma (Parliament) July 7 2022

"...during four out of the past ten months, we have had to live with a military-political operation, which is crucial from every point of view. We fully support your decision to this effect, because what is at stake is the survival of the Russian world. We must stop US globalism, which is attempting to dictate its terms to the rest of the world. Moreover, we must do whatever we can to prevent Nazism and Banderaism from spreading across Europe.

Last time, when fascism and Nazism engulfed the whole of Europe, mankind paid the cost of 71 million lives, 27 million of which were the lives of the best sons and daughters of the great Soviet homeland.

I made it a point to visit the economic forum in St Petersburg, where I followed closely your remarks and jotted down 26 statements. I felt, perhaps for the first time, that we are on the same page for every issue you identified."
Gennady Zyuganov, Head of the Communist Party of the Russian Federation July 7 2022

"I must say that today is not the time for party differences. Today we must consolidate society and remove rather than draw dividing lines between political forces with a view to supporting the national economy and social obligations."
Leonid Slutsky, Head of the Liberal-Democratic Party of Russia July 7 2022

The west's cornering of Russia into a pre-emptive defensive military operation in Ukraine and consequent imposition of trade and currency restrictions were supposed to destroy the Russian economy. The economic isolation was supposed to foment riots in the street, divide Russian popular and political opinion, cause a crisis in the political institutions, and bring down the government.

Instead, they have done the opposite - increased national patriotic fervor and united politicians. All 5 political parties in the Duma stand behind the executive action - even the Communist party.

Russia's foreign policy concept' radically revised

I guess Maria Zakharova is hinting ("revise something in the global track") 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 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 eventually 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 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 ("A state can cede part of its sovereignty if it believes that it can benefit from this...")  is more obscure. It could refer to a NATO - like group made up of Russia, Belarus, Turkiye, 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. In April 2023 Belarus agreed to host Russian nuclear weapons on its territory, and align the two militaries. Around the same time, 'signals' from Russian officials suggest Russian will deploy unstoppable intermediate range hypersonic weapons tipped with low yield tactical nuclear weapons aimed at Europe, and have a constantly rotating and visible hypersonic nuclear weapon presence off the coast of USA.

My guess is that negotiating a new balance of powers treaty won't happen until it includes the USA removing anti-missile systems from Europe, removing its nukes from Europe, and Europe signing a comprehensive security treaty which will include France and UK's nuclear weapons. And this idea section 27 (1) and (2) is reinforced in the Foreign Policy Concept document,released on 31 March 2023.

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 at one point (2021). A theme Macron kept repeating was his 'duty' to bring peace to Europe. Macron long ago pronounced NATO "brain dead", although this may have been a ruse. 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 (Obama 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.

"Unfortunately, I must admit that the use of crypto currency is growing. We have yet to fully regulate this. In particular, we are monitoring over 25,000 participants in these transactions and have identified about ten financial organisations that are helping them. We believe crypto currency trade is over 630,000 bitcoins. We initiated about 120 investigations that resulted in over 60 criminal cases.

We launched a software product called Transparent Blockchain. At one point, you instructed us to do this together with VTB Bank. We have upgraded this project.

A year ago, we worked with just bitcoin crypto currency whereas now we are dealing with over 20 currencies. Testing is currently ongoing at the Ministry of the Interior, the FSB and the Investigative Committee. A number of CIS countries have asked us about using this programme so they can launch it at home. This programme helped us shut down a very big internet platform called 'Hydra' in cooperation with law enforcement agencies and our colleagues from financial intelligence services abroad. This platform focused on drug trafficking, arms sales and money laundering. All people involved have been arrested. It was established that one Ukrainian terrorist nationalist organisation was provided with funds in crypto currency. We are working on this now with the FSB.
Yury Chikhanchin, Head of the Federal Service for Financial Monitoring, 9 March 2023

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. The USA list of blocked banks is in the annex to US Treasury 'directive 2', here (pdf).

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 bank 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 that operate in Russia:

"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.

"The launch of the digital ruble will make Russia one of the first countries with a national digital currency, a national payment card system, its own fast payment system, and its own alternative to SWIFT in the form of the Financial Messaging System. We will continue to introduce low-cost and convenient services for individuals, businesses and the state."
Central Bank of Russia Governor Elvira Nabiullina, 19 July 2023

Russia is also experimenting with blockchain payment and digital rubles (and digital yuan). 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.

On February 6 2023 an executive order was signed that allows Russian companies which supply Russian exporters fulfilling government to government contracts to receive foreign currency without having to convert it to rubles. The major government to government contract would be I guess, construction of gas pipelines to China. Arms sales to, for example, India might also be an example. The foreign currency will be received directly by authorised banks, so this means that if Russia has a bilateral Central bank arrangement with another country - such as it now has with India - then foreign currency is quickly transferred to the Russian exporters bank account, and then paid in foreign currency into the Russian suppliers account. Presumably the foreign funds can be sold on the Russian exchange for rubles or whatever other currency is required. This move helps Russia build up foreign exchange reserves free from western interference.

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.

"Sberbank is the largest financial institution in Russia and is majority-owned by the GoR. It holds the largest market share of savings deposits in the country, is the main creditor of the Russian economy, and is deemed by the GoR to be a systemically important financial institution. Within 30 days, OFAC is requiring all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries. Payments that Sberbank attempts to process in U.S. dollars for its clients — with examples ranging from to technology to transportation — will be disrupted and rejected once the payment hits a U.S. financial institution. To implement sanctions on Sberbank, OFAC issued Directive 2 under E.O. 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions” (the “Russia-related CAPTA Directive”)."
US Treasury 24 February 2022

"Treasury is taking unprecedented action against Russia’s two largest financial institutions, Public Joint Stock Company Sberbank of Russia (Sberbank)and VTB Bank Public Joint Stock Company (VTB Bank), drastically altering their fundamental ability to operate. On a daily basis, Russian financial institutions conduct about $46 billion worth of foreign exchange transactions globally, 80 percent of which are in U.S. dollars.
The vast majority of those transactions will now be disrupted. By cutting off Russia’s two largest banks — which combined make up more than half of the total banking system in Russia by asset value — from processing payments through the U.S. financial system. The Russian financial institutions subject to today’s action can no longer benefit from the remarkable reach, efficiency, and security of the U.S. financial system."
US Treasury 24 February 2022

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 energy products to themselves - oil, LNG, coal, wood, and anything to do with nuclear power plants, including fuel assemblies and uranium in any other form. Correspondent 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.


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 (USA inflation was 9.1% in mid July 2022).

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.

As at February 2022 Russia had $643.2 billion dollars of reserves (an historic high), and by March 2022 about $300 of that was frozen by the west (some say it is much less - around $150 billion). This means the Russian Central bank cannot use these frozen 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 16 March 2022

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.
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.

Russia's currency reserves

As noted above, at February 2022 Russia had $643.2 billion dollars of reserves, which was an historic high. In fact, the Bank of Russia had been storing up additional reserves ever since the western backed coup in Ukraine in 2014 - but only revealed this in March 2023. Part of it's reserves were converted to gold, yuan, and also foreign currency in the form of cash. The Central Bank held additional (unspecified) volumes of gold, dollars, and other unspecified 'reliable' but somewhat illiquid assets. The central banks accumulation of US dollar notes amounted to billions of dollars, with the physical volume of US cash limited only by 'logistic capabilities'.

 By the end of 2022 Russia had $273 billion in "ruble-denominated assets", which amounted to 26% of "customer ruble funds". I assume the customers are Russian Banks. The Central Bank considers this amount of Russian bank ruble liquidity "adequate', although they were concerned about the lower level of reserves in some Russian banks. Russian banks will also be permitted to borrow a further roughly $175 billion from the Central Bank using "non-marketable assets" (probably mortgage debt) as security, which covers an additional 13% of Russian bank funds (for a total Central Bank backing of about $448 billion). In late January 2023, the Central Bank of Russia brought in new conditions for giving secured loans to banks, terms which that when a Russian bank used foreign currency loan agreements as security when borrowing from the Central Bank, then those agreements "must stipulate the rights of creditors to demand payments on said agreements in rubles".

Ruble denominated bank assets in late January 2023 were sufficient to cover 58% of "individuals' funds", presumably normal peoples demand-deposit bank accounts.

The Russian Central Banks assessment of foreign currency reserves is also "adequate". Liquid foreign currency reserves (presumably the easily liquidatable tier 1 reserves) is quite high - 59% of customer bank funds, and 55% of foreign exchange obligations. But they don't reveal the current level of foreign exchange reserves they hold.

The ruble - dollar accidental experiment

When the western banking restrictions stopped the normal currency exchange Russian people were left holding 'stranded' dollars they wanted to sell, and unable to buy dollars. Russians have a long history of finding ways through all sorts of economic dislocations, and so a black market for dollars and euros sprang up, fuelled by the rapid loss of purchasing power of the ruble. Channels where people could exchange currency quickly appeared on social media such as Telegram. People quietly met at various suitable places (such as train stations) to do the swap.

Government measures soon put a spine into the ruble, to the point that the ruble hit its greatest purchasing power in 7 years in late June 2022.

These measures included prohibiting Russian banks from selling foreign currency until September 2022, and capping the amount of dollars that can be withdrawn from anyones foreign-currency denominated bank account to $10,000. Russians - or, rather, middle class and above Russians, - have long used foreign currency denominated accounts, where the rubles deposited are converted to dollars or euros, and then held in the account in that currency. When the foreign money is withdrawn, the money can be taken as dollars or euros (in banknotes), or it can be converted back into the ruble at the current exchange rate. This is an effective method to preserve the purchasing power of the ruble, but only when the ruble is constantly losing purchasing power, or swinging in value unpredictably. For example, not long after the start of the special military operation the ruble had fallen by about 30% against the greenback. In effect, you could buy almost a third more using a US dollar than by using the equivalent value in rubles. That's a pretty compelling case for using dollars.

As a result, a certain amount of euro and dollar notes have circulated in Russia. But notes wear out, and have to be replaced. But in July the EU and US banned the supply of banknotes to Russia.

“Unfortunately, we now have no reason to expect the situation with foreign currency to change for the better in the future… Therefore, in September we will be forced to extend the restrictions that were introduced in early March..Even in the most apocalyptic scenario, in the most difficult scenario, cash dollars will circulate in our country. According to our estimates, the population has only about $85 billion in foreign currency cash, both in dollars and euros. Now banks can sell and buy this currency, so the circulation of cash will continue.”
Russian Federation Central Bank Governor Elvira Nabiullina July 2022

If the dollar is seen by the average Russian to hold spending power better than the ruble, they will value it, and will only part with at a significant margin to what is quoted by local banks. This will create a significant arbitrage opportunity for those who can import these bits of paper from other countries. We have already seen a video of extremely large amounts of US currency found in padlocked Red Cross aid boxes found in a part of liberated Donetsk. Smuggling notes into Russia will be no problem, and a black market in the US dollar (and euro, presumably) will thrive.

But if the dollar starts a steady trend to slide in value against a relatively stable ruble, people will offload their dollars a