Arctic LNG 2 shareholders prepare for US sanctions

The United States is seeking to ‘kill’ the Russian Arctic LNG-2 project implemented by Novatek. This was recently stated by US Assistant Secretary of State for Energy Geoffrey Pyatt. The sanctions would require shareholders (such as France’s TotalEnergies group and Japanese and Chinese companies) to sell their shares in the project company by January 31, 2024. The Arctic LNG 2 project, with a capacity of 19.8 million tonnes per year, is the first Russian LNG terminal to be directly blacklisted by the USA. In 2014, the United States imposed sectoral sanctions on Novatek, limiting its access to US dollar financing. The Arctic LNG 2 project company’s recent inclusion on the Specially Designated Nationals and Blocked Persons (SDN) list means that any entity or person interacting with it is at risk of sanctions, according to Energy Intelligence.

Russian oil is systematically sold above the price ceiling
In October, Russia exported almost all its oil shipments at a price above the ceiling imposed by the Group of Seven. According to a study by the KSE Institute, over 99% of Russian oil was sold at prices well above the US$60/barrel threshold set by the G7 countries almost a year ago. It is unclear whether the Western powers are ready to take further measures that could restrict Russian oil supply and push up its world price. Exports from Russia’s main ports reached an average price of US$79.40 a barrel at the point of export, according to the Institute. However, around 30% of crude oil transported by sea was covered by protection and compensation from G-7 and EU countries. Shipping companies and insurers must receive certificates from traders confirming that the cargo does not exceed the price ceiling. According to Bloomberg, they have no real way of verifying this, and Russian oil prices have been known to exceed the threshold for months.

BRICS to account for 45% of global GDP by 2040

In 2001, the group of emerging market economies known as BRICS (Brazil, Russia, India, China and South Africa) accounted for 19% of world GDP in purchasing power parity terms. In August 2023, the BRICS invited six more countries to join: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE. In purchasing power parity terms, the enlarged BRICS are already larger than the Group of Seven, which includes Canada, France, Germany, Italy, Japan, the UK and the USA. By 2022, the BRICS account for 36% of the world economy, compared with 30% for the group of advanced economies. Bloomberg Economics predicts that by 2040, this share will rise to 45%, compared with 21% for G-7 economies. The aim of this alliance is to overcome the domination of the United States, notably through dedollarization, and to develop alternative institutions to the International Monetary Fund and the World Bank, both centered in Washington.

Russian hedge fund Prosperity Capital leaves the UK
Russia-focused hedge fund Prosperity Capital Management is relocating its operations from London to Abu-Dhabi. According to bne IntelliNews, the company’s co-founder and CEO Mattias Westman stated that the UK’s decision to exit the European Union and the uncooperative business environment had triggered the decision. While international asset managers, hedge funds and pension plans are said to hold around US US$90 billion worth of shares blocked in Russian financial plumbing, Prosperity is probably the most exposed fund in terms of share of assets under management. The company has admitted that there remains “material uncertainty about the long-term future” of the funds it manages as a result of the war. The company managed around US$3.5 billion in assets before the conflict.

Russian central bank raises interest rate to 15%

On October 27, the Central Bank of Russia raised its key rate from 13% to 15%. It is the fourth consecutive time the bank hiked the borrowing costs recently. The bank cited a weak rouble and stubborn inflation pressure, which have “significantly increased to a level above the Bank of Russia’s expectations,” said the national lender in a statement. According to French economist Jacques Sapir, this decision is justified more by inflation expectations than by exchange rates. In the Russian economy, bank credit plays a limited role in investment, and state-subsidized interest rates are high, according to him. Since October 10, the rouble has risen steadily against the yuan, the US dollar and the euro, thanks to a recovery in the balance of payments. This recovery is in turn explained by the rise in hydrocarbon prices and the government’s decision to reapply strict capital controls for a further 6 months. 

Saudi Arabia and Russia maintain their oil production cuts
Saudi Arabia and Russia have reaffirmed that they will continue to limit their oil production by more than 1 million barrels a day until the end of the year, even as turbulence in the Middle East shakes world markets. Riyadh cut its daily crude production by 1 million bpd and Moscow reduced its exports by 300,000 bpd, in addition to the cuts already made with the other OPEC+ countries. They stated that the reduction was intended to support the stability and equilibrium of oil markets. Oil prices have fluctuated in recent weeks due to the conflict between Israel and Hamas and the risk of it escalating into a wider regional conflagration. According to the International Energy Agency, a wider conflict could prompt the Saudis and Russia to review their reduction plans, and warned of the risks that high fuel prices pose to inflation and the global economy.

US, EU start talking to Ukraine about peace talks with Russia
US and European officials have started talking to their Ukrainian counterparts about possible peace talks with Russia and what Kiev might have to give up to reach a deal, NBC television reported, citing US officials. To encourage Zelensky to consider negotiations, NATO could offer Kiev security guarantees, even if Ukraine does not formally become a member of the alliance, officials said. The talks with Kiev come as U.S. and European officials worry about the stalemate in the conflict and the West’s ability to continue providing aid to Ukraine, NBC quoted the officials as saying. Russian Foreign Ministry spokeswoman Maria Zakharova said Moscow has always been and remains open to a diplomatic solution to the crisis and is ready to respond to serious proposals, while Kiev has halted and banned negotiations with Russia.

EU leaders in favor of tapping revenues from Russia’s frozen assets
European leaders have approved plans to use the billions of euros generated by frozen Russian assets to help Ukraine. The European Commission is expected to present legal proposals in early December. The Central Bank of Russia has US$300 billion in frozen assets, most of which – 180 billion euros according to the Belgian government – is blocked at Euroclear, based in Brussels. Coupon payments and bond redemptions due on immobilized Russian assets have remained blocked at Euroclear, as they cannot be paid to clients subject to sanctions. Several countries are skeptical about the use of this Russian cash, due to legal problems relating to the ownership of the funds.“You need a legal foundation and a way of doing it without destabilizing international financial flows. The macroeconomic impact is quite big,” said recently Belgian Prime Minister Alexander De Croo in a speech to diplomats.

Russian oil revenues surge according to IEA
In September, Russia earned US$18.8 billion from oil exports, the most profitable month since July 2022, according to the International Energy Agency (IEA). The country’s oil export revenues jumped by US$1.8 billion in one month. The agency attributes the increase in earnings to a combination of higher total export volumes and higher average prices for Russian crude oil and petroleum products. Russia’s total oil exports in September amounted to 7.6 million barrels per day (bpd), with China and India remaining the biggest buyers. The IEA’s estimates for Russian exports are surprising, as the country has been intent on cutting oil output and deliveries. Russia and Saudi Arabia, the world’s leading oil exporters, announced that they would continue to cut crude production until January 2024. Futures contracts for Brent crude oil, the global benchmark, climbed to around US$95 a barrel in September, from a year’s low of around US$72 in March.

IMF upgrades Russia’s GDP growth for 2023
The International Monetary Fund (IMF) has adjusted its outlook for economic growth in Russia, raising its projections for 2023 and lowering them for 2024, according to the World Economic Outlook report. The IMF is currently forecasting Russian GDP growth of 2.2% in 2023 and 1.1% in 2024. The IMF’s outlook for 2023 has been upgraded by 0.7 percentage points compared to July and by 1.5 percentage points compared to April, according to the report. “The rise in growth reflects a substantial fiscal stimulus, strong investment, and resilient consumption in the context of a tight labor market,” according to the IMF. In addition, Russia’s GDP growth forecasts for 2024 have been revised downwards by 0.2 percentage points compared to the July and April forecasts. Moreover, the IMF projects inflation in Russia at 5.3% in 2023, down from 13.8% in 2022, while in 2024 it expects inflation to grow again to 6.3%.

Gold goes where the money is, eastwards
Gold purchases by central banks, particularly in non-Western countries, continue into 2023. Central banks increased their gold reserves by 378 tonnes from January to June. China made the largest purchases, followed by Singapore, Poland, India and the Czech Republic. The East is not only stockpiling gold and mining it on a massive scale – China and Russia are in the world’s top three gold-producing countries – it is also developing its own gold-trading infrastructure, particularly China, the United Arab Emirates and Russia, with the aim of reducing dependence on Western gold-trading centres such as London, New York and Zurich. In March 2022, the LBMA, the London-based association known for setting the international reference price for gold, suspended the Good Delivery status of Russian refineries. Three Russian banks – VTB, Otkritie and Sovcombank – also lost their association membership.

Major gas supplier issues warning to EU
Even though the European Union’s storage facilities are almost full, the EU’s natural gas market will remain turbulent over the coming winter, Norwegian energy giant Equinor has warned. EU gas reserves reached 97.89% capacity, exceeding the 90% target set by the European Union for 01 November. However, expectations of increased competition with Asia for LNG could push prices up, Equinor CEO Anders Opedal told the Energy Intelligence Forum in London. Following the reduction in gas purchases from Russia last year, the EU increased its LNG imports and redoubled its efforts to reduce consumption in the Union, particularly in industry. LNG became the main source of gas for the bloc, accounting for up to 35% of total imports. To offset gas supply shortfalls, the EU has resorted to taking in high-priced shipments of LNG from the US and Qatar, and increased pipeline imports from Norway and Azerbaijan. 

US public support for arming Ukraine declines

Americans from both major political parties are increasingly less supportive of the idea of supplying arms to Ukraine. According to a Reuters/Ipsos poll, only 41% agree with the statement that Washington “should provide arms to Ukraine”, compared with 35% who disagree and the rest who are unsure. Since the invasion by Russia in February 2022, Washington has spent US$44 billion to supply Kyiv with dozens of tanks, thousands of rockets and millions of rounds of ammunition. Western media and pundits are changing their narrative about the war in Ukraine, and President Zelensky has admitted that “fatigue” is setting in more broadly in the war effort. Moreover, in the context of the latest escalation of tensions in the Middle East, some Congressional Republicans have put the urgent need to help Israel ahead of Ukraine.

Massive capital flight from Russia in 2022
In 2022, US$253 billion of capital left Russia, equivalent to 13.5% of GDP. These massive capital outflows have depleted Russia’s already reduced foreign exchange reserves and contributed to the weakening of the ruble. According to the Central Bank of Russia (CBR), these exodus flows have been driven by foreign trade, loan repayments, private individuals withdrawing cash abroad and foreign direct investment. In 2023, the CBR is tackling this problem by significantly raising interest rates and the Ministry of Finance (MinFin) by introducing some form of capital control. Russian exporting companies, including the country’s main oil producers, are now obliged to sell their earnings from sales abroad on the domestic market for rubles, to ensure a supply of foreign exchange. Capital flight appears to be slowing in 2023, with US$27 billion leaving the country in the first six months of the year, according to the CBR.

G7 countries step up efforts to enforce Russian oil price cap
The Group of Seven-led coalition behind a price cap on Russian seaborne oil is redoubling its efforts to ensure its effective enforcement. The price cap is intended to reduce Russia’s ability to finance its war in Ukraine. India’s refiners are buying cargoes of Russian crude at the highest premium since the restriction was imposed by the G7 countries, according to data from the Ministry of Trade and Industry. Refiners at one key importer paid an average of US$86 a barrel for Russian supplies in August. This is the widest gap in dollar terms since the US$60 a barrel restriction came into force after the start of the conflict in Ukraine. The coalition statement made seven recommendations for industry including, a requirement for “appropriately capitalised” protection and indemnity insurance, agreed protocols on the use of Automatic Identification Systems and enhanced checks of high-risk ship-to-ship cargo transfers. 

Belgium to become the first country to get its hands on frozen Russian assets

Belgium hopes to collect €2.3 billion in taxes on Russian assets and use it to help rebuild Ukraine: €625 million from tax revenues in 2023 and an estimated €1.7 billion in 2024. The European Union and the Group of Seven (G7) countries have frozen more than 300 billion euros of Russian assets. More than 200 billion of this amount is held in Europe, of which around 125 billion is managed by the Belgian clearing house Euroclear. “We only needed EU approval to use the interest. We are simply applying the Belgian tax code, which is our competence,” a spokesperson for Prime Minister Alexander De Croo said. “Last year, it was very clear to us that taxation on the proceeds of those assets should go 100% to the Ukrainian population,” he added.

The ‘price cap’ doesn’t work 

Russia is becoming increasingly adept at circumventing restrictions, notably by abandoning the use of Western marine insurance for oil tankers. This enables Moscow to sell more oil at prices close to international levels. In August, almost three-quarters of oil shipments from Russia were transported without Western insurance, which was the ultimate means of imposing the price cap. According to Kpler data, this figure rose by around 50% in the spring. This change in trade flows boosts the Kremlin’s revenues as oil prices approach US$100 a barrel. The recent rise in oil prices is due in particular to the joint determination of Saudi Arabia and Russia to reduce their oil production. “Our country is successfully adapting to the illegitimate practices imposed by the G7. We are expanding our own tanker fleet, developing insurance instruments, and reorienting supplies to more dynamic markets,” said Russia’s ambassador to Washington, Anatoly Antonov.

“The worst is over,” says Russia’s economic elite
The Russian government is optimistic about the health of the country’s economy. Russia is going through a “large-scale macro transformation,” but the “worst is over,” Prime Minister Mikhail Mishustin said on September 28 during the Moscow Financial Forum. According to the Finance Minister Anton Siluanov, growth this year is forecast at 2.8% and the federal budget deficit will not exceed 2%. Russia’s manufacturing sector is booming, with the seasonally adjusted S&P Global Russia Manufacturing purchasing managers’ index up to 54.5 in September from 52.7 in August, the biggest improvement in operating conditions since January 2017. While the private sector and consumption drove the economy two years ago, it is now government procurement and investment that are driving growth. The latest 2024 budget includes massive increases in military spending, which has overtaken social spending for the first time. Despite pressure on prices, the Central Bank is maintaining its inflation target of 4% despite calls to raise it.

US dollar exchange rate reaches 100 rubles
On Tuesday October 3, one US dollar traded against 100 rubles on the Moscow Stock Exchange for the first time since August 14. At the time, this symbolic threshold had forced the central bank to raise interest rates by 3.5%, then by 1% in September, to 13%. According to analysts, the ruble’s recent decline is due to the end of the favorable end-of-month tax period, which encourages exporters to convert revenues into foreign currency to pay off local debts and tends to temporarily support the currency. The ban on diesel and gasoline exports imposed by Moscow in September to counter rising energy prices in Russia has also put pressure on the ruble. The government is considering new measures to stem the ruble’s fall, including forms of capital control. The central bank, which switched from targeting the exchange rate to targeting inflation in 2014, is opposed to such a measure.

Global trade falls at the fastest pace since the pandemic

According to the FT, world trade is experiencing its fastest decline since the early days of the COVID-19 pandemic. Demand for goods exports is falling as inflation, interest rates and the cost of services rise. In July, world trade fell by 3.2% year-on-year, the biggest fall since August 2020. The World Trade Monitor, an analytical tool from the Dutch Bureau for Economic Policy Analysis, completes this gloomy picture with data for June, which shows a contraction of 2.4%. The facts are clear: the global economy is slowing down. The world rebounded briefly after the pandemic, stimulated by increased demand. Unfortunately, this euphoria was short-lived. Export volumes are declining worldwide. In China, for example, volumes are down 1.5%. In the euro zone, they are down 2.5%. The United States was not spared either, with a drop of 0.6%.

Yellen now supports windfall tax on Russian assets

US Treasury Secretary Janet Yellen has backed a European Union plan to impose a tax on profits gained from frozen Russian assets. She said it was a “sensible” way to help fund Ukraine’s reconstruction. Yet, last year, she declared that the transfer of assets would be illegal under US law, and some legal experts see the idea as a violation of so-called “sovereign immunity”. Most of the frozen Russian central bank assets (more than €200 billion) are held in Europe, with most of them at settlement giant Euroclear in Belgium, where they generated some €1.7 billion in revenues in the first half of 2023. Many experts believe that a seizure of Russian assets or the revenues they generate could undermine confidence in property rights in Europe and the USA, and reduce the West’s leverage over Moscow. “It sounds like a reasonable proposal,” Yellen said in an interview for Bloomberg, adding that “[Taxing the income], it’s not the same as seizing assets”.

Russia bans exports of petrol and diesel 

On 21 September, Russia temporarily banned the export of gasoline and diesel to all countries outside a group of four ex-Soviet states (Belarus, Kazakhstan, Armenia and Kyrgyzstan). The aim of the measure is to stabilise its domestic fuel. A shortage has gripped southern Russia as a result of rising international prices, the weakening ruble and reduced subsidies to domestic refineries to encourage increased domestic supply. Bloomberg reports that Russia has also significantly increased fuel deliveries to its military units near and inside Ukraine. Russian refiners earn much more from exporting diesel than they do from supplying the domestic market, and high international prices have provided an additional incentive to export. According to the Russian government, these temporary restrictions are designed to increase fuel supply within the domestic market. The energy ministry said the measure would prevent unauthorised “grey” exports of motor fuels. Russia exported 4.81 million tons of gasoline and almost 35 million tons of diesel last year.

Tension mounts in Europe over Ukrainian cereals

Ukraine plans to sue Poland, Hungary and Slovakia in the World Trade Organization over bans on Ukrainian agricultural products. Restrictions imposed by the European Union in May allowed Poland, Bulgaria, Hungary, Romania and Slovakia to ban domestic sales of Ukrainian wheat, maize, rapeseed and sunflower seeds, while allowing transit of these shipments for export elsewhere. On 15 September, Poland, Slovakia and Hungary announced their own restrictions on Ukrainian grain imports, after the European Commission decided not to extend its ban on imports into Ukraine’s five neighbouring countries. Polish President Andrzej Duda has reminded Kiev that it is through his country that aid flows to Ukraine. “It would be good if Ukraine remembered that it receives aid from us and that we are a transit country for Ukraine too,” Duda said. In the context of these tensions, Warsaw has stopped supplying arms to Kiev and is concentrating instead on its own armament, Polish Prime Minister said.

Russia to increase defence spending

Russia is planning a massive increase in defence spending next year, according to Bloomberg, citing draft budgets. Defence spending is estimated to reach 10.8 trillion roubles (US$112 billion) in 2024, or 6% of GDP, up from 3.9% in 2023 and 2.7% in 2021. The draft presented by Prime Minister Mikhail Mishustin cites the “strengthening of the country’s defence potential” as a key priority, along with the “integration of the new regions” partially annexed to Ukraine last year. The government sees revenue amounting to more than 35 trillion rubles, up 22% from 2023, and the deficit halving to 0.9% of GDP in 2024 from 1.8% this year. It expects the deficit to continue to shrink to 0.4% of GDP in 2025 despite the rising costs of the war and the impact of sanctions. To become law the fiscal draft needs the approval of both houses of parliament and then to be signed off by the president.

Russia aims to become a major player in the global copper market

On 11 September, the country’s largest undeveloped copper deposit – Udokan – went into production. Located in Eastern Siberia, between Lake Baikal and the Pacific Ocean, it was inaugurated by Vladimir Putin during a video link-up. The mining and refining complex will produce 150,000 tonnes of copper per year. The aim is to triple its production capacity within five years and could represent an increase of almost 50% on current Russian production. The project’s economic viability is based on global demand, which is set to rise sharply in the coming years as a result of the energy transition, and on its geographical proximity to the Asian market, particularly China, the world’s leading consumer of copper. Russian billionaire Alisher Usmanov bought the right to develop Udokan for US$500 million from the government just before the 2008 financial crisis. It took 10 years to resolve the technical challenges of the project, create a new geological model and start construction.

Post-Cold War world order is over, Blinken admits

The United States’ growing geopolitical competition with Russia and China marks the end of the post-Cold War world order, argues US Secretary of State Antony Blinken. “What we are experiencing now is more than a test of the post-Cold War order. It’s the end of it,” he noted. According to him, the relative geopolitical stability that has lasted for several decades is beginning to give way to a situation where world powers are competing with each other. He added that the world is currently at a turning point: one era ends and another one begins. Blinken opined that decisions made now will shape the future for decades. The Secretary of State claimed that the war in Ukraine is “the most immediate, the most acute threat to the international order”. But according to him, “the People’s Republic of China poses the most significant long-term challenge, because it not only aspires to reshape the international order, it increasingly has the economic, the diplomatic, the military, the technological power to do just that”.

Russian central bank hikes key interest rate to 13%
On 15 September, the Central Bank of Russia raised its key rate by 100 basis points to 13%, citing high inflationary pressure in the economy. “Significant proinflationary risks have crystallized, namely the domestic demand growth outpacing the output expansion capacity and the depreciation of the ruble in the summer months” the bank said in a statement. The CBR also signaled the possibility of furtherrate hikes and increased its inflation forecast for Russia at the end of 2023 from 5-6.5% to 6-7%, maintaining its 4% forecast for 2024 and beyond. Additionally, the Bank of Russia has raised its forecast for the average cost of Russian Urals crude oil for 2023 from US$55 to US$60. It maintained its stance on the undesirability of tightening capital controls to influence the ruble exchange rate, calling to rely instead upon natural correction factors and already implemented monetary tightening. The Bank of Russia Board of Directors will hold its next rate review meeting on 27 October. On 18 September, the rouble was trading at 96.6338 to the US dollar.

Russian money goes home

Wealthy Russians have taken US$50 billion worth of assets back to their homeland and “friendly” countries since February 2022, Bloomberg reported. According to the agency, last month the shareholders of United Medical Group and MD Medical Group Investments Plc approved the re-registration of companies from Cyprus to Russia. “That transfer will help push the total value of assets that have been re-domiciled by the wealthiest Russians since February 2022 to at least US$50 billion,” Bloomberg wrote. This shift is breaking with a decades-old practice by Russian billionaires to hold their assets in Europe, taking advantage of investor-friendly legal systems, the chance to get dividends in foreign currencies and low taxes. Bloomberg recalls that the transfer of assets back to Russia started with the launch of the special operation in Ukraine due to the fact that Russian businessmen increasingly began to fall under sanctions of Western countries.

Oil trading above $90 a barrel for the first time in 2023

Oil reached its highest level of the year after rising on the back of OPEC+ supply cuts. 

Brent crude, the international benchmark, was up 1.2% at US$90.04 on September 5. US West Texas Intermediate was up similarly at US$86.69. Saudi Arabia recently announced that it would extend its voluntary output cut of 1 million barrels per day through the end of December. Russia also extended its voluntary reduction in oil exports by 300,000 barrels per day until the end of the year. The move is likely to revive fears of global inflation at a time when much of the world is facing rising energy costs. Saudi pressure for US$100 oil is a new headache for the Biden administration. The rise in energy prices comes at a time when the US President is putting his economic record at the heart of his re-election campaign. Joe Biden has used the Strategic Petroleum Reserve (SPR) to ease the pressure on prices, but reserves are already half depleted, the lowest level for 40 years.

Talks between Putin and Erdogan fail to produce new grain deal
The meeting between the Turkish and Russian presidents in Sochi on September 4 failed to produce a new agreement on cereals. Vladimir Putin said that Western claims that Russia had caused a food crisis by suspending its participation in the grain agreement were wrong, as prices had not risen as a result of Russia’s exit from the agreement. Moscow claims that restrictions on payments, logistics and insurance have hampered shipments. One of Moscow’s key demands is that the Russian Agricultural Bank be reconnected to the SWIFT international payment system. Mr. Putin said that a plan to supply up to one million tons of Russian grain to Turkey at reduced prices, for further processing in Turkish factories and shipment to countries most in need, was not an alternative to the grain agreement. The United Nations is ready to agree to all of Russia’s conditions for the resumption of the grain deal, the Bild newspaper said with reference to a confidential letter from UN Secretary-General Antonio Guterres to Russian Foreign Minister Sergey Lavrov dated August 28.

Europe gets poorer, Russia’s friends get richer

The Bank of Canada has published a study on the impact of economic sanctions on three types of country: sanctioning countries, the sanctioned country and non-sanctioning countries. The analysis shows that the welfare losses of the sanctioned country are considerably attenuated, and the losses of the sanctioning countries are amplified, if third countries do not join the sanctions, but above all the latter gain by not joining them. Calculations show that if more countries were to join the restriction on Russian gas purchases, Russia’s GDP growth could fall by 9%. However, as long as only European countries comply with the measures, Russia’s GDP per capita is only reduced by 4%. This probably explains why, this week, representatives of the United States, Britain and the European Union plan to jointly pressure the United Arab Emirates to stop supplying products to Russia, according to the WSJ. Western officials complain that requests to halt exports to Russia have been largely ignored. Asked about this, a UAE official stressed that his country strictly complied with international law.

Russia overtakes Germany to become the world’s fifth-largest economy

According to the World Bank, in purchasing power parity (PPP) terms, Russia has just overtaken Germany to become the fifth-richest economy in the world, and the largest in Europe, with a value of US$5,300 billion. Analyzing GDP in terms of purchasing power parity makes it possible to compare data between countries whose currencies do not have the same value. It takes into account the fact that the same amount of money does not represent the same wealth in different countries. Even PPP estimates underestimate the strength of the Russian economy, argue some academics. In recent decades, Western economies have seen a rapid increase in the importance of services, whereas the Russian economy remains heavily focused on manufacturing and industry. In wartime, having a large industrial base is a considerable advantage, as the speed with which a country can produce weapons is a key factor in combat. In this sense, Russia is even more important than Germany, which is not an insignificant industrial country, according to Jacques Sapir’s research.

#CommercialRoute – Russia begins Summer exports to Asia via the Northern Sea Route

Russia has just shipped its first liquefied natural gas cargo of the year via the Northern Sea Route (NSR) to the Arctic. The LNG carrier Fedor Litke was loaded at the Sabetta terminal of Novatek’s Yamal LNG plant, and left the plant on June 4, bound for Asia. The redeployment of Russian energy flows to Asia, under pressure from Western sanctions, is prompting Russia to develop maritime traffic beyond the Arctic Circle. The Northern Sea Route has the potential to reshape global trade flows. It offers an alternative to the current route between China and Europe via the Strait of Malacca and the Suez Canal, cutting journey times by two weeks and costs by 20%. As a reminder, blocking the Strait of Malacca, an area dominated by US allies, could hinder 90% of China’s total trade and 80% of its crude oil imports. For six months of the year, navigation through the NSR is handled by Russia, which has the world’s largest fleet of icebreakers. The volume of goods transported on this route is constantly increasing. It was around 4 million tonnes in 2014, rising to 35 million tonnes by 2021. The development plan approved by the Russian government targets 200 million tonnes by 2030.

#Gas – Will Europe go without Russian gas?

Gas prices in Europe have doubled in ten days, according to the Financial Times. These price variations reflect the uncertainty prevailing on European markets in terms of supply, despite high storage levels, and demand in Asia which remains weak. On June 15, futures contracts on the European reference market, the Title Transfer Facility (TTF), jumped 30%. Competition between Europe and Asia for liquefied natural gas will not be as intense as last year, according to industry analysts. They estimate that Europe has already reduced its consumption of gas for industry and power generation compared with last year. Despite the war in Ukraine, Kyiv continues to collect transit duties on Russian gas delivered to Austria, Slovakia, Italy and Hungary. However, given the geopolitical context, it is unlikely that these supplies will be continued beyond 2024. According to Economics Minister Robert Habeck, stopping these imports could force Germany to reduce or even halt its industrial production. TurkStream would then remain the only pipeline to supply the European continent with Russian gas. Before the outbreak of war in Ukraine, Russian gas pipelines supplied 40% of EU demand.

#Trade – Russia and Iran step up trade via the Caspian Sea

Maritime trade between Iran and Russia via the Caspian Sea has been on the increase in recent months. This sea route is of strategic importance to both countries, as it is sheltered from the eyes and influence of the West. The Americans suspect Teheran of using it to deliver weapons to Moscow. And the countries bordering the Caspian Sea, such as Azerbaijan, Turkmenistan and Kazakhstan, have neither the means nor the incentive to interfere in these exchanges. Ships crossing this landlocked sea regularly deactivate their Automatic Identification System (AIS) signals, according to data from Lloyd’s List Intelligence. In recent years, the Iranian government has invested in improving the Russian port of Astrakhan in order to circumvent international sanctions affecting the country, according to Bloomberg. The aim is to double the port’s loading capacity to 85,000 tonnes per month. The Iranian shipping company Khazar-Ship plans to increase its fleet to 27 vessels in the near future, with 15 vessels already having been integrated in 2022. The Caspian Sea is one of the main routes of the International North-South Transport Corridor (INSTC), which Vladimir Putin believes will eventually make it possible to “connect St. Petersburg to Bombay in 10 days”.

#Aviation – The war in Ukraine is redrawing the map of the skies

From the very first days of the conflict in Ukraine, Westerners and Russians have been closing off each other’s airspace. This ongoing blockade is beginning to cause problems for Western airlines as China re-establishes its air links after three years of confinement. Chinese (and Middle Eastern) airlines have the right to fly over Russian territory, unlike their European or American counterparts, giving them a significant competitive advantage. Indeed, the latter are forced to fly longer routes to Asia, increasing their fuel and labour costs. Finnish airline Finnair is particularly hard hit by these restrictions. Over the past two decades, the airline has developed Helsinki into a hub, taking advantage of its position close to efficient air routes (the Great Circle route) between Europe and Asia. Flights between Helsinki and Tokyo now take over 13 hours, compared with 9.5 hours before the closure of Russian airspace. Russian airspace restrictions are also hampering the resumption of direct flights between the USA and China. US airlines are pressuring the Biden administration to prevent Chinese competitors from using Russian airspace. According to Bloomberg, in 2019, before the pandemic, direct flights between the US and China operated by carriers from both countries averaged 340 per week. Today, there are just two dozen a week.

#Gas – Erdogan confirms his intention to turn his country into a “gas hub”

Turkish President Recep Tayyip Erdogan has just reaffirmed his intention to develop a “gas hub” in Turkey, enabling Russian natural gas to be transported to Europe. The project aims to strengthen Turkey’s position as a key player in energy distribution and allow Russia to continue delivering gas to Europe. With its gas, Moscow wants to reproduce the sales pattern of its crude oil, currently sold to India and then re-exported to Europe after refining. Indeed, it’s a safe bet that once Russian gas reaches the Turkish pipeline network, it will be difficult to distinguish it from Azeri or Iranian gas transported by the Tanap pipeline, LNG gas imported by ship or gas from Turkish offshore fields. Faced with the EU’s desire to do without Russian gas, Moscow has few options to enable it to continue selling its energy to the EU. Gas no longer flows through Nord Stream 1, and there are no plans to repair the Nord Stream 2 pipelines. Economic sanctions between Russia and Poland are blocking the flow of Russian gas to Central Europe via the Yamal-Europe axis. The war in Ukraine continues to pose a permanent risk of transit interruption via the Brotherhood and Soyuz pipelines. This leaves the TurkStream and Blue Stream pipelines, with capacities of 31.5 and 16 billion m3 per year respectively, which run under the Black Sea to Turkey. It should be noted that half of the transmission capacity between Russia and Turkey is used to transport gas to Europe, with the remainder destined for the Turkish market.

#War – “The Russians will win the war”, John Mearsheimer

On May 22, the American citizens’ organization “Committee for the Republic” welcomed John Mearsheimer for a lecture on the war in Ukraine. The American international relations specialist, who belongs to the realist school of thought, didn’t talk about the origins of the conflict, but about the current situation and his predictions. In his view, we are in a war in which Ukraine (and the West) on the one hand, and Russia on the other, see each other as an existential threat. It is therefore impossible to reach a viable peace agreement. The least likely outcome, but one that cannot be ruled out, is nuclear war. The second and more likely possibility is that Russia will win the war, without decisively defeating Ukraine. He believes, however, that Moscow will eventually conquer a large part of Ukrainian territory (the Russian-speaking part) and integrate it into Russia, while turning Ukraine into a “dysfunctional rump state”. He argues for a Russian victory on the grounds that, in a war of attrition, the most important factors are balance of resolve, demography and artillery quantity.

#Insurance – Marine insurers’ pressure on Russian oil is ineffective

A symbol of the City, Lloyd’s of London is the company that manages the world’s specialist insurance and reinsurance market. Founded in 1688, it is one of London’s oldest financial institutions, and has been active in the marine insurance sector since its inception. As early as March 2022, Lloyd’s of London declared that it would cooperate with governments and regulators to impose sanctions on the Russian state, claiming that “sanctions are the best weapon at our disposal”. While measures to cap Russian oil began around six months ago, the rhetoric is changing. Neil Roberts, a senior Lloyd’s marine insurance executive, recently published a note on LinkedIn which was highly critical of the effectiveness of the sanctions. He points out that the measures taken on shipping have had the effect of redirecting Russia’s energy flows towards Asia, resulting in “a loss of political control”. In his view, the sanctions have failed to change Moscow’s policy, and their intensification risks only the continued destabilisation of global maritime trade. For its part, the New York Times has just published an investigation detailing the techniques used by the “phantom fleet” transporting Russian oil allowing them to be insured by American companies, in defiance of Western sanctions.