Research & Insights #10

OPEC+. Despite the fact that oil prices have jumped more than 50% this year, the Opec+ group (which includes Russia) decided on October 4 to stick to the plan formulated this summer. They will only gradually increase oil production by 400,000 barrels per day each month.Major energy consumers such as the US, Europe and China are putting pressure on the cartel because they are concerned about the risk of inflation to the economic recovery. Following the news, Brent crude oil reached US$82 a barrel for the first time in three years. Oil-producing countries fear a rebound in the Covid-19 epidemic that could trigger a shutdown of the economy this winter and thus another drastic drop in oil demand. US shale producers have also warned that they will not increase their production. They are facing pressure from investors to remain cautious after last year’s price drop. A shortage of natural gas in Europe has exacerbated the tight oil market, with companies forced to turn to crude oil for power generation.

Agriculture. While Russia is currently developing a common agricultural policy with Belarus, it is impressive to see how far the country has come in 30 years on this issue. After the collapse of the Soviet Union, the country used oil money to import most of its food. A decade later, when Vladimir Putin came to power, 50% of the food was imported and “food security” became a top political priority. A program of development through national projects to stimulate investment was put in place and this policy would be reinforced following the economic crisis of 2008. In 2014, European and American sanctions caused a sharp devaluation of the ruble making Russian exports more competitive. Moscow responded with counter-sanctions, supporting its agricultural sector by banning most food imports from the West. For several years now, Russia has been among the top 10 exporters of cereal crops (barley, corn, rye, oats). But it is especially in wheat that it has established itself as a key player. From 2017 to 2019, it was the leading exporter, accounting for about 20% of the world market.

Russia-Germany relationship. Elections were held in Germany on September 26 to elect a new parliament. The Social Democratic Party (SPD) surprised everyone by winning with 25.7 per cent of the vote, while the conservative CDU/CSU bloc received 24.1 per cent, its worst result ever. The position of chancellor will most likely be held by Olaf Scholz of the SPD or Armin Laschet of the CDU/CSU bloc. German elections are followed very closely in Moscow as the prospect of cooperation between the two countries is important. Germany has become in three decades the economic heart of the EU and the fourth largest economy in the world. On October 2 German Unity Day was celebrated, marking the reunification of the Federal Republic of Germany with the German Democratic Republic in 1990. Vladimir Putin took the opportunity to reaffirm that “Germany’s unification became an important historical event that marked the end of the Cold War in Europe, as well as the beginning of a new relationship between our countries”.

Russian elections. On September 17, 18 and 19, elections were held for the Russian State Duma, the lower house. The ruling party, United Russia, achieved 49.82% of the vote, followed by the Communist Party (18.93%) and the Liberal Democratic Party of Russia (7.55%).This victory means that United Russia will have more than two-thirds of the deputies, allowing it to continue passing legislation without having to rely on other parties. Accusations of fraud were made about these elections, the most serious of which concerns electronic voting. In the city of Moscow, when results are considered without taking into account the electronic vote, the Communist Party won. When electronic voting is added, United Russia wins. According to the association GOLOS (which is not favoured by the Kremlin), several explanations of electoral behavior and sociology can explain the over-representation of United Russia votes in the electronic system. As for the most recent American presidential election, we are seeing a strong distrust of electronic voting when we are not satisfied with the result.

Research & Insights #9

Nord Stream 2. On September 10, Gazprom announced it had completed construction of the Nord Stream 2 pipeline. The $11 billion project, crossing the Baltic Sea, will allow the Russian company to send 55 billion cubic meters of gas directly to Europe each year, bypassing Ukraine.The new pipeline, which was vigorously opposed by the United States and Ukraine, is a testament to the strength of German-Russian relations. Last week, the CEO of Gazprom said they could send gas via the pipeline “by the end of the year and during this heating season”. However, Poland and Ukraine are preparing to challenge the NS2 pipeline’s adherence to European energy market rules. To promote competition, European laws require players such as Gazprom to separate their production, transit and supply activities. A German regional court recently ruled in this direction, which could force Gazprom to give up some control over the pipeline.

Natural Gas. Natural gas prices in Europe have reached new highs ($740 per 1,000 cubic meters), driving up household bills and potentially forcing some industries to ration gas in the event of a harsh winter. Three important factors have driven demand. The first is the long, cold 20/21winter in Europe and Asia, which depleted storage levels. The second is the need for China to consume ever more of this energy. With the rise in liquefied natural gas (LNG), the price of gas is now global and competition for its supply is intensifying. Finally, the demand for gas has increased due to a reduction in electricity production generated by wind power plants. Europe has indeed experienced a hot and dry summer with less wind. On the supply side, there has been a decrease in deliveries from Russia, which can be explained by its need to fill its own stocks and/or its desire to increase prices before the Nord Stream 2 pipeline comes into service. 

Inflation. Food prices are rising rapidly around the world. According to a United Nations index, food costs are near their highest level in a decade. To combat this inflation, Russia stands out from other emerging countries with its hawkish monetary policy. It has just raised its key rate by 0.25 points, for the fifth time in a row, to 6.75%. The increase in prices, particularly of foodstuffs, is a sensitive issue in the run-up to the parliamentary elections to be held from 17 to 19 September. For Elvira Nabiullina, the president of the Central Bank, it should be kept in mind that the country experienced a very long period of high inflation in the 1990s and 2000s. “Our people have only lived under low inflation for very short periods of time”, she said. It is essential to stop this dynamic quickly in order to prevent the public anticipating more inflation, and starting to stockpile goods, causing an exacerbation of the situation.

Russia-Belarus Relationship. Isolated on the international scene, Belarus continues its rapprochement with Russia. From an economic point of view, the two countries plan to introduce common tax and customs measures, coordinate their national payment systems and unify tariff regulations in the railway sector. From a military perspective, Belarus is about to purchase US$ 1 billion worth of military equipment from Russia, while joint military exercises are currently underway. Internal tensions, coupled with Western sanctions, are forcing President Lukashenko to choose between harmony with the EU or with Russia. Moscow remains very cautious on the subject and the adoption of a common currency (the Russian ruble) is not on the table for the moment. Alexander Lukashenko recently stated that Belarus will not engage in a dialogue with the West as long as sanctions are in place.

Research & Insights #8

Economic sanctions. According to a recent study published by the French Institute of International Relations, the West’s economic sanctions against Russia are not effective. Introduced in the wake of the Ukrainian crisis in 2014, the sanctions focused primarily on the defense, energy and financial sectors. The goal was to affect the population’s standard of living and put pressure on Vladimir Putin’s government and its policy toward Crimea. For Russian economist Vladislav Inozemtsev, this did not work for two reasons. First, Russians expect little from their government. They have short-term economic planning, and get used to changes in circumstances quickly, being reliant only on themselves. Second, the Russian economy is stronger than it appears. The government has mitigated the effects of sanctions by “Russifying its economy” and developing a foreign economic policy geared toward non-Western countries.

Climate change. The European Union has drafted its latest long-term budget (2021-27). It prioritizes technological progress and innovation and, in particular, sustainable energy. In July, the European Commission adopted the “Fit for 55” package, an EU initiative to impose a carbon tariff on imports of carbon-intensive products, aiming to achieve carbon neutrality by 2050. For the CEO of oil giant Rosneft, Igor Sechin, this European carbon tax could have a greater impact on the Russian economy than the sanctions currently in place. In Moscow, it is claimed that this law would affect up to 6.5 billion euros of Russian exports such as iron ore, steel, aluminum and pipes. On the European side, the law does not seem to have unanimous support. France fears the socio-political impact, especially on its automotive industry. Recall that the “yellow vests” protests emerged following a law on the increase in fuel prices.

Hydrogen. According to a draft development plan approved in August, Russia is preparing to become a major hydrogen exporter within a few years. The country wants to diversify its gas and oil revenue sources amid the energy transition in Europe and Asia. The idea would be to convert its vast natural gas reserves into low-carbon hydrogen. According to Deputy Prime Minister Alexander Novak, Russia could capture 20% of the global hydrogen market. In July, the government formed a working group of companies, research institutes and federal agencies to develop hydrogen technologies, production and trade. Russia is looking to produce a wide variety of different types of hydrogen but is focusing primarily on blue and turquoise hydrogen, derived from natural gas. The adoption of Germany’s National Hydrogen Strategy in June 2020 has arguably given even greater impetus to Russia’s ambitions to become a hydrogen exporter and preserve its position as an energy supplier.

Russia-Germany relationship. Merkel made her twentieth and last trip to Russia as German chancellor to meet with the Russian president. According to Vladimir Putin, during Merkel’s 16 years in office, the volume of cooperation between Russia and Germany has only increased, despite all the difficulties the countries have faced during this period. Germany remains Russia’s most important trade and economic partner in Europe and second in the world after China. “We have invested $9.5 billion in Germany, while our German partners have invested $18 billion in Russia,” Putin noted. The Russian president hopes that after the upcoming parliamentary elections in Germany and the change of government, the trend towards an improvement in the extent and quality of economic relations between Moscow and Berlin will continue.

Research & Insights #7

Decarbonization. The Intergovernmental Panel on Climate Change (IPCC) released a new report on Monday, August 9. It shows a faster than expected rise in temperatures and the long-term effects of increased CO2 in the air. In Russia, the government and the majority of citizens are becoming increasingly concerned about climate change. According to the Ministry of Natural Resources and Environment, the rate of warming in the country is 2.8 times higher than the global average. Vladimir Putin has recently said that climate change is partly responsible for recent forest fires and floods. Warming is also causing the permafrost, which covers 65% of Russia’s landmass, to melt, threatening buildings, roads and infrastructure. However, it should be kept in mind that warming could also bring positive effects. Recent studies (here and here) estimate that millions of square kilometers of land will become habitable and arable as a result. An ice-free Arctic could also turn the polar seas into a new Mediterranean.

US Sanctions. The Biden administration has imposed, Belaruskali, and companies with ties to President Alexander Lukashenko. This is not the first time the US has targeted a major producer of raw materials critical to the global market. Notably, Russian aluminum giant, Rusal, spent about a year under similar sanctions in 2018, sending the industry reeling all around the world. Despite these measures, there are several reasons to believe that the price of potash will not increase. First, Belaruskali exports potash primarily to China, India and Brazil. Second, given the close economic ties between Belarus and Russia, the company could simply export the product to its neighbour to be re-exported from there. Finally, American and Russian potash producers seem to be able to increase their output to compensate for the decline in Belarusian exports. Potash has no substitute and is a necessary nutrient for healthy food crops.

Dedollarization. August 4, 2021 marked the 50th anniversary of the end of the Bretton Woods System. The end of this monetary system meant that the value of the dollar was no longer based on the gold counterparty it offered, but on the confidence that people placed in it. This fiat currency system allowed the United States and the rest of the world to enjoy five decades of tremendous economic growth, coupled with an explosion of inequality, unprecedented levels of debt and trade imbalances between countries never seen before. On the occasion of this anniversary, the Russian Foreign Ministry said that it is reasonable for Russia to continue to reduce the share of the dollar in its international currency reserves and that uncontrolled dollar printing is a global problem. He considers a thorough review of the international monetary system is necessary and that a growing number of countries will reach similar conclusions in the near future.

Justice. A Russian court has found American investor, Michael Calvey, guilty of embezzlement. This decision comes at the end of a long legal process that has shaken the international business community in the country. The Moscow court judge said that Mr. Calvey and six of his colleagues from Baring Vostok, one of the largest investors in Russia, had swindled a Russian bank for $ 34 million. Mr. Calvey has always claimed his innocence and his supporters say the investigation was conducted without evidence by a politically connected rival as part of a business dispute. Astute observers said the case demonstrated the need to reform the Russian legal system, which is routinely abused in commercial disputes or to pressure rivals into divesting assets. Putin’s spokesman, Dmitry Peskov said last month that while the Kremlin was closely monitoring the verdict, the treatment of a foreign businessman “cannot have a major influence” on the general investment climate in the country.

Research & Insights #6

Inflation. On 23 July 2021, Russia’s central bank decided to increase the key rate by 1%, to 6.50% per annum. Inflation reached 6.5% year-on-year in June, according to the Federal Statistics Service (Rosstat), well above the central bank’s target of 4%. This dynamic is due to a faster-than-expected economic recovery, a shortage of labour in a wide range of industries, disruptions in production and supply chains, a surge in global commodity markets and a weaker rouble. With more than 60% of the population spending about half their income on foodprice increases are a particularly sensitive issue for political authorities. According to the estimates of the Bank of Russia, the Russian economy reached its pre-pandemic level in the second quarter of 2021 and is expected to reach a GDP growth of 4-4.5% in 2021.The Bank of Russia Board of Directors will hold its next rate review meeting on 10 September 2021.

Oil & Gas. Russia continues to diversify its economy and is not, as Joe Biden just announced, a country with only “nuclear weapons and oil wells and nothing else”. The share of the oil and gas industry in the economy fell to 15% in 2020, down from 19.2% in 2019 and 21.1% in 2018, according to the first assessment published by the Federal Statistics Service (Rosstat). For comparison, the share of oil and gas makes 50% of Saudi GDP, 14% of Norway’s GDP and 8% of U.S. GDP. These figures must of course be mitigated by lower hydrocarbon prices in 2020. The perception in Russia is that oil and gas account for about half of Russia’s GDP, but this is more likely due to the fact that fossil fuel exports account for about 50-60% of all Russian exports, Oleg Shibanov, professor of finance at the New Economic School in Russia, told Russian media outlet RBC.

Nord Stream 2. On July 21, US and Germany reached an agreement on Nord Stream 2. Joe Biden said that the project was 99% complete, and it was impossible to stop its construction. According to the U.S. State Department, the Russians are trying to use the pipeline as a “geopolitical weapon” against Europe and are aiming for “aggression against Ukraine”. To which Dmitry Medvedev replied that “if Germany depends on Russian gas supplies, then Russia depends on market prices and export volumes“. Matthias Warnig, president of Nord Stream 2 AG, said he expects construction of the project to be completed by the end of August and hopes to have it operational by the end of the year. The pipeline will deliver gas to Europe from the vast Bovanenkovo natural gas field on Russia’s northern Yamal Peninsula, which contains gas reserves of some 4.9 trillion cubic meters.

History. On July 12, Vladimir Putin published his essay: “On the historical unity of Russians and Ukrainians“.To summarize it in a few words, the Russian president began by stating that Russians and Ukrainians are a “unified people” and that their recent history is a “misfortune and a tragedy”. For him, “modern Ukraine is entirely the product of the Soviet era”. Then he added that the two countries are “natural complementary economic partners” and that “Ukraine used to possess great potential, which included powerful infrastructure, gas transportation system, advanced shipbuilding, aviation, rocket and instrument engineering industries…”. He finally warned the Ukrainian elites not to turn the country into anti-Russia by integrating NATO and by being a tool in someone else’s hands to fight against [Russia]. “The true sovereignty of Ukraine is possible only in partnership with Russia”. 

Research & Insights #5

OPEC+. After significantly closing the floodgates a year ago in response to the economic downturn, OPEC+ reached an agreement on July 18 to increase oil production. This agreement calls for OPEC+ members to increase capacity by 400,000 barrels per day each month starting in August, in order to support the global economic recovery. Oil production in Russia will reach pre-crisis levels in May 2022, the Russian deputy prime minister said in an interview with the Rossiya-24 television channel. In setting its quotas, OPEC+ faced a complex equation to anticipate supply and demand. On the one hand, the recovery of economic activity remains fragile and dependent on the vagaries of the virus. On the other, there is the likely return of Iran in the medium term as an oil exporting power. Finally, there is the discontent of major importers such as China and India who would like to see a decrease in the price of black gold.

Oil & Gas. A shortage of natural gas supply in Europe is pushing prices to their highest level in 13 years. It should be noted that a third of the gas consumed on the Old Continent is supplied by Russia. Gazprom is suspected of limiting the Europe’s supply, especially on the gas pipelines passing through Ukraine. The objective would be to put Nord Stream 2 into service at the end of the year on a buoyant market and to take advantage of the strong demand and high prices. What is certain is that Gazprom cannot be the only reason for the price increase. The cold winter has had an impact on natural gas consumption, so that stocks in Europe are at their lowest level in nine years. In addition, carbon emission allowances in the EU, which amount to more than 50 euros per ton, are encouraging buyers to switch from coal to natural gas. Globally, gas supply is limited as more and more LNG cargoes are now destined for Asia rather than Europe.

Defense. The Kremlin published its new national security strategy on July 2, 2021. It examines all types of threats and mainly those from the United States and its allies. It defines for each of them the responses to be made. For the first time, this document includes attacks against “the traditional spiritual, moral, cultural and historical values of Russia” perpetrated by states, NGOs and terrorist groups. They “have an informational and psychological impact on individual, collective and public consciousness by spreading social and moral attitudes that contradict the traditions, convictions and beliefs of the peoples of the Russian Federation.” This is the first time that the Russian national security strategy has been changed since 2015. Since then, relations between the West and Russia have deteriorated significantly.

Covid-19. Since Monday, July 19, it is no longer mandatory to present a QR code to enter a café or restaurant in Moscow. This controversial measure lasted only 3 weeks. For the mayor of Moscow, this decision follows the success of the vaccination campaign. It is estimated that 30% of the region’s population has received a first dose. The epidemic peak in late June, when there were 60 cases per 100,000 inhabitants, also seems to be over for now. The change of course is in fact mainly related to the reluctance of restaurant owners and the population to accept the strengthening of measures. Many people, especially foreigners, reported that they could not get a QR code even though they had been vaccinated or had recovered from the virus. As a result of the decline in business, more than 150 Moscow restaurants closed in less than a month.

Research & Insights #4

Covid-19. Russian authorities confirmed 21 650 new cases of coronavirus on Monday 28 June, the highest number since January. In Moscow, a record number of daily deaths was recorded at 124. This increase is due to the more aggressive Delta variant, which first appeared in India. The developers of the Russian vaccine, Sputnik V, have admitted that it may be less effective against it. To limit the rise in cases, new restrictions were introduced. Moscow requires all public sector and service employees to be vaccinated, with penalties for employers who fail to meet the 60 percent target by August 15. It will also be mandatory for anyone wanting to go to a restaurant to present a QR code proving they have antibodies. Despite free vaccines since December 2020, only 13% of Russians have received the two injections. The population’s distrust of the state and Covid-19 remains very high.

Russia-USA relationship. Following the Geneva summit, Joe Biden and Vladimir Putin agreed to restart arms control talks, establish bilateral discussions on cybersecurity, explore the possibility of prisoner exchanges and allow ambassadors to return to their respective capitals. The summit seems to have brought a little more rationality between the two leaders in search of “predictability and stability“. Despite the positive tone of the meeting, U.S. officials were quick to return to their usual habits, telling the media that they had been “clear” with Moscow, and that they had “warned it and stated their demands.” They added that all these “warnings” went along with threats: if Moscow does not accept the “rules of the game” defined in Geneva in a few months, it will be subjected to further pressure. The trip to Switzerland concludes Biden’s European tour, during which he reaffirmed U.S. leadership to its allies at the G7 in England, followed by the North Atlantic Alliance (NATO) meeting and the EU-U.S. summit in Brussels.

Russia-EU relationship. The EU heads of state and government discussed and rejected the initiative, proposed by Angela Merkel and Emmanuel Macron, to organize a meeting between European leaders and the Russian president. The idea is to establish “a dialogue to defend our interests,” said the French president, supported by Italy, which is a major investor in the energy sector in Russia. Poland and the Baltic states said that would send the wrong message as East-West relations deteriorate. “The European position is fragmented, not always consistent and sometimes unclear,” stressed Russian government spokesman Dmitry Peskov. According to the Belgian Prime Minister: “We cannot restrict our relations with and approach to Russia by solely sanctions and expulsions of diplomats. We should sit down at the negotiating table at some point”. He added: “At the same time, it is not the right time for a meeting between the leaders of the EU and Russia”.

Russian Far East. The development of the Russian Far East remains a major challenge for Moscow. Inhabited by only 6.2% of the population, this region accounts for 32% of Russia’s foreign direct investment, said Deputy Prime Minister, Yuri Trutnev. About 2,600 investment projects, with a total value of $86 billion, are currently being implemented with state support. On the military front, the government is trying to consolidate its position on the Northern Sea Route and defend its remote eastern borders, some of which are still in dispute with Japan. Moscow is gradually building, modernizing and training its Pacific fleet. As many as 20 surface warships and submarines, and about 20 aircraft of the Russian Pacific Fleet, have begun training in the central Pacific. According to Russian media, this is the largest Russian exercise in the Pacific since Soviet Union times.

Research & Insights #3

Inflation. On June 11, 2021, the Bank of Russia’s board of directors decided to raise the key interest rate by 50 basis points to 5.5 percent. Annual consumer price inflation in Russia reached 6 percent last month against the central bank’s target of 4 percent. This trend was driven by the easing of Covid-19 restrictions, which is helping the economy recover faster than expected, and by a sharp rise in global food and commodity prices. “Russia is in the group of countries that will be the first to restore their economic growth to the pre-pandemic level,” said Elvira Nabiullina, director of the Bank of Russia. Excluding restrictions on oil production and international passenger transport, output in most core industries has exceeded the level of late 2019. She added that inflation would probably only start to fall in the Autumn. The Board of Directors of the Bank of Russia will hold its next policy rate review meeting on July 23, 2021.

Digital Sovereignty. A bill is under review that would allow the Russian government to take action against Western technology companies that violate Russian laws on publishing content on the Internet. Foreign companies with a daily audience exceeding 500,000 Russian users per day will have to open a representative office or legal entity in Russia by August 1. The companies targeted are mainly YouTube and Google. If they do not comply with Russian law, they could be banned from advertising their services, hosting ads on their platforms and collecting payments or personal data. The government’s critics see these measures as a way to stifle a space for free expression. Moscow, for its part, accuses these foreign companies of censoring pro-Russian content and failing to remove content promoting drugs or suicide. Roskomnadzor (the Russian watchdog) has regularly accused Google of restricting YouTube access to Russian media, including RT and Sputnik.

Decarbonization. The EU plans to move to a carbon-free economy by 2050. The introduction of a carbon tax on imports is being prepared to achieve this goal. The measure would tax imports according to the amount of CO2 emissions caused by their production. It could have a significant impact on trade between Russia and the EU. We do not yet know the method of calculation to fix this tax but several major consequences seem likely. On the energy front, European demand for Russian fossil fuels could decline in favor of competitors whose oil production has a lower carbon footprint, such as Saudi Arabia. On the other hand, the rapid phase-out of coal use by 2030 is expected to increase demand for natural gas. Imports that require a lot of energy to transport and produce, such as metals, could also be taxed. However, Europe is expected to further increase its demand for these products in order to develop solar panels, lithium-ion batteries, fuel cells and electric cars. We will follow the evolution of this legislation closely.

Covid-19. The mayor of Moscow announced on Saturday a week of “non-working days” in the Russian capital. Non-essential workers were asked to stay at home. The number of cases of Covid-19 has reached its highest level for six months. The decision marks a change in tone for Russian authorities. “Over the past week, the situation regarding the spread of coronavirus infections has deteriorated sharply,” Sobyanin said. The order affects all employees in the Russian capital, a city of 12 million people, except for essential workers. The mayor also announced the closure of food courts and playgrounds, while restaurants, bars and clubs will not be allowed to serve customers between 11pm and 6am. So far, 12% of the population has received at least one dose of the vaccine. Vladimir Putin has repeatedly called on Russians to get vaccinated.

Research & Insights #2

Russia-USA relationship. Vladimir Putin and Joe Biden will meet in Geneva on June 16. This will be the first Russian-American summit after Putin’s meeting with the 45th U.S. President, Donald Trump, in Helsinki in July 2018. According to the Kremlin press service, the presidents will discuss bilateral ties, problems related to strategic nuclear stability, and other issues, including cooperation in the fight against COVID-19 and regional conflicts. “It is unlikely that just from the very first meeting, the parties will find common ground on the issues causing deep divisions. At the same time, it would be also wrong to play down the importance of this meeting,” stressed Dmitri Peskov, the Russian government spokesman.

Nord Stream 2. On Thursday, May 20, the Biden administration waived sanctions against the company in charge of the Nord Stream 2 gas pipeline project and its managing director, Matthias Warnig. According to the U.S. president, the project is almost complete and the sanctions are undermining U.S.-German ties. Indeed, Germany considered the project as a key pillar of its energy security. It plans to abandon nuclear power by 2022 and coal power by 2038. Germany has always viewed U.S. extraterritorial sanctions as unwarranted interference in its internal affairs. The $11 billion project will bring Russian gas from the Arctic to Germany through two pipelines with a total capacity of 55 billion cubic meters per year. According to the company, Nord Stream 2 is 95% completed.

Russia-China relationship. Vladimir Putin and Xi Jinping welcomed, via videoconference on May 19, the start of construction of new reactors at nuclear power plants in China in partnership with the Russian agency, Rosatom . In all, Russia will build four new reactors. The Russian president said these reactors would be commissioned in 2026-2028. “This will really allow our countries to make a significant joint contribution to the supply of clean energy to world markets, to the reduction of greenhouse gas emissions, to the implementation of the international climate agenda,” he added. “We can say that Russian-Chinese relations have now reached the highest level in history,” Putin further said.

Belarus. European Union (EU) leaders decided on May 24 to close their airspace to Belarus and adopt a new set of sanctions against Minsk. The Belarusian government is accused of hijacking a European airliner to arrest a dissident, Roman Protassevich, former editor-in-chief of the opposition media Nexta. “This was effectively aviation piracy, state-sponsored,” according to Ireland’s foreign minister. A Russian Foreign Ministry spokeswoman denounced the hypocrisy of Western leaders. She recalled the forced landing of the plane of Bolivian President Evo Morales in 2013, when the United States believed that the fugitive Edward Snowden was on board. The EU’s decision was followed by the cancellation of several Air France flights and an Austrian Airlines en route to Moscow, as Russia would not validate new flight plans avoiding Belarusian airspace.

Research & Insights #1

De-dollarization. Russia continues to de-dollarize its economy. The share of the country’s exports sold in US dollars fell below the symbolic 50% mark for the first time in Q4 2020. According to Central Bank data, 61% of exports were denominated in dollars at the end of 2019, compared to 48% at the end of 2020. The decline is mainly due to Russia’s trade with China, three quarters of which is now in euros. Economic sanctions put in place by Washington are prompting Moscow to limit the use of the greenback as much as possible. The shift away from dollar trade with China accelerated in 2019, when oil major Rosneft PJSC switched crude export contracts to euros. The central bank also reduced its holdings of treasury bills in its foreign reserves, replacing them with gold and euros.

History. On May 9, 2021, Moscow celebrated the 76th anniversary of victory over Nazi Germany in World War II. With more than 25 million dead, the USSR contributed greatly to the defeat of Nazi Germany. In recent years, Vladimir Putin has regularly accused the West of anti-Russian, historical “revisionism” by seeking to minimize the role of the USSR in the defeat of Adolf Hitler. In France, it is interesting to note that there has been a spectacular shift in public opinion on this historical issue. A survey conducted in 1945, 1994 and 2015, asked the French which country had contributed most to the German defeat. In 1945, a majority answered the USSR (57%), followed by the United States (20%) and England (12%). In 2015, 54% of French people consider that the United States was the nation that contributed the most to the German defeat, followed by the USSR (24%) and England (18%).

Oil & Gas. In a recent interview for Energy Policy magazine, Energy Minister Nikolai Shulginov stressed the importance that hydrocarbon energy will continue to play in the next 15 years. “It is not correct to think about abandoning oil exports. There is no need to rush to part with hydrocarbons, rather, it is necessary to develop renewable energy sources along with traditional types of energy,” he said. “It is not worth relying only on the sun and wind without newly-developed energy storage systems. This implies the need to constantly maintain a reserve of traditional generation capacities and reserves of traditional fuels,” he explained. He sees the competition between oil, pipeline gas and liquefied natural gas as opportunities that should be taken advantage of. He also called for nuclear power to be officially considered carbon neutral.

Covid-19. The Gamaleya National Research Center of Epidemiology and Microbiology, and the Russian Direct Investment Fund (RDIF), have announced that the Russian Ministry of Health has approved the Covid-19 Sputnik Light vaccine for use in the country. According to Kirill Dmitriev, CEO of RDIF, the Sputnik Light vaccine significantly reduces the possibility of severe cases leading to hospitalization, with only one injection required. According to Russian authorities, the Sputnik Light vaccine showed an efficacy of 79.4%, 28 days after administration of the shot. It should be noted that such a level of efficacy is higher than that of most existing two-dose vaccines. Sputnik Light was registered in Russia on May 6 and is expected to be marketed in one month for less than $10 per dose.