Russia & CIS

Michael Kofman and I published a short analysis of the naval battle in the Kerch Strait on the Monkey Cage. Here’s a sampler.

The Nov. 25 skirmish between Russian Border Guard and Ukrainian navy ships in the Kerch Strait has escalated tensions not just between the two countries, but also between Russia and NATO.

Two Ukrainian navy small-armored boats and a tugboat attempted to cross into the Sea of Azov via the Kerch Strait. A Russian Border Guard ship rammed the tug. Russian forces eventually captured all three boats, holding them in the Crimean port of Kerch. 

This crisis kicked off months ago 

In March 2018 Ukraine seized a Russian-flagged fishing vessel, claiming that it had violated exit procedures from the “temporarily occupied territory of Ukraine.” Although the Russian crew was released, the boat remains detained in a Ukrainian port. Subsequently, Russia began to seize Ukrainian vessels for inspection, starting in May when a fishing vessel was detained for illegally fishing in Russia’s exclusive economic zone.

A new Russian-built bridge linking Crimea to southern Russia is at the center of Russia’s attempt to assert sovereignty over the entire Kerch Strait. The bridge opened in May, and its low clearance height cut off many commercial ships and reduced revenue at the Mariupol port by 30 percent. Russia has imposed an informal blockade on the remaining maritime traffic, with ships often waiting more than 50 hours to cross, and Russian authorities insisting upon inspecting the cargo. This has substantially raised transit costs — and has been slowly strangling the Ukrainian ports of Mariupol and Berdyansk.

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Depression in Russian smaller cities continues rising, while state-run major corporations continue counting their profit. Nevertheless, most people in Russia are ready to endure any hardships. As they say in Russia - anything for a life without war. The psychology of the Russian person does not change and there is no leader who can change this. Real income of the population does not grow A study conducted by Romir public opinion research centre said that the volume of extra money in the average Russian household has decreased in October by 500 rubles or 2.2 percent as compared with September. Thus, the average Russian family has 22,000 rubles ($334) to spend after all bills are paid. Residents of smaller Russian cities with the population of 100,000 have suffered largest losses: 15,100 rubles of extra money a month, which marked a decline by 1,000 rubles as compared to September. The data suggests that the real incomes of most Russians do not grow, even though officials speak of the opposite. For example, German Gref, the head of Russia's largest bank, Sberbank, stated that Russian people started raising more loans and switched from savings to consumption. In reality, however, inflation and taxes eat the nominal growth of wages. Many Russians raise new bank loans to be able to repay the loans that they had raised before. Thus, a study by Equifix Bureau of Credit Histories said that overdue debts of the population to microfinancial institutions amounted to 35.4 billion rubles, which marked a record of 40.3 percent of the number of loans in the credit portfolio. The Duma and the government are too far from people Meanwhile, the government and the Duma continue making people's wallets thinner. Having raised the value added tax (the move that will raise prices in the country on all goods and services without exception), and the retirement age, the government proceeded to introducing a new tax on those individuals who take extra work (self-employed tax). To make matters worse, the government considers taxing "unhealthy food products" (such as sausages, for example) and introducing new insurance payments.Russians can get ready for mandatory real estate insurance, a rise in property taxes in connection with the transition to the cadastral base of valuation and so on. At the same time, however, the level of unemployment in provincial Russian cities has been on the rise lately. Such a state of affairs is supposed to disseminate protest sentiments in the country, the popularity of the ruling party is supposed to decrease too. However, most people still go to the polls to vote for United Russia. Nikita Isaev, director of the Institute of Actual Economics, told Pravda.Ru that there was economic growth in Russia. "It is formed in revenues from state corporations - oil and gas, banking, financial sectors, and so on. Most of the households that receive these revenues are concentrated in cities with a population of over one million. If we talk about a possible increase in population income, one does not talk about smaller cities and towns, where people survive," Nikita Isaev said. The state of affairs in Russia will get even more dangerous in 2019, the expert believes. "I traveled by car across Russia from Moscow to Sakhalin this year and talked to people from 29 regions. People told me that they were ready to make up with an increase in the retirement age, although it was not an unfair move on the part of the government. "They told me that they were ready to live for 6,000 rubles without social benefits and grow their food - they are ready for anything for a life without war. This is what the Russian people are all about - they are ready to endure everything at all times," Nikita Isaev noted."As our economic crisis is entering its fifth year, one has to admit that economic problems do not improve the situation. One needs a competitive form of economic and political structure, as well as the political will of the leader. Russia is so rich with natural and human resources, but Russia is also a part of the world that tries to defend itself from the cruel West," Nikita Isaev told Pravda.Ru.

Unemployed Russian citizens will have to pay all insurance contributions to social funds for themselves. It goes about the fees to the pension fund, the mandatory medical insurance fund and the social insurance fund. The new rule will affect only able-bodied individuals of working age who officially do not work anywhere.The suggestion in the draft law "On Amendments to Article 23, Article 419 and Article 425 of the Tax Code of the Russian Federation" was prepared by a member of the State Duma Committee on Labor, Social Policy and Veterans Affairs Sergei Vostretsov.Under the current law, the fees to the Pension Fund, the Mandatory Medical Insurance Fund and the Social Insurance Fund are paid by the employer (for employed individuals). In total, they make up 30 percent per month and give the right to free health care services, retirement benefits, sickness allowance, maternity and child care allowance. Every month, the employer shall transfer the following taxes for every employee: 22 percent to the Pension Fund, 5.1 percent to the Compulsory Health Insurance Fund and 2.9 percent to the Social Security Fund. The personal income tax is withheld from every employee as well. Vadim Gorshenin, the chairman of the Board of Directors of Pravda.Ru found a number of interesting nuances in Vostretsov's initiative. "From his initiative, we learn that 18 million Russians of working age do not work anywhere officially. I looked into the Rosstat data (I did not find the data for 2018), and in 2017, there were 3.967 million unemployed people in Russia, which accounted for 6.6 percent of the total working-age population. As of January 2018, Rosstat announced that the unemployment rate in Russia declined to 5.2%, that is, to 3.918 million."At the same time, Russian officials announced that the unemployment level in 2018 reached its all-time low. All of a sudden, we can see Mr. Vostretsov saying that there are as many as 18 million unemployed people in the country. Let's take these figures as a basis and we will find out that the unemployment level in today's Russia actually makes up 15 percent - the highest in the 2000s. Before that, the record was 9.4 percent - 5.544 million people."There is something that I like about Mr. Vostretsov's initiative - namely the need for unemployed citizens to cover their own social welfare spending. Such a measure should educate civil feelings and understanding of what our common state budget is made of. I have long proposed to introduce this principle with respect to all citizens in general, rather than just a single category of people. On the other hand, what if such a move would double or triple the unemployment rate?"In the meantime, there is a clear understanding that the treasury is empty while oligarchs keep counting their growing dividend from privatised mineral companies."Vadim GorsheninPravda.Ru Chairman of Board of Directors  Read article in Russian

Experts believe that the rate of the Russian ruble may collapse again just like it happened during the crisis in 2014. In turn, Russian companies may deal with the shortage of currency to pay their debts on foreign markets. Pravda.Ru reported earlier that the net outflow of capital from Russia during the first ten months of 2018 made up $42.2 billion, which was three times as much as in the same period last year. This is the largest capital outflow figure that Russia has seen since 2014. Almost all of the additional income that Russia has received from growing oil prices was levelled off because of the outflow of capital, chief economist at VEB (Vnesheconombank, Foreign Economic Bank) Andrei Klepach believes. "If we look at the dynamics of the ruble exchange rate and its separation from the dynamics of oil prices, we can see that all the revenues obtained from the current oil price of $70 per barrel as opposed to the earlier predicted price of $50, have been taken out of the country. In other words, nothing of those extra revenues has settled in the Russian economy - everything was taken out," said Andrei Klepach.Valentin Katasonov, a professor at the Department of International Finance of MGIMO, told Pravda.Ru that Russian businessmen take their capitals out of Russia over the fear of economic sanctions against the Russian Federation. "They cannot handle stabs in the back that the Russian Central Bank and the Finance Ministry inflict on the Russian economy, because such things can cause their fortunes to shrink," the expert believes. The expert noted that the Russian Central Bank still violates Article No. 75 of the Constitution of the Russian Federation, which binds the bank to ensure the protection and stability of the Russian ruble. Instead, the Central Bank pursues the inflation targeting policy and has in fact abandoned maintaining the ruble exchange rate by conducting currency interventions."This may eventually cause the currency to collapse again as it happened in December 2014," said Valentin Katasonov. According to the expert, there are three constituents in the outflow of capital. "First off, this is the net outflow of private capital, the second part is the negative balance on investment income - this is what Western creditors receive as interest on loans. The third part is the growth in gold reserves."According to my calculations, these constituents make the capital outflow of $100 billion a year. Elvira Nabiullina, the head of the Central Bank of the Russian Federation, gives a much smaller amount, but Central Bank estimates are nothing but bluff. The Central Bank does not control anything. To regulate the problem, one needs to restrict the movement of capital," Valentin Katasonov told Pravda.Ru.

Moscow has strengthened its position in Luhansk and Donetsk People's Republics (LDNR) on Sunday, November 11. Now there are legitimate authorities in the republics, with which Russia can implement the project of the economic integration of the Donbass.Representatives of Western countries and Ukraine released a joint statement at the UN, in which they said that they did not recognise the elections. This was predictable and uninteresting. Everyone understands that the elections in the breakaway republics became a real step towards the recognition of the independence of the People's Republics of Luhansk and Donetsk by the Russian Federation.Moscow has repeatedly reminded that Russia was only a guarantor of the Minsk Accords. Kiev shows unwillingness to implement them and even tries to kill those who signed the documents. After the assassination of Alexander Zakharchenko, the head of the People's Republic of Donetsk, the Kremlin lost its patience. Moscow eventually agreed to hold the elections in the breakaway territories on November 11, even though Russia had earlier declined such an opportunity in 2015 and 2016 at the request of Normandy format "partners." The turnout at the election was over 70 percent. Kremlin officials said that they could "understand" the aspirations of republican residents. One can read between the lines here that Russia's economic integration with the region is inevitable. The people of the Donbass have deserved their sovereignty, and Moscow can see it. The economic integration with the People's Republic of Luhansk was launched in 2017. External management was introduced at a number of strategic companies of the republics in 2017. A separate company - Vneshtorgservis - was registered to take control of all city-forming companies working in the metallurgical, coal and chemical industries. In 2017, 14 companies resumed their work in the People's Republic of Donetsk. Their products were exported to 15 countries of the world with Russia being the largest importer - 87.5 percent. Russia also accounts for one-third of the exports of mechanical engineering products.The introduction of external management at Luhansk companies that used to be affiliated with Ukraine, made it possible to save more than 60,000 jobs, the head of the People's Republic of Luhansk, Leonid Pasechnik said. In 2018, the republic plans to launch nine more industrial companies, including the Stakhanov Ferroalloy Plant, the Luhansk Pipe Plant, the Krasnoluchsky Machine Building Plant, the Bryankovo Drilling Equipment Plant, and the Kirov Blacksmith Plant, Rhythm of Eurasia wrote. It is worthy of note that President Putin signed a decree approving the new Concept of the State Migration Policy for 2019-2025. The policy will simplify the acquisition of Russian citizenship for Russians in the Donbas. After the distribution of passports, the situation will develop according to the scenario of the integration of South Ossetia and Abkhazia. It is worthy of note that Hungary follows a similar practice distributing passports to Hungarians in Transcarpathia.In five years, Donbass will be de facto integrated with Russia economically. The legal integration is a long process, but it will accelerate with the collapse of Ukraine or its pro-Russian transformation, if this can ever be possible.Denis Pushilin gained 61 percent of the vote in the election of the head of the People's Republic of Donetsk, whereas Leonid Pasechnik won the support of 68 percent in Luhansk.We may suggest that Putin will recognise the independence of People's Republics of Donetsk and Luhansk to trigger their swift economic integration with Russia if the West continues putting the pressure of sanctions on Russia. Read article in Russian

Russian Foreign Minister Sergei Lavrov had a meeting with the administration of the Taliban* terrorist organisation in Moscow. Originally, the Russian government intended to have representatives of the government of Afghanistan involved in the talks. The latter, however, refused to talk to terrorists in the capital of Russia. Russia's Foreign Minister did not miss such an opportunity, though. After the meeting, a member of the Taliban,* Mohammad Abbas Stanakzai, set out a hope that such meetings would take place in the future as well. Daria Mitina, ex-deputy of the State Duma of the Russian Federation, granddaughter of the Prime Minister of Afghanistan in 1963-1965, shared her point of view on the subject of why the Russian government wants to conduct negotiations with terrorists. "Why does the Russian government negotiate with terrorists?""The Foreign Ministry of the Russian Federation has been trying to make representatives of the official government of Afghanistan and the Taliban* movement sit down at the table of negotiations for 20 years already. The Taliban* sees the government of Afghanistan as a puppet government controlled by the United States of America. Unfortunately, they have every reason to believe so, because Washington had provided every type of support to overthrow the Taliban* regime in Afghanistan. Former President of Afghanistan Hamid Karzai took office with the help of the United States."Ashraf Ghani, the sitting head of state, came to power in a completely different way. He took office as a result of the official election that divided the country into two opposing camps. Ghani defeated incumbent Prime Minister Abdullah Abdullah by a slender majority. It is believed in Afghanistan that the candidates won an equal number of votes and found a compromise to make Ghani the president and Abdullah - the prime minister."Nevertheless, the Taliban*, continues to believe that Afghanistan still remains in the hands of the United States. Today, the Taliban* takes more and more regions of the country under control, and Moscow is trying to make the parties to the conflict negotiate." "Still, it just so happens that Russia is negotiating with terrorists. How can it be possible at all?" "One can negotiate with anyone, even with the devil himself. The main thing here is the goal. If the goal is to resolve the Afghan issue and establish peace in the country, then the talks are perfectly justifiable. In this particular case, however, the story is quite complicated. Look at Russia's actions in Syria. Russia found there the terrorists with whom negotiations can be possible. During several years of its military presence in Syria, Russia managed to establish dialogue between the parties that used to kill each other before. Russia started the peace process in Syria, and nearly all territories of the Arab republic have been liberated from criminal groups. "In Afghanistan, everything is different, to put it mildly. Kabul believes that Russia wants to overthrow the current government in Afghanistan to put a representative of the Taliban* in power. Afghan officials do not accept the idea of Moscow's intention to negotiate with the Taliban*. The Taliban* is just like the Islamic State*, a local version of the movement. No one knows what the Taliban is going to do in the future - maybe the movement will decide to expand its sphere of influence. In general, Russia should view the Taliban as a real national threat."   *terrorist groups, banned in Russia

Russia's sanctions against 322 Ukrainian citizens and 68 companies come as a serious blow to the economy of Ukraine. The sanctions block non-cash funds, securities and property on the territory of the Russian Federation. They also prohibit the transfer of Ukrainian capital out of Russia. However, the Russian authorities have not sanctioned the Ukrainian oligarchs, who finance the war in the Donbass. Ukraine's top Russophobes - President Petro Poroshenko, oligarchs Igor Kolomoisky and Rinat Akhmetov do not appear on Russia's black lists either. Has Russia struck a serious blow on Ukraine indeed? We asked this question to experts.

I have a new article examining the impact of the Trident Juncture NATO exercise currently ongoing in Norway, published by the Kennedy School’s Russia Matters project.

This week, NATO forces are engaged in the largest military exercise the alliance has organized since the end of the Cold War and the first major Western exercise in decades to take place in the Arctic region. To be held in Norway through Nov. 23, the Trident Juncture exercise is designed to improve NATO’s ability to defend member states and to strengthen the alliance’s credibility as a deterrent force against potential aggression. While the scenario does not mention any particular adversaries, the exercise is clearly aimed at bolstering NATO defenses against Russia in the Nordic region. While the political impact will be minor by comparison to any potential permanent troop deployments, the military lessons gleaned by the exercise’s participants promise to be significant.

The exercise marks NATO’s third time holding the biennial Trident Juncture and differs from the previous two iterations in both size and focus. To begin with, it involves personnel from all 29 NATO members—a first—plus close partners Finland and Sweden. This in itself is significant: While the two Nordic states have regularly participated in NATO exercises in recent years and have invited NATO forces to take part in exercises on their soil, their participation in as large and politically prominent an Article 5 exercise as Trident Juncture highlights how far both have gone since their political decisions to enhance defense cooperation with NATO. The 2018 exercise is not only much bigger than the 2014 and 2016 iterations, which also focused on preparing NATO’s rapid reaction forces to counter Russian aggression, but differs significantly in its primary focus on field exercises instead of command post exercises.

There are 50,000 total participants, including 20,000 from the ground forces, 24,000 from naval and marine infantry forces, 3,000 from air forces, 1000 logistics specialists and 1300 command personnel.  The United States has provided the largest contingent, including the Harry Truman Carrier Strike Group, the Iwo Jima Marine Expeditionary Strike Group and over 18,000 troops. Preparations, including deployment of forces to the exercise area, began in August. The active phase of the field exercise began on Oct. 25 and will continue through Nov. 7, to be followed by a command post exercise in mid-November.

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Russia imposed economic sanctions against 322 Ukrainian citizens and 68 companies. The Kremlin hopes that the sanctions will help normalise Ukraine's relations with Russia. The decree to impose sanctions against Ukrainian natural persons and legal entities was signed by Russian Prime Minister Dmitry Medvedev to counteract unfriendly actions against Russian citizens and organisations.Russia will thus freeze bank accounts, securities and property in Russia for individuals and legal entities of Ukraine. In addition, it will not be allowed to withdraw capital outside Russia. The sanctions apply to judges of the Constitutional Court of Ukraine, deputies of the Verkhovna Rada of Ukraine of the 8th convocation, major Ukrainian entrepreneurs, officials of the presidential administration of Ukraine, heads of executive bodies and large Ukrainian companies, legal entities controlled by Ukraine's largest businessmen.Russia's sanctions will in particular affect Ukrainian MP Anton Gerashchenko, the leader of the Batkivshchyna party Yulia Tymoshenko, former head of the Majlis of the Crimean Tatars Mustafa Dzhemilev, chief military prosecutor of Ukraine Anatoly Matios and the son of Ukrainian President, businessman Alexei Poroshenko. The sanctions will also be imposed on chemical company Ukrhimenergo, located in the Luhansk region.Russia may lift the sanctions in the event Ukraine lifts its sanctions against Russia. Reportedly, however, Russia's sanctions list does not include Ukraine's wealthiest man Rinat Akhmetov, whose fortune was evaluated at $5.5 billion according to Forbes magazine. Akhmetov's key industrial assets are concentrated in the Donbas, from where he comes. His companies provide electricity and heat to most of Ukraine's settlements.The list of Russia's sanctions against Ukraine does not include Ukrainian President Petro Poroshenko and Prime Minister Vladimir Groysman. The sanctions will not affect businessman Igor Kononenko - Poroshenko's right hand and his main business partner. Poroshenko's confectionary holding Roshen does not appear on the lists either. Introducing retaliatory measures against Ukraine, the Kremlin expects Kiev to show political will to normalise relations with the Russian Federation sooner or later, presidential press secretary Dmitry Peskov told reporters.When asked about the absence of Ukrainian president on Russia's black lists, Peskov said that presidents usually are not included on sanctions lists as it would be off the scale, Putin's official spokesman said. Ukraine imposed sanctions against dozens of Russian citizens after Russia reunited with the Crimea in 2014. Ukraine has been expanding its restrictions against Russia afterwards. In May 2018, the list contained the names of 1,748 Russian individuals and 756 legal entities. They are Russian MPs, Russian political parties, businessmen and their companies.

German news agency DPA, citing sources, tweeted that Merkel wanted to remain chancellor

Last week, US National Security Adviser John Bolton visited Russia and met with President Putin

The head of state cut the ribbon symbolizing the opening of the road

The town lies in an area marked by poor security deep in the desert

Azerbaijani Foreign Minister Elmar Mammadyarov met with his Turkish counterpart Mevlut Cavusoglu in Istanbul Oct. 29, AZERTAC reports.

President of Azerbaijan Ilham Aliyev has extended condolences to U.S. President Donald Trump, AZERTAC reports.

The second round will be held in Georgia not later than on December 1

The construction of the Flag Museum started this March and was completed in October

The head of state cut the ribbon symbolizing the opening of the center

The driver of an Armenian MP was found dead Saturday in Yerevan, Armenia, local media reports.