September 19, 2014

The Russian Background for the EU, US and Ukraine's Sanctions

About disastrous (from zero GDP growth rate in this year — to negative index numbers in the short and mid-term) for the Russian economy forecasts of the leading banking, financial, economic and analytic structures has already been written enough. Evolution of the West's sanctions towards the Kremlin militarism and its minions in the Donbas to the level of “3 +” is once again forcing Russian oligarchs to reflect on consequences of the mad aggressive policy of Vladimir Putin.

It is clear that the marginal “national-conscious” media and the zombie electorate are happy or are forced to be happy with “non-acceptance” of brand clothes and western food. But Russian bankers, representatives of high-tech industries, science, agricultural sector and even officials understand the far-reaching negative consequences of restricting the access to Western technologies, capital and markets. Not ready to share the fate of the “punished” Russian leader are his “allies” — the leaders of Belarus, Kazakhstan, China, India, Brazil and Uzbekistan. Since all of them are well versed in the basic laws of the international economy and processes of thinking of a mentally healthy person.

Corresponding economic ministries, departments and state-owned corporations of the Russian Federation point out that the main outcome of the sanctions imposed by Western countries against the Russian Federation within the framework of the so-called first and second levels – is strengthening in the Russian economy of sure-footed negative trends. This greatly complicates the Russian government's work on establishing effective strategic planning and management of public social and economic processes, introduction of Putin's so-called “May” decrees of 2012, as it narrows the field for domestic political maneuvering. In particular, we mean here the quarterly slowdown in economic growth (at least by 1 % officially), production's balancing on the verge of technical recession, decrease of the volume of international reserves of the Central Bank of Russia by 31.3 billion US dollars within the first half of the year, combined with the outflow of foreign capital (about 80 billion US dollars since the beginning of the year), which significantly worsens investment opportunities for implementation of programs to replace imports that are considered high priority among the priorities for the military-industrial complex, missile, aircraft, shipbuilding, nuclear-industrial complex.

Thus, due to the sanctions of the first and second levels, the minimum amount of direct and indirect losses for the Russian side is already more than 130 billion US dollars. At this, during the first six months of this year, the growth of prices for food and housing and communal services has led to a rise in domestic risks to the stability of the ruling regime, including slowing down, especially at the regional level, of the rate of introduction of Putin's social initiatives and growth of the capacity of the potential for conflict between financial and industrial groups competing for influence on the President of the Russian Federation.

Dmitry Medvedev's government has completely lost its independence in the preparation and adoption of anti-crisis decisions
Dmitry Medvedev's government has completely lost its independence in the preparation and adoption of anti-crisis decision

Against the background of the above-mentioned negative processes in the Russian economy, a key task of the Russian government has become preventing the reduction of real incomes of the federal budget, support to industries-drivers of growth in industrial production and introduction of social and infrastructure projects in the occupied Crimea. In such a state of affairs, Dmitry Medvedev's government has completely lost its independence in the preparation and adoption of anti-crisis decisions, having become a purely technical body to implement the instructions of the Presidential Administration of Russia. Consequently, the activities of the Russian government in the last six months, for the most part, had illogical character from the economic point of view. And, since the stage of their formation during March and April of this year, they have been showing a shift to manual control of the Russian economy in the situation of leading the aggressive policy against Ukraine and the West's appropriate respond to it.

New EU's sanctions against the Russian Federation
New EU's sanctions against the Russian Federation

Orientated to obtain the effect within the medium term, the United States and the EU's sector sanctions of the third level, concerning the main donors of Putin's regime (gas and oil monopolies, the six largest Russian banks, defense industry concerns) during 2014-2015 will constitute most serious challenges for the Russian economy. In particular, the following is forecasted:

  • - limiting the access of Russian banks and companies to foreign capital markets, causing urgent need to provide assistance to these banks to maintain liquidity (taking into account the paying by the “Sberbank of Russia”, VTB, “Gazprombank”, WEB, “Bank of Moscow” and “Russian Agricultural Bank” in 2014-2015 of the foreign debt under current liabilities in the amount of about 66 billion US dollars).
  • additional slowdown of economic development of the country by 0.7 % due to problems in the banking sector. Experts believe that the Russian government will be able to provide banks with refinancing only if the sanctions last less than a year, and the fast reorientation of the Russian banking sector to other markets, especially those of Asia, is extremely difficult because of the high level of funding and poor conditions for the loan. As a result, by the end of this year, capital outflow from Russia could exceed 200 billion US dollars;
  • the expected reduction by these banks of the volume of private and corporate lending (will result in losses at the level of 0.5 % of GDP);
  • extremely high are risks for “Rosneft”. In December of this year and February 2015, it has to pay off 26.5 billion US dollars borrowed for the purchase of TNK;
  • suspension of the development of the Arctic shelf, reducing the range of foreign companies' invitations regarding cooperation in projects to develop new hard to reach areas, decline in production of energy carriers (due to the use of obsolete technologies and focusing on extraction of energy carriers from aging fields);
  • decline in the output of Russian oil in volumes up to 10-20 million tons per year. Now the federal budget revenues of the Russian Federation by means of the tax on mining, export customs fees and extraction royalty tax, account for almost 50 % of total budget revenues. The effect of the sanctions could lead to the destruction of the Russian Federation's plans to increase the amount of energy carriers production by 5-10 % (or by 26-52 million tons per year). This threatens the Kremlin with the loss of the most resistant source of funding for priority national projects and programs, military ones included;
  • additional acceleration of inflation (by 1-1.5 %) and decline in the volume of retail trade (at the level of 0.2 % of GDP);
  • failure of the government of the Russian Federation (despite its numerous optimistic statements about the enormous potential of the Russian agrarian sector and willingness of a number of countries to replace European and Ukrainian agricultural products) to ensure adequate food supply for the population. Already, Moscow had to postpone the meeting of agriculture ministers of SCO member states from 2015 to 9 October 2014, in order to neutralize the influence of the “new geopolitical situation” (sanctions) through the supply of food products from these countries. Besides, particularly important for food and bio-security of the Russian Federation is the problem of vaccines for the prevention of disease in pig and poultry farming, where medicines of the Russian production make only 30 %, and their share is decreasing.

And that's just the “starting” list of possible multi-billion dollar losses of the Russian economy.

Groupings in V. Putin's environment
Groupings in V. Putin's environment
Collage "Borisfen Intel"

Despite the influence of the “hawks” from Putin's environment, belonging to the so-called “power unit” (S. Ivanov, I. Sechin, S. Shoigu, N. Patrushev, V.Gerasimov, V. Yakunin), insisting on military methods of solution of the “Ukrainian question”, on expansion of the territory controlled by the self-proclaimed DPR and LPR, and on ensuring the survival of “Novorossia” (“New Russia”) through the creation of a land corridor between mainland Russia and the Crimea through the coast of the Sea of ​​Azov, representatives of the “economic bloc” (A. Miller, G. Gref, A. Kudrin, A. Voloshin, Rotenberg clan, M. Fridman), keep calling on Putin to take into account when making strategic decisions in the Ukrainian direction, possible negative economic consequences for the Russian Federation, primarily associated with imposed by the West large-scale sector sanctions, especially in case of recognition of Russia as the aggressor.


Ivanov Sergey Borisovich — Chief of the Presidential Administration of Russia, a permanent member of the RF Security Council.

Sechin Igor Ivanovich — president of “Rosneft”, Chairman of the Board of Directors of the state-owned “Rosneftegaz,” the former Deputy Chief of the Presidential Administration of Russia, the former Deputy Prime Minister of the Russian Federation.

Shoigu Sergey Kuzhugetovich — Minister of Defense of the Russian Federation. General of the Army, Hero of the Russian Federation.

Patrushev Nikolai Platonovich — Secretary of the RF Security Council, General of the Army (11.07.2001), Hero of the Russian Federation (2001).

Gerasimov Valeriy Vasilyevich — Chief of the General Staff of the Armed Forces of Russia, First Deputy Defense Minister of the RF, General of the Army.

Yakunin Vladimir Ivanovich — President of the “Russian Railways” OAO

Miller Alexey Borisovich — Chairman of the Board of Directors, Deputy Chairman of the Board of Directors of “Gazprom” OAO.

Gref German Oskarovich — President and Chairman of the Board of Directors of the Sberbank, a member of the Board of Trustees of the Russian Council on Foreign Affairs, Chairman of the Board of the Center of the Strategic Development, a member of the Board of Directors of Yandex.

Kudrin Alexei Leonidovich — Minister of Finance in the Russian government (2000-2011), a member of the Presidium of the Economic Council under the President of the Russian Federation, Senior Researcher of Timur Gaidar Institute for Economic Policy

Voloshin Aleksandr Staliyevich, former Chief of the Russian Presidential Administration, a member of the Board of Directors of Yandex.

Rotenberg Arkadiy Romanovich — Russian businessman, a friend of the President of Russia Vladimir Putin. He considers oil and gas construction as priority​​. According to Forbes, over the past five years, the companies associated with Arkady Rotenberg, received state orders for more than $ 1 trillion. His brother — Boris Rotenberg, a businessman, manager, co-owner and a member of the Board of Directors of SMP Bank “Severnyi Morskoy Put”(“Northern Sea Way”), Vice-President of the Russian Judo Federation, President of the FC “Dynamo” (Moscow).Rotenberg brothers are owners of the company “North European Pipe Project.”

Fridman Mikhail Maratovich — a co-owner of the “Alfa-Group” Consortium and the oil and gas company “TNK-BP”, a member of the Supervisory Board of Directors of VimpelCom Ltd.

During personal meetings with the President of the Russian Federation, influential businessmen remind him that they have kept given to V. Putin at some point word to return their capital to Russia. But they point out the trend to further decrease of their fortunes amid uncertainty with options for normalizing the situation in relations with Ukraine and the world. In the context of subsequent scenarios of the development of the situation around “Novorossia” (“New Russia”), they believe that it is inappropriate to implement the “Crimean scenario” in the Donbass, as this would lead to the collapse of the Russian economy and further confrontation with the United States.

So, taking into consideration transformation of the risks for the Russian economy from the effects of the West's current range of sector sanctions into real threats to its economic security, already in 2015, the official Moscow may face problems of loyalty of the Russian oligarchy and persistent deficit of financial and human resources, accelerated depreciation and withdrawal of basic funds, gradual degradation of infrastructure and magistral communications.

Let's hope also that the restriction by the West of supplies to the RF of dual-use goods and an embargo on trade in arms and military technology will directly tame the Kremlin's appetites regarding the plans for disintegration and economic exhaustion of Ukraine and formation of the zone of a long-term “frozen conflict”.

Elements of sobriety will be observed among V. Putin's “allies”
Elements of sobriety will be observed among V. Putin's “allies”
Колаж "Борисфен Інтел"

Elements of sobriety will be observed among V. Putin's “allies” as the logic of the Russian leader's actions can now be understood only by the KGB men, lumpenized masses and great-power intellectuals. The Kremlin's propagandists' demonstrative playing on support to Scottish, Catalan, North Kazakhstani and “Novorossian” separatism will only fuel domestic Russian centrifugal challenges and strengthen distrust of neighboring states to the White-Stoned (old poetic nickname of Moscow).

Thus, A. Lukashenko is seriously concerned with possibility of repetition of the “Ukrainian” scenario in Belarus by a “nomenclature coup” and establishment of “puppet” government in Belarus to initiate the country's “full” integration into the RF. Formation of such a position of the official Minsk is influenced by the presence in most of the central government bodies of the Republic (especially in the armed forces and law enforcement agencies), and in some regions of the country of a powerful pro-Russian lobby and a large number of openly pro-Russian officials, the growth of political and economic pressure from Russia on Belarus government up to making Belarus participate in a possible “peacekeeping operation on the territory of Ukraine,” being not interested in spreading of the West's third stage of economic sanctions against Russia onto economies of other countries of the Customs Union, the desire to stabilize the situation in Ukraine in order to maintain and expand in it markets for Belarusian production.

Kazakhstan's leadership is not trying to change the format of relations with Ukraine either, showing interest in maintaining a constructive relationship with the new Ukrainian government, as well as planning to expand the bilateral industrial cooperation in rocket engineering, space exploration, and so on. Besides, Kazakhstan's economy is directly affected by Western sanctions and the response of the Russian Federation to the rise in prices of food and inflation, reduction of imports and transit through its territory of goods Kazakhstan needs, as well as the negative impact of Russian sanctions on the negotiations on Kazakhstan's joining the WTO.

Taking into consideration the “not clear” position of the President of Kazakhstan regarding the Ukrainian-Russian conflict, V.Putin personally has warned N. Nazarbayev that in case of not supporting the Kremlin's policy in the Russian-Ukrainian conflict, official Moscow would not support him or any of his family members as candidate for the next presidential election in 2016. Against this background, a serious concern for the official Astana is the possibility of implementation in the north of Kazakhstan of the “Crimean scenario” (implementation by pro-Russian separatists of puppet projects like “South Siberian Republic”).

Unjustified, in our opinion, is V. Putin's hope to change the international situation, even with the efforts of the Kremlin confidants among individual figures-“peacekeepers” from Slovakia, the Czech Republic, Hungary, Austria, Cyprus, Spain, Portugal, the Netherlands, Denmark, Finland, Luxembourg. Apart from the suspension of Russia's participation in the G-8, there continues the debate about the advisability of inviting the President of the Russian Federation to the summit of G-20, scheduled for November of this year in the Australian city of Brisbane.

It is worth to hear good advice and conclusions of experts from within the Putin regime — A.Illarionov, A.Koh and A.Shipilov. They believe that Ukraine should join strengthening of anti-Putin and anti-war sentiment in the Russian society, not only through imposing sanctions, but also through formation of such international legal conditions where the load of the renewal and maintenance of rebellious districts of Donetsk and Luhansk regions and refugees will fully fall onto the shoulders of the Russian federal and regional budgets. Now Russia is hardly able to feed yet another hotspot.

It is also advisable to submit to the 69th Session of the UN General Assembly, scheduled for September 22-26, under the chairmanship of the United States, the question of depriving the Russian Federation of the right of veto in the UN Security Council (first of all on the Ukrainian question). And also to initiate the procedure of depriving Russia of the status of a permanent member of the UN Security Council, as a state that over the past six months has been systematically violating the basic principles of peace and security in the world, has occupied and illegally annexed part of the territory, and continues to threaten the territorial integrity and sovereignty of Ukraine. This will provide an opportunity to unblock the question of recognition of Russia as an aggressor (based on UN General Assembly Resolution of 14.12.1974) and to use against it the measures under Chapter VII of the Charter of the United Nations (action against threats to the peace, breaches of the peace and acts of aggression).

Despite the mobilization by D.Kiselev of Putin's “nuclear” electorate about the “global conspiracy against Russia”, such an initiative would compromise some Putin's active foreign supporters and generate significant benefits in the political, legal and information countering the aggressor state.