While the Russian state media relished Vladimir Putin’s photo-ops at the opening of the Crimea bridge, other developments were less hyped but more consequential to the country this week. First, Dmitry Medvedev’s Cabinet was approved, with most positions filled with the same people. Second, the Duma steamrolled the passage of the counter-sanctions bill to target not just the U.S. but also Russian citizens. Third, the recent oil prices fluctuations revealed a weaker correlation with the ruble exchange rate. >>>
Ruble vs. Oil: The gist: Oil prices are reaching a new high. On May 17, for the first time since November 2014, Brent crude was selling for $80 per barrel [RBC], with Bank of America predicting prices could spike to $100 per barrel in 2019. The increase has had a relatively small positive impact on the U.S. dollar/ruble exchange rate.
What’s the deal?
- Oil prices are rising against the backdrop of two major developments: the U.S. withdrawal from the Iran nuclear deal and the imposing of new sanctions (although not expected earlier than November 5), and the rising oil demand as recently reported by OPEC.
- Despite the dependence of the Russian currency on the global oil prices, the current spike had a limited effect due to interventions from the Finance Ministry, which has recently increased its purchases of foreign currencies. [Kommersant]
- Sergei Khestanov, macroeconomic advisor to Otkritie Broker: the share of oil and gas sector revenue in the Russian federal budget is traditionally high—officially about 30 percent, but in reality, accounting for other factors, about 60 percent. This explains the high correlation between oil prices and the ruble exchange rate.
- However, this correlation has recently become much weaker for two key reasons—sanctions (primarily the 2018 round) and fiscal policy by the Central Bank and the Finance Ministry. The latter is the result of the Russian government’s goal to decrease the budget deficit and keep fulfilling state obligations for the sake of “social stability” in the face of stagnation and inflation. Additionally, the government sees the increase in foreign reserves as a financial cushion in case of a sudden destabilization. [Republic]
- Alexander Losev, CEO at Sputnik Asset Management: The changing world order observed today marks the beginning of a new round in the fight among all leading powers for control over energy resources, which will cause an array of “cold” and “hot” conflicts. A war in the Middle East is likely to be the first such conflict.
- For Russia, the main goal should be not just a military and political presence in a certain region, but prompt development of its own economy. Otherwise, its attempts to counter the Western powers are doomed to fail. [Russian Forbes]
- Bloomberg View, Some Sanctioned Russian Firms Thrive on Adversity, by Leonid Bershidsky
- Der Spiegel, Is Germany's Special Relationship with Russia at an End? by Der Spiegel staff
- National Interest, Who Will Lead Russia after Putin? by Nikolas Gvosdev
BY M.K. BHADRAKUMAR
Amid a host of domestic development programs, a renewed effort to repair Russia’s relations with the West may be on the cards
As the United States prepares to exit the Iran nuclear deal, or JCPOA, and restore sanctions on the nation, The Cipher Brief revisits the relationship between Iran and Russia, which continue to develop deep ties that run counter to U.S. interests. How will Washington’s actions impact how Tehran and Moscow view their overlapping interests?
Russia and Iran have forged a strategic symbiotic relationship anchored in economic, defense and energy cooperation. And as the Trump administration ramps up both rhetoric and sanctions on key figures and entities linked to the Iranian regime, and threatens to impose more – Washington could end up pushing Moscow and Tehran even closer together.
- A common mission unites Moscow and Tehran, whose worldviews are shaped by the same lens. Both countries aim to thwart the expansion of western democratic systems and raise their levels of influence at the regional and global levels at the expense of the U.S.
- The U.S. could aim to drive a wedge between the two nations, thereby limiting their joint adventurism in the Middle East. However, such tactics would require Washington to engage directly with Tehran, while excluding Moscow, something the current administration has not demonstrated a willingness to do.
- "I believe that Putin has reached an unspoken deal with the Russian people, and also to a certain extent with the oligarchs, who could be much more of a threat to him than a march on the streets. Basically, Putin has told the Russian people: you sacrifice some of what is considered “personal liberty” in the west—freedom of assembly, freedom of speech, etc—and in return, I will basically make Russia great again. I will make Russia a great power."
- "The relationship between the oligarchs and Putin is one of the most difficult veils to try to penetrate in terms of what is actually going on. And I believe that to be true not just for the United States and the Western intelligence services, who may be trying to figure out what is going on, but it’s also very opaque behind the veil even amongst the oligarchs. That’s the way Putin has set it up."
- "If you were a betting person faced with the question, Is Vladimir Putin going to be able to serve out this final six-year term—if it is his last term? Is he going to make it through? I think most betting people would say yes. He’s done it before, he understands the levers of power, the Russian people understand what he’s all about. Putin continues to be very popular."
The Kudrin FactorThe breakdown: this week Vladimir Putin confirmed the composition of the new government proposed by the new/old prime minister Dmitry Medvedev. The Cabinet will now have 22 ministers and ten deputy prime ministers.
- The overall government structure will remain the same, with a noticeable change to take place in the Ministry of Education and Science (which will be split into two—the Ministry of Education and the Ministry of Science and Higher Education) and the Ministry of Communications and Mass Media (which will be reformed as the Ministry of Digital Development, Communications and Mass Media).
- Other key shifts: Konstantin Chuychenko, former presidential aide and head of the Control Directorate will replace Sergei Prikhodko as the chief of the Government Staff.
- Tatyana Golikova, head of the Audit Chamber, is to become the Minister of Health, Education and Social Policy.
- Dmitry Kozak is to remain Deputy Prime Minister, but now responsible for industry and energy. Vitaly Mutko, former Minister of Sports, Tourism and Youth Policy, is to become Vice Premier for Construction. [RBC]
- Despite speculations of a new appointment within the government, Alexei Kudrin, whom Putin asked to create a six-year economic plan, is to head the Audit Chamber.
- Sergey Aleksashenko, Brookings Institution: There will be no breakthrough with this government, but a new stabilization. It will use limited resources to minimize risks. The two strongest figures in the new Cabinet are Anton Siluanov (who is competent but relies dogmatically on fiscal discipline) and Tatiana Golikova (who proved her efficiency as head of the Audit Chamber and was brought in to lead crucial healthcare and pension reforms). [Republic]
- Andrei Perstev, journalist: Putin prefers appointing close friends to high positions, experimenting with technocrats only on the regional level. [Carnegie.ru]
- Alexander Baunov, Carnegie Moscow Center: Putin’s “May executive orders” are largely based on Kudrin’s six-year economic plan, while ignoring political reform. Why did Kudrin agree to a post outside the government? Because he likely believes that Russia’s experiment of building its own market, independent of the capitalist West, will either succeed or transform in the course of its implementation. [Carnegie.ru]
- Philip Sterkin: There’s no room in Putin’s political system for Kudrin, despite being the former’s faithful ally.Though Kudrin has vied for political reform (without criticizing Putin, of course), Putin’s overwhelming electoral victory shows that the president has no reason to change his political system. [Vedomosti]
- Kirill Rogov, political scientist: the “2024 problem” for Putin is still wide open. In essence, he has three scenarios: 1) “Central Asian” (waiving the constitutional restriction), 2) “Yeltsinist” (appointing a successor) and 3) “Chinese” (changing the Constitution to expand the Duma’s powers, which is to be controlled by one party). Given Medvedev’s reappointment, there might also be a “palliative” scenario”—a combination of the last two. [Carnegie.ru]
- Bloomberg View, ‘Who Lost Russia?’ Isn’t Just an Academic Debate, by Leonid Bershidsky
- Washington Post, Putin isn’t as all-powerful as he looks, by Jackson Deihl
- National Interest, What to Expect from Putin’s Fourth Term, by Angela Stent
- New York Times, Sergei Skripal Was Retired, but Still in the Spy Game. Is That Why He Was Poisoned? by Michael Schwirtz and Ellen Barry
The ‘Heroes’ Of The Putin Era
MBK.Media has put together a compilation of the most disapproved-of recipients of state honours throughout the Putin era. The list includes figures such as Chechen leader Ramzan Kadyrov, head of the Central Electoral Commission of the Russian Federation Vladimir Churov, Rosneft head Igor Sechin and others. >>>