"How The World Sees Russia"

Issue #11: 09/06/2018

From the Publisher:

In this issue, we dig deeper into some of the topics we have visited in prior Rossiya Scan releases.

We start by looking at Russian intervention from a more macro-view and dig into why it has been so effective.  Interference in elections by outside countries is nothing new, so we probe into to what is Russia doing differently.

Russia confirmed this week that it actually has no plans of leaving Syria. In issue #8 we expressed our doubts regarding the Kremlin’s cryptic statement of potential pullout of foreign forces from Syria. This week, not only were out doubts proved right, but we also share our own views as to why we believe Russia is going to be in Syria for the long-haul.

In this issue, we again follow up on the Oleg Deripaska saga, as well as the rumblings between the U.S. government and Petro-states. Finally, we also take a quick look at the recent meeting between senior military officials of Russia and the United States in Finland. Could this meeting mean or result anything? Most likely not, but we will have our eyes and ears out should that not be the case. 

-Rossiya Scan

Russia = “Baba Yaga" of Elections?

Since the election of U.S. President Donald Trump, the world has become obsessed with the possibility of Russian involvement in almost every election that has followed. As most informed people know, Trump is currently embroiled in an investigation that has been looking into the possible collusion of his campaign and the Kremlin. So far, “The Donald” remains intact, but other associates have fallen or are in the cross-hairs of prosecutors.

Does Russia interfere in elections? All evidence seems to suggest that it does.

Is this a unique phenomenon to Russia? Of course not.

The United States and other countries today and throughout history have used various means to influence the outcome of elections in foreign lands.

“[The United States has] been doing this kind of thing since the C.I.A. was created in 1947,” said Loch K. Johnson, a respected U.S. scholar on intelligence matters. “We’ve used posters, pamphlets, mailers, banners — you name it. We’ve planted false information in foreign newspapers. We’ve used what the British call ‘King George’s cavalry’: suitcases of cash.”

Russia also makes use of “King George’s Cavalry.” France’s Eurosceptic Front National (FN), for example, received a “loan” from a now-defunct Russian bank with Kremlin ties. The FN is not the only far-right party to show support for the Kremlin after receiving alleged funding. After all, many Eurosceptic parties from the far-right have shown pro-Kremlin colors through their various votes in the European parliament.

However, what is particularly different from the Russian approach is the obvious digital upgrade. Russia's use of hacking, troll factories and bots to promote fake or partisan stories are having an obvious effect on elections from the Americas to Europe. There is almost no need for them to even have even a contact on the ground when they themselves can simply create mayhem from Russia itself.

A key difference in the Russian approach to interference in Europe and the United States is the use of functioning democratic institutions to create such mayhem. There is no to plot a coup d’etat with disgruntled generals,  or need to clandestinely arm a group of rebels. Here, Russia is making use of Eurosceptic parties or anti-establishment U.S. populists within functioning democratic processes to weaken the position of these countries. Places that they seem to see as something that hinders their geopolitical goals.

Russia by doing this is aligning itself and providing political “ammunition” to political groups that are not representative of contemporary liberal values. Many of these groups have questionable origins and lack a complete moral compass. Creating and backing such questionable groups can have serious consequences for society as a whole, as well as backfire against Russia itself. History has shown that such unstable groups of people do not have a master, and answer only to their own problematic ideologies.

That being said, the West seems again to be caught flatfooted in creating an effective response to this Russian form of intervention. So much so that they seem more concerned in investigating and arguing over past interference instead of working to prevent future attacks.

"Worryingly, Western governments are still fighting the last war: They’re stuck in the blunt 2016 lexis of ‘fake news’,” wrote Anders Fogh Rasmusen, former Danish Prime Minister and NATO Chief, and Michael Chertoff, former U.S. Secretary of Homeland Security in a joint article for Politico.   “While current trends indicate that Russia and similar adversaries are sharpening their toolkit.”

Rasmusen and Chertoff are going to co-Chair the Commission on Election Integrity. The latter is a group that will work to curb Russian interference in elections through the lobbying of legislative branches within the U.S and EU. This is a very clean and transparent approach to the problem. However, the West will not win this clandestine war with high-brow trans-Atlantic commissions filled with former Western politicians and bureaucrats. They will also not win with speeches of so-called “rapid and unified” responses to Russian meddling as promised yesterday during the G7 meeting. The West needs to deal with it in the same effective agile fashion that Russia is using. This is the only way that they will counter the threat from this increasingly domineering state actor.

The shaming game, simply does not work with Russia. Therefore, the West needs to focus on finding real solutions, if it wants to win this fight. For starters, it must work to become strong enough to counter the attack with a proper offense, rather than solely create better defense measures.

Read more:

"The West Still Isn’t Prepared to Stop Russia Meddling in Our Elections" by Anders Fogh Rasmusen and Michael Chertoff.

"Putin’s friends in Europe" by Fredrik Wesslau for the European Council on Foreign Relations. 

"G7 leaders reject Donald Trump's call for Russia to be Reinstated to Group" by David Mercer for Sky News. 

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Russia Will Stay in Syria...Indefinitely....

In issue #8 of Rossiya Scan we discussed a puzzling message released by the Kremlin regarding the departure of “foreign armed forces” from Syria. Here, we shared our concern with this “cryptic” statement. Russia, we felt was unlikely to leave, as well as the rest of the foreign forces currently fighting there.

It turns out our gut feeling was right. This week Russian President Vladimir Putin stated that Russian troops will remain in Syria, “as long as it’s in Russia’s interest.” This is not the first time that Putin trekked back on a promise to leave Syria. On December 2017, the Russian president visited Syria secretly and told Russian soldiers that they would be soon “going home victorious.”

So, what’s the deal here? Is Russia ever leaving or do they have a long term aims of remaining there?

We at Rossiya Scan like other analysts believe Russia is not going to be leaving Syria.

“They wanted to increase their influence in the region from the beginning, and that's exactly what they are doing,” said Anna Borshchevskaya, a Russian foreign policy analyst with the Middle East at the Washington Institute for Near East Studies, in an interview with Vice. “They had no intentions to leave before. This is not a change. They just never said it directly, perhaps.”

The thing is, Russia is not after an outpost in the Middle East. It has had one for a while, and is actually strengthening the one it inherited from the Soviet Union in Syria.

The Soviet Union built a naval facility in the Syrian port-city of Tartus in 1971. The facility was given less use by the Russian navy during the turbulent 1990’s. However, since 2005 the facility has seen a steady increase in use, and been upgraded as a result to what could be referred to as a working overseas base of the Russian navy.

This Mediterranean naval port allows Russia to replenish their warships without having to cross the Turkish straits. Effectively, giving them a level of flexibility that is indispensable considering a NATO member controls the aforementioned water corridor. Because of this strategic advantage we at Rossiya Scan simply cannot envision a departure of Russian forces from Syria in the near future. The Kremlin has been there for nearly 5 decades and will remain there for decades to come, unless thrown out by an unpredictable bedlam, or a much more powerful state actor force. Neither of the aforementioned scenarios seems likely, as of now. 

Read more:

"Putin: Our troops will stay in Syria for 'as long as it’s in Russia’s interest'" by Greg Walters for Vice.

"Putin Signs Law Allowing Expansion Of Russian Naval Facility In Syria" by Radio Free Europe.

"Putin: Russia military 'will stay' in Syria - but not long-term" by Aljazeera.   

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Deripaska’s Woe’s...

After the Sanctions that hit both Russian energy group, En+ (MCX: NPL) and  Oleg Deripaska personally, commentators and analysts have been wondering as to what is to become of the fallen Russian-oligarch’s empire. The US Treasury, acquiesced to loosen the sanctions on both En+ and aluminum producer, Rusal (MCX: RUAL) in the event that Deripaska sell his stake in his company to a level below 50%. The Treasury has given him an extension until August 5th to sell down his stake from 66% to less than 50%. As you can imagine, selling such a substantial stake in a publicly traded company cannot be done on the open market without carrying the risk of a major collapse in the share price.

 This is the reason why En+ has hired the French-British investment bank Rothschild to find a buyer for the stake. The most difficult issue in this case is that the future buyer has to be vetted and accepted by the U.S Treasury. This issue has been aggravating EU countries because of the erratic and unpredictable actions of U.S President Donald Trump. Many fear that their national firms may face the risk of a fine or penalties because they operate with firms or states that are under sanctions.

The question is, what happens if now there is a sale of the shares to a third party with a Sub Rosa agreement to retransfer the effective ownership to Derispaska, or if the acquirer sells the shares back to an offshore entity linked to Deripaska?Is the U.S Treasury going to stick its nose inside of the deal? Will it sanction the firm again?

The truth is that the sanctions have not exactly worked. Instead they have created a situation where European companies, and others, which engage in commerce with Russia now have more operational risks. They have only driven prices up, and favored U.S. based firms into expanding their own business. But isn’t it time for the EU and other geographies to wake up and take a stance against the extra territorial power of the U.S Treasury? Power that it gained by hard balling the rest of the world. Perhaps, it is time.

Read more: 
"En+ hires Rothschild to sell down Oleg Deripaska’s stake" by the Financial Times. 

"US sanctions stymie Russian corporate progress" by the Financial Times. 

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What Could Happen with More Oil?

As early as Monday of this week, U.S President Donald Trump, via his usual Twitter channel urged the OPEC countries to increase production by 1 million barrels. This represents over a third over their spare capacity. Such an enormous increase could mean that the U.S is signaling that the market is unable to sustain their demand in the coming months. President Trump has also suggested that in the event the OPEC and Russia do not increase their production he may begin tapping into the Strategic Petroleum Reserves(SPR) in order to fill the void.

Despite sanctions, Russian oil and gas producers have seen a great surge in profit both due to an increase in oil prices and global demand for oil. Ahead of the OPEC talks to be held later this month in Vienna, Rosneft, the Russian energy company, has already began testing what an increase of output would do to the market.

By increasing production temporarily by 70,000 barrels a day, (and not 150,000) Rosneft is testing the market’s resilience to see how much it will affect the price of oil.  We have our eyes for how Russia and OPEC members are going to react to the U.S demand of increased production. Even more so, for what a refusal to do so would lead to. Would the U.S truly start selling off some of its SPR? Or is that just bluff? Like any good poker player knows, you have to pay to see the others hand.

Read more: 

"Trump Reminds OPEC He’s a Wild Card" by Liam Denning for Bloomberg.

"Rosneft Testing Oil Production Increase Ahead of OPEC Talks"  by Jack Farchy , Javier Blas , and Elena Mazneva for Bloomberg. 

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What Happened in Finland?

Yesterday,  U.S General Joseph Dunford, chairman of the Joint Chiefs of Staff, and Russian General Valery Gerasimov, chief of the Russian military's General Staff, met in Konigstedt Manor north of Finland’s capital Helsinki.

No news conference or statement was planned for the meeting. There thus only speculation amongst what could have been said.That being said, dialogue in these tense times is certainly a positive.

"It is really good that the United States and Russian have a dialogue in a tense international environment," said Timo Soini, Finnish Foreign Minister, according to the Finnish broadcaster YLE.

Last April, a similar encounter took place in Baku, Azerbaijan, between U.S Army General Scaparrotti, Supreme Allied Commander Europe, and Gerasimov.

What we can gather from these meetings is that Russia and the United States (as a representative of NATO as well) want and need to keep constant lines of communications as far as defense matters. Neither wants a hot-war, or misunderstandings, and both still share common enemies.

Hence, these meetings are most likely technical discussions, as well as “turf” negotiations to ensure that things do not evolve into an open conflict. We shall keep a close-eye on what happens in the next few weeks, and see if we can draw any connections between these meetings, and the current defense policies of these countries.

Read more:

"U.S, Russian military leaders meet in Finland" by the Associated Press. 

"Top Russian, NATO generals hold rare face-to-face meeting" by Vladimir Soldatkin and Robin Emmott for Reuters. 

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