"How The World Sees Russia"

Issue #23: 09/01/2018

From the Publisher:

What are the reasons behind Russia’s decision to have the largest military exercises since the Cold War? Why is the Russo-Israeli relationship essential to Russia’s dominance in the Middle East? How are Russian companies continuing to operate under a sanctions infested climate? Is the EU actually showing signs of developing its own independent strategy towards Russia?

These are the main questions we asked ourselves while putting together this issue. The answers to them are complex, and we have touched upon them in prior issues. Sadly, we have no silver-bullet answers, but we continue to at least try and provide you with a sharper lens.  One that will help you make sense of today’s political, and economic conflicts between the West and Russia. 

This can be a difficult task. But as we continue to follow all that is happening, answers are arising. We can comfortably say that there is no grand plan, just goals, actions and reactions. Life moves forward, and skirmishes won, or lost.

Russia continues to make moves, and the West as well.  Although different, all the players within this game are ultimately similar.  Each is deciphering its own interests, and acting accordingly as soon as it does.

Russia knows what it wants...the U.S knows what it wants... so does Israel...the UK to an extent... and the EU increasingly. Things are starting to shape up, and perhaps even clearer. 

Let’s read on…and try to make sense of a few things…

-Rossiya Scan

Why is Russia Flexing its Military Muscle?

This past week, Russian Defense Minister Sergei Shoigu announced that in September, Russia would be carrying out military exercises with China, and in the process mobilizing approximately 300,000 troops and 1,000 aircraft.  These exercises are being called the biggest in Russia since the height of the Cold War.

“Imagine 36,000 tanks and armored personnel carriers all moving at the same time,” said Shoigu in a statement. “This will all be tested under conditions as close as possible to war.”

The so-called Vostok-2018 exercises, will span from the Ural Mountains to the Pacific coast. The exact dates have been penciled as September 11th to the 15th. It is estimated that a third of the Russia’s soldiers are going to take part.

Kremlin spokesman Dmitry Peskov emphasized that the exercises are necessary for Russia’s national security. Further citing the “current international situation” which he described as, “often quite aggressive and unfriendly to [Russia].”

These exercises are the latest uptick on the ongoing “saber-rattling” between the West and Russia.

“This is a PR coup from Moscow to showcase large troop displacements and preparedness,” said Mathieu Boulègue, a research fellow in the Russia and Eurasia Program at Chatham House, according to France24.

While another Chatham House fellow, Keir Giles, believes the exercises are a manifestation of Russian paranoia. Insisting, that the Kremlin wrongly believes that the West wants it weakened, and washed-out.

“Nothing could be farther from Western intentions,” said Giles to France24. “A destabilized Russia is the last thing the West wants."

That being said, the West’s sanctions, NATO’s ongoing expansion plus joint exercises in the Baltic, and Norway do give Russia reasons to feel cornered. For every action, there is a reaction, and the West is familiar enough with Russia to expect a response.

Hence, some, say that this uptick should also be seen for what it is functionally. The latter being an actual preparation for war.

‘[These maneuvers are aimed] partly at showing our preparedness and partly to increase our actual readiness for war,” said Vasily Kashin, a senior fellow at the Institute of Far Eastern Studies of the Russian Academy of Sciences, in an interview with Bloomberg. “The situation is bad.”

At Rossiya Scan, we see these exercises firstly as a showcase of Russia’s military capabilities, but also a sign that that Moscow and Beijing are strengthening their ties. These exercises are being done because NATO does the same, and vice-versa.

Could a “hot-war” happen? Unlikely, because it’s fun to “play war,” but not to actually have one. Especially one against a comparable force that can inflict massive deaths upon your military, and general population.

For now, Russia and NATO are likely to continue to have their ongoing pissing match. At the end of the day, both have little interest in actually fighting each other. Such a fight would simply not be as “fun” as the military campaigns both have waged against weaker states, or non-state actors, or the glorified “paint-ballesque” training exercises that they have been having on a yearly basis.

Read more: 

"Russia to Stage Biggest Military Exercises Since the Cold War," by Henry Meyer and Ilya Arkhipov for Bloomberg.

"Sensing Threats from the West, Russia Prepares to Flex Military Muscle," by Khatya Chhor for France24. 

"300,000 troops, 900 tanks: It’s called the most massive Russian military exercise since the Cold War, and China’s role is growing," by Todd South for the Military Times. 

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Russia and Israel: “Comrades” with Benefits...

Some of the most important truths in life seem conflicting on the surface. They may seem futile, yet experience proves them to be obvious over and over again. It isn’t until you look a bit deeper, beneath the surface of these contradictions, that the real grains of wisdom can be seen.

As discussed in previous issues of Rossiya Scan, Israel and Russia have an interesting alliance. One that allows Russia to play the role of broker in the region, and whose existence is indispensable for the aforementioned position. Without Israel, Russia would have as much pull as the U.S. In other words, it would not be a broker, but merely an outside force with an obvious agenda and lots of blunt instruments. Something that would not allow it to have the unparalleled level of influence that it now enjoys in the region.

Russia can seem as an unlikely comrade to Israel, taking into account their friendship with Syria which has always been a fierce enemy of the Jewish state; and Iran considered to be the greatest threat to Israel’s existence. However, Russia has proven to make friends under the most unusual circumstances; and Israel to be cunning in its diplomatic tactics, positioning itself strategically with the allies it will need in the future.

In the 1980’s Russia had an openly anti-Semitic Soviet leadership, but ever since, a lot has changed and has drawn both countries closer. The Jewish Russian diaspora in Israel is over 1 million people (impressive for a country of 8.85 million inhabitants), the Defense Minister of Israel Avigor Lieberman is from Moldova (ex-URRS) and his father fought with the Red Army against the Nazis (this common ground helped opening a smooth line of communication between both Defense ministries), Israel has opposed sanctions imposed on Russia for the invasion of Ukraine; and blocked the sale of weapons to Ukraine after 2014 to avoid infuriating Russia, preserving an alliance which Israel has worked hard to establish.

Furthermore, last May, Israeli Prime Minister Benjamin Netanyahu attended Russia’s Victory Day parade in Moscow as one of two guests of honor (whilst simultaneously Israel bombed Iranian targets in Syria, perfect timing). This reaffirmed the distinct friendship between the two nations, despite Russian tension with the U.S, which is Israel’s most important ally.

As stated before, this relationship is ultimately based on Russia’s position as power broker in the Middle East; because of their access to all factions in the region, plus the mutual respect that Russia and Israel hold for the other.

Russia has Tehran's ear, which is a crucial channel for Israel to communicate its warnings to Iran. On the other hand, Israel has the U. S’s ear, which is also an essential line of communication for Russia. Especially now that Russia feels the pain domestically of the economic sanctions imposed on them.

To conclude, we would also like to highlight that Israel is the most powerful country militarily in the Middle East. If ever threatened, Israel reacts, and attacks. It wouldn’t for a second doubt in engaging militarily with Russia in the region if it deemed it necessary for its survival as a state, and to maintain its position in the Middle East. It’s a country of warriors, and most of all survivors. Such a scenario, although highly unlikely, would seriously hinder Russia’s influence in the region. Even a verbal spat between both, would once again leave a window of opportunity for the U.S to recover lost ground in the Middle East. Russia does not want the U.S. to regain any lost influence, and will act accordingly to maintain the new status quo.

Read more:

“Russia and Israel: Friends with  benefits,” by Stephen Blank for the Hill. 

“Russia and Israel: The unmentioned relat ionship,” by Stephen J. Sniegoski for the Unz Review.

“Russia’s Unspoken relationship with Isr ael,” by Andrew Korybko for Global Research.

“Israeli-Russian Relations: Respect and Suspect,” by Eran Etzion for Middle East Institute.

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Keep Calm...Russian Businesses are Carrying On…

Ever since March of this year, there has rarely been a moment in which the topic of sanctions against Russia has not been a major point of discussion as far as global business, and politics. Last week, the U.S implemented a new set of sanctions. Moreover, there are still bipartisan discussions in the U.S Congress on further sanctions.

Yet how effective are these sanctions going to be?

As we have discussed in prior issues, it has been proven that sanctions are generally ineffective as far as their endgame goals. They almost never yield the desired effect, and the parties affected usually adapt to the circumstances.  The fact is though, the U.S does not seem to be fully committed to increasing the sanctions pressure on Russia due to the systemic effect that this would have on global markets. For example, after the sanctions on Rusal (MCX: RUAL), aluminum prices worldwide soared, and there has been a fear of glut in supply.

The world is too entangled to be able to lose one of its major purveyors of commodities. There also seems to be a growing tire in Europe of U.S President Donald Trump’s erratic policies that touch both friend and foe.

On another note, the U.S and the UK are pushing for sanctions because their trade with Russia is limited. Whereas continental Europe is getting ever more reluctant. Especially Germany, whose trade with Russia is substantial. As Heiko Maas, German foreign minister stated this week: "It is unacceptable to try and influence European energy policy by way of sanctions." Construction has also begun on Nordstream 2 off the coast of Germany. The EU’s largest economy is looking out for its energy needs, and does not want to be collateral to conflicts between Russia and Ukraine. EU countries do not (and should not) wish to follow the U.S’s lead. The U.S's interests in this conflict are not fully aligned with the EU's.

Just as sanctions are hitting Russia again, their largest petrochemical firm, SIBUR, has recently announced its desire to move forward on an IPO. The project would be to float anywhere between 10-15% of the company at a price of $2-2.5BN. This would place a value on the firm in excess of $20BN. The previous record for a Russian company floating was Rusal when they raised $2.24Bn in 2010. This would be the largest IPO of a Russian firm after the 2007 IPO of VTB Bank (MCX:VTBR).

Even tough sanctions have not directly impacted SIBUR, two of its major shareholders (who own a combined 20.9% of the company) are on the sanctions list. The majority of shares sold for this flotation would come from the majority shareholder Leonid Mikhelson. Instead of the sanctioned parties, Kirill Shamalov and Gennady Timchenko.

Additionally, it will be interesting to watch how investors are going to receive Rosneft’s (MCX: ROSN) change in business strategy. The state-controlled oil company announced that it would stop “empire building.”  In other words, cease its growth through acquisitions model. It is thus now focused on consolidating, and paying off its debt.

Rosneft is by far Russia’s highest market cap firm, and is valued in excess of $63BN. Igor Sechin, the firm’s CEO, has announced a massive $2BN buyback plan, as well as an increase in dividend payments to 50% of the profit. Now as some analysts have stated, this new investor-favorable policy may be less about wooing minority shareholders, and more about pleasing its core (e.g. investors and management). Perhaps, however, for once, the interests of all parties are actually aligned.

The take away here is that despite sanctions, Russian businesses have adapted and soldiered on.  Its major corporations are still making profits, and doing fairly well.

Read more: 

"Why the US will Keep Russian Sanctions on Simmer not Boil," by Stratfor. 

"SIBUR Close to Making Decision on IPO," by Henry Foy for the Financial Times. 

"Nord Stream 2 construction begins in German Waters Despite Threats," by Tobias Buck and Henry Foy for the Financial Times. 

"Investors Buy Into Rosneft's Change of Tack," by Henry Foy for the Financial Times. 

"Russia's Rosneft says Approves Share Buyback Programme," by Reuters staff. 

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Is a Rapprochement Near?

"The secret of politics? Make a good treaty with Russia." - Otto von Bismarck, Prussian Statesman 

Never has this quote been more true, and crucial, for leaders of the EU.

As German Foreign Minister Heiko Maas stated, the U.S should not try to influence the European energy policy by sanctioning projects from Russia. The fact is, that Germany and Russia have been working together for decades in an efficient manner.  The U.S looks to further sanction Russia and block Nordstream 2. Let us not kid ourselves though, this is not some ploy to install justice, and is all about business. The U.S basically sees a massive market into which they could export their liquified gas.

Earlier this week French President Emmanuel Macron, during a speech in Helsinki, gave way to a Bismarckien realpolitik stance. He states that the EU should take a more realistic stance on its ties with Russia. For a long time the EU has been dependent on the U.S for its security. Even though some of aspects of NATO remain relevant, it is important for Europe to exit that ‘protectorate’ and defend itself. As well as develop better ties with both Turkey and Russia.

"We want Europe to have strategic and defense autonomy to rebuild European security architecture in a broad sense, like I said several months ago in St. Petersburg, and there is the need to reconsider our relations with Russia," said Macron during a press-conference in Helsinki with his Finnish counterpart, President Sauli Niinistö. "It is in our interest for the EU to have a strategic relationship with Turkey as well as with Russia that brings stability, that will in the long term bring more strength and coherency."

This stance was also echoed by German Chancellor Angela Merkel. This shows that both of the EU's most powerful countries are getting tired of U.S. President Donald Trump’s chaotic leadership. 

Is the Trump presidency and its brash, unpredictable style the opportune moment to change the status quo?  Just this week Trump has once more threatened to leave the WTO if they did not comply with their interests. How can international relations function where one of the parties is constantly being un-constructive?

Russian President Vladimir Putin on the other hand by attending the Austrian foreign minister’s wedding last month has shown the world that he still has friends within Europe. His attendance put a spotlight on the strong divide that is gangrening the EU.

Another issue to consider is that within Russia itself people are starting to see the West a neighbor and commercial partner. The younger generation prefers to have better relations with their continental neighbors. In the end, it could even be argued that the continental EU has more in common with the people of Moscow or St. Petersburg than with those of the UK, or the U.S  

Read more: 

"The Sanctions Dance," by Henry Foy for the Financial Times.

"Putin Beware: Russian's Are Changing their Views the West," by Lilia Shevtsova for the Financial Times. 

"Macron's Blow to NATO Amid Plans to 'Team Up' with Russia's Defense," by Latifa Yedroudj for the The Express. 

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