At an international Arctic forum in Murmansk in late March 2025, President Vladimir Putin stepped onto a modest stage, a far cry from the imposing backdrops he often favours. The event’s slogan, “Live in the North!”, emphasised Russia’s focus on its Arctic domain. In a lengthy opening speech, Putin reaffirmed the Arctic’s strategic importance to Russia and stressed its growing global relevance.

“Unfortunately, geopolitical competition and the struggle for influence in this region are also intensifying,” Putin warned the gathering.

He noted that Russia is closely monitoring developments and strengthening military capabilities and infrastructure across the Arctic in rsponse. The Far North has ranked very high on the Kremlin’s agenda for over two decades.

After the Soviet Union collapsed, Moscow’s support for its Arctic regions withered, and through the 1990s the area was seen as an economic burden. Reinvestment resumed in the 2000s as the Kremlin refocused on the north. Now, climate change is rapidly shrinking polar ice, opening new sea routes and resource opportunities.

The thaw has enhanced the region’s value, as it holds rich mineral deposits and vast oil and gas reserves, much of it still untapped. In fact, the Arctic is estimated to contain roughly 13% of the world’s undiscovered oil and 30% of its undiscovered natural gas. And with Western sanctions over the Ukraine war, the Arctic’s economic and geopolitical significance has only grown further.

Analysts estimate roughly 10% of Russia’s GDP is generated above the Arctic Circle.

“The Arctic is economically important. A large share of Russia’s oil, gas, and natural resource exports originates from the Arctic. Beyond economics, the region is vital to national security. From a security perspective, the Arctic constitutes Russia’s entire northern border,” explains Pavel Devyatkin of the Arctic Institute.

“Given growing competition with Western Arctic states like the United States, Canada, and Norway, Russia must maintain control over the area and protect those economic projects,” Pavel said.

In short, the High North is both a treasure trove and a strategic shield for Moscow.

Russia proudly presents itself as a leader in Arctic exploration, harking back to tsarist-era pioneers who reached the continent’s farthest edges while others charted new sea routes. Now, with the Arctic emerging as a zone of intense international rivalry, a key question looms: Does Russia truly hold a technological edge in the Arctic, and if so, can it sustain that edge amid mounting pressure?

Icebreakers: Russia’s key assets

In the Arctic, one category of technology stands out as Russia’s ace: icebreakers.

Sergey Sukhankin, a senior fellow at the Jamestown Foundation, said, “Russia’s main strength lies in its superiority across various classes of icebreakers.”

These specialised ships plough through sea ice to clear paths for other vessels, giving Russia a significant advantage. Moscow currently operates 42 icebreakers, including eight nuclear-powered, which is far more than any other country. And the fleet is still growing.

Prime Minister Mikhail Mishustin recently announced plans to add five new nuclear-powered icebreakers. One of these will be the gigantic Rossiya, a next-generation “Leader” class icebreaker displacing over 71,000 tons with reactors generating 163,000 horsepower. It will be capable of crushing through ice up to four metres thick.

At the Murmansk forum, Putin proudly noted that Russia has “the largest icebreaker fleet in the world. No other country has such a fleet,” he declared, urging continued investment in next-generation icebreakers to cement Russia’s lead. The Kremlin often frames its mighty icebreaker flotilla as a geopolitical asset, but experts stress the fleet’s practical role.

“Icebreakers are one of the greatest technological capabilities that Russia has in the Arctic. But they have very limited military applications. Even though sea ice is melting, icebreakers are still important because there is still a lot of ice,” acknowledges Devyatkin.

These ships ensure Russia can navigate and work in Arctic waters year-round, keeping remote northern ports accessible and energy exports flowing even in winter.

Russia has even found ways to monetise its icebreaker fleet beyond freight and supply missions. In recent years, some of its nuclear-powered icebreakers have doubled as adventure cruise liners, ferrying tourists to the North Pole.

Travel companies market these voyages as once-in-a-lifetime expeditions through otherworldly ice floes.

Promotional materials boast, “You will be travelling on one of the most powerful nuclear icebreakers in the world, capable of overcoming centuries-old ice up to three metres thick.”

Ultimately, icebreakers are more than just workhorses or tourist attractions. They are strategic enablers of Moscow’s Arctic ambitions. By keeping the Northern Sea Route (NSR) open for much of the year, the fleet supports Russia’s goal of turning the NSR into a major international trade artery.

If the shipping lane along Siberia’s coast becomes reliably navigable, it could slash travel time between Asia and Europe, providing an alternative to the Suez Canal. This prospect is a major reason the Kremlin pours resources into its icebreaker fleet. It underpins Russia’s vision of the Arctic as both an economic engine and a geopolitical lever.

Military might or symbol?

Russia’s Arctic push is not confined to icebreakers and commerce. The Kremlin also touts military hardware adapted for the Far North, though some wonder if these weapons are more show than substance. In late 2024, Putin oversaw the launch of the Perm, a Yasen-M-class nuclear submarine armed with Zircon hypersonic cruise missiles.

He hailed it as a major advance for the Navy, praising the sub’s modern systems and high-precision weapons. Such capabilities sound formidable, and they could pose a serious threat. However, analysts like Sukhankin question their practical utility in the Arctic context. Using such weapons would likely signal full-scale war.

“In most scenarios, this type of weaponry is more dangerous than useful,” Sukhankin says, suggesting any Arctic clash that escalated to missile strikes would effectively be an all-out conflict between Russia and NATO.

Even Russia’s own strategists seldom anticipate open war in the High North. When they discuss potential Arctic conflicts, they usually envision “hybrid” confrontations – using covert, economic, or cyber means rather than battles under the polar ice.

This implies many of Moscow’s Arctic military projects likely serve a political more than a tactical purpose. The displays of new submarines and weapons project strength and technological prowess to both domestic audiences and rival powers, even if their day-to-day utility on the ice remains limited.

Beyond submarines and missiles, Russia claims other Arctic innovations are underway. Officials speak of drones engineered for extreme cold and robotic systems to mine the seabed. These initiatives underscore Moscow’s desire to conquer the Arctic technologically as well as physically. Still, the ambitious nature of some projects has raised eyebrows and scepticism, leading to questions about how much is genuine progress versus propaganda.

Ambitious plan beneath the ice

The notion of submarine LNG tankers highlights both the boldness and fragility of Russia’s Arctic aspirations. The idea actually dates back to the early 2000s, when some Moscow insiders proposed it to impress Putin. Now it has resurfaced in state media reports, with talk of nuclear-powered submarines carrying liquefied natural gas under the ice to Asian markets.

Yet experts like Sukhankin doubt this concept will ever leave the drawing board. The technical challenges are enormous.

“How can you store the necessary volume of LNG on a submarine in the first place?” he asks, noting that no existing design could accommodate the massive insulated tanks required.

The economics are equally dubious. Building and operating such vessels would be vastly more expensive than conventional tankers.

“If you run the numbers on break-even costs, it simply does not make sense,” Sukhankin said.

Moreover, Russia’s shipyards lack the capacity to construct such advanced submarines, and foreign builders are unlikely to help under the current sanctions. It remains unclear whether the submarine tanker project is a serious endeavour or more of a publicity stunt.

“At this point, it’s difficult to tell whether this is aimed at a domestic audience or designed to impress internationally,” Sukhankin admits.

Either way, merely publicising such an audacious plan serves a purpose: it reinforces the narrative that Russia is willing to pursue outlandish high-tech solutions to secure its Arctic interests.

Cooperation amid rivalry

Despite its military buildup and grand projects, Moscow is also striking a cooperative tone in the Far North, at least rhetorically. In Murmansk, Putin opened his remarks with a rare appeal for partnership.

He stressed that while “Russia is the largest Arctic power,” it “advocates for equal cooperation in the region.” Moscow, he said, is ready to work with any nation that shares responsibility for the planet’s sustainable future. It signalled Moscow’s willingness to involve non-Arctic players.

Russia’s long history in the Arctic gives it valuable know-how. Centuries of exploration and resource extraction in harsh conditions have endowed Russian firms and agencies with deep expertise.

Yet, as Devyatkin notes, collaboration with other countries can bring benefits that Russia cannot easily obtain alone: investment capital, cutting-edge technology, and broader export markets for Arctic resources. In the past, Moscow partnered with Western oil companies and others in Arctic ventures before relations soured. Now the Kremlin may look to non-Western partners to keep its Arctic ambitions on track.

Some analysts suspect practical motives behind Putin’s cooperative rhetoric. For all of Russia’s talk of Arctic dominance, its ability to sustain large-scale Arctic expansion and innovation is in doubt.

“Russia’s own domestic capabilities to modernise are quite questionable,” Sukhankin observes, alluding to economic and sanction-related constraints.

Greater international involvement could help Moscow fill gaps in expertise and funding. At the same time, each high-profile announcement— be it a new drone, icebreaker, or submarine—feeds a narrative that Russia is racing ahead in the Arctic.

Sukhankin suggests this image is deliberately cultivated as a form of information warfare.

“This is exactly what Russians want… exactly what they mean,” he says, referring to the psychological impact of projecting Arctic prowess.

In effect, Russia is trying to have it both ways in the Arctic. They want to project strength and independence while also calling for partners. How much of its Arctic drive is genuine capability and how much is calculated posturing remains debatable. But as the polar ice recedes and competition grows, the world’s eyes are now on Moscow’s next moves in the “High North.”

The post Russia’s Arctic power play appeared first on International Finance.

As per the November 2023 estimates of the Yale School of Management, over 1,000 foreign businesses have publicly announced about voluntarily curtailing their Russia operations to some degree beyond the bare minimum legally required by international sanctions, while some ventures have continued to operate in the country undeterred.

Our story will revolve around these ‘Some Ventures’ and why leaving Russia now looks not so easy for companies in general, despite another central Asian country called Kazakhstan (which wants to be an economic powerhouse in the region) reaching out to hundreds of American and European entities with an offer of hosting the latters’ operations, since the 2023 beginning.

Companies bucking the trend

Leading Beverage giant Peet’s Coffee is staying put in Russia, with its parent company JDE Peet’s informing the media about “actively shaping a longer-term future in Russia” as the Ukraine war is all set to be a long-term affair. In fact, Peet’s Coffee is now planning to rename its Russian operations to protect its global reputation. Unlike its industry peer Starbucks, JDE Peet’s sees a major downside of leaving Russia in the form of its brands and intellectual property likely being seized and given to a third party, apart from putting the future of its 900-odd staffers’ futures at a massive risk.

One of the challenges before Unilever’s new CEO Hein Schumacher is to re-examine the company’s Russian operations. Schumacher reportedly received a letter from a Ukrainian war veteran who wanted the Anglo-Dutch conglomerate to exit Russia. Unilever has also been named an ‘international sponsor of war’ by the Ukrainian government for continuing its operations in Russia despite the conflict.

“A year later, Unilever Russia’s profits doubled from 4.8 billion roubles (USD 80 million) in 2021 to more than 9.2 billion roubles (USD 153 million) last year. In addition, thanks to the significant amount of profit obtained… [Unilever Russia] managed to increase the capital to 34.5 billion roubles in 2022 from 25.3 billion roubles in 2021,” Ukraine’s National Agency on Corruption Prevention remarked.

However, the FMCG giant has been so far defending its decision to remain in the country, as it sees carrying on selling “everyday food and hygiene products” to the Russian people as the best available option for it, rather than its business ending up in the hands of the Russian state. Along with Unilever, Olay-owned P&G and L’Oréal have continued their operations too.

Lack of choices

On September 2023, the Vladimir Putin government dropped a massive bombshell, as it announced imposing increasing costs for corporate breakups by foreign banks, along with the demand of unfreezing the Russian assets if these overseas financial entities wanted to exit the market.

“We have stated our position, and it stands — we will be tough in letting foreign banks go, it will depend on the decision to unfreeze Russian assets,” Alexei Moiseev, Russia’s deputy finance minister, informed the media.

In fact, Western and its allies have frozen over $300 billion in Russian central bank assets abroad as part of their sanctions on Moscow. What Moiseev remarked, reiterates the Putin regime’s stance of punishing the companies trying to exit the Russian market.

Despite 1,000 companies voluntarily cutting back on operations merely two months after the Ukraine war started back in February 2022, just 535 foreign companies have made a clean break with the country, an ongoing study from Yale University that was last updated in September 2023 has found.

As per the reports, over 2,000 companies have sought approval to exit the Russian market, but they were facing slow progress on this front. Also, Moscow has taken the game further by charging exiting companies a fee of at least 10% of the sale value of the local businesses. In addition, the Russian government has reportedly started requiring sellers from “unfriendly countries” to donate at least 10% of the sale proceeds to the Russian budget from March 2023.

Raiffeisen Bank, the largest Western bank still operating in Russia and working on a sale/spin-off of its local business, said in its half-year report released on August 1, “The local and international laws and regulations governing the sale of businesses in Russia are subject to constant change.”

Even in August 2023, Raiffeisen is in no situation to give a timeframe for the sale/spin-off of its Russian subsidiary. Johann Strobl, the CEO of the Austrian venture, told the media that the whole process required approval from many Russian authorities and European ones. The bank was aiming for a spin-off of its Russian business by the 2023 end and was eyeing a September timeframe for completing the move.

The European Central Bank has been pressing Raiffeisen to unwind its highly profitable Russian business. The concerned venture, on the other hand, reportedly takes care of the financial needs of its 3 million Russian customers and any exit measure from the country, no doubt, needs a properly planned and implemented action plan, to avoid the chaos. Raiffeisen is in a perfect ‘Catch-22’ situation right now.

Why is it so difficult?

In March 2023, the Financial Times, while citing a person involved in a business exit negotiation in Russia, found out that the authorities in Moscow, who handle these applications, were meeting only three times a month, while reportedly considering up to seven applications each time, thereby prolonging the exit process for the businesses.

To cut a long story short, if you want to leave your Russian operations, it’s not that easy to pack up and go.

“Many companies were quick to announce their intent to leave the Russian market after it invaded Ukraine. While some big brands such as McDonald’s, and Starbucks have fully exited the country, others may be taking a slow and orderly approach to their exit strategy for various reasons,” Business Insider noted.

Also, we have examples like Peet’s Coffee, where companies are taking a serious relook at the obligations to their local employees while deciding to leave/stay.

“Our colleagues in Russia have, through no fault of their own, endured months of stress and uncertainty,” stated IBM CEO Arvind Krishna recently. His venture was one of the earliest companies to exit the Russian market.

“We do not think it is right to abandon our people in Russia,” Unilever echoed similar sentiments in February 2023. The conglomerate has stopped all imports and exports of its products and capital flows into and out of Russia since 2022, but it has reportedly continued to supply made-in-Russia products domestically.

“It is clear that were we to abandon our business and brands in the country, they would be appropriated – and then operated – by the Russian state. To date we have not been able to find a solution which avoids the Russian state potentially gaining further benefit,” the European venture added further.

On March 2022, just barely two weeks into its Ukraine adventure, Russia published a list of “unfriendly countries”, to combat the growing list of nations extending their support to Kyiv. The list included Australia, the United Kingdom, the entire European Union, Iceland, Canada, Liechtenstein, Monaco, New Zealand, Norway, Korea, San Marino, Singapore, the United States, Taiwan, Ukraine, Montenegro, Switzerland and Japan.

Countries like the United States, EU, Canada and Switzerland issued sanctions against Russia, Russian oligarchs, and Putin as the war broke out and businesses from these countries also have a heavy presence in Russia.

As per Moscow’s latest rule, investors who want to sell their businesses and are from “unfriendly countries” must donate at least 10% of the sale proceeds to the Russian Budget. On top of that, these investors will also need to bear a 50% cut on the sale of their assets.

Apart from all these, the concerned businesses also need to obtain state approvals before they start the departure procedure. “What about the Russian staffers whose jobs will be at the firing line?” add this to the ‘Priority List’ for businesses as well.

Recently, Business Insider reported that the “companies that want to exit Russia are pressed to find buyers for their Russian operations who would continue running the business under a different brand. The pool of buyers is also limited due to international sanctions against Russia.”

McDonald’s sold its Russian business to a local licensee after the Ukraine war broke out. The buyer was required to continue employing and paying all of the fast-food giant’s staff in Russia for two years after the takeover, as per the handover deal terms.

Aluminium oligarch Oleg Deripaska told the Krasnoyarsk Economic Forum in Siberia in March 2023, “Russia will need foreign investors as its funds are running low. There will be no money already next year (2024).”

Russia needs to keep its economy running and for that it needs capital. The foreign ventures, especially those from the West, want to leave the country sooner, to avoid the media glare of operating in an ‘Enemy Nation’. However, the departure rules set by Moscow make these businesses unfairly pay for their strategic decisions, while keeping the Russian exchequers full for sustaining the war efforts.

Even if these multinationals come out of Russia, they will face their global operations being impacted “if a subsidiary in one place is closed,” Saul Estrin, a professor at the London School of Economics, and Klaus E. Meyer, a professor at Ivey Business School, explained in a note.

Citing McDonald’s and Starbucks as examples, these experts wrote, “This interdependence may be small when the subsidiary solely has a sales and service role. However, the interdependence is high and disruptive for the parent organisation when the subsidiary is procuring critical raw materials or intermediate products for the parent that cannot easily be obtained elsewhere.”

“Complex global supply chains mean that companies such as those in the automotive and machine tool industries would have to change their procurement processes if they close an operation,” they added further.

Russia’s tactical brilliance

Russia’s demand for a 50% discount on the assets of companies exiting its market has benefited the country’s businessmen who bought the assets of 110 Western companies “that have fully or partially left Russia” at bargain-bin prices, as per independent Russian newspaper Novaya Gazeta.

“More than 100 new major asset owners have emerged in Russia since the war began. The assets of Western companies, usually acquired for next to nothing, have already bought them at least 223 billion roubles (€2.2 billion) in net profit last year (2022). Among the beneficiaries of the redistribution of Western assets are businessmen close to the Kremlin, former top managers of the companies that have left Russia, and medium-sized businesses,” the report noted.

“The departure of Western businesses enabled Russian businesspeople to acquire large assets at huge discounts or for the measly sum of one rouble (€0.010) — virtually for free. Companies that have decided to leave Russia at any cost are forced to make such deals because of the rules set by the government which mandate discounts and contributions to the state budget,” it stated further.

As per Reuters, some ventures trying to exit Russia were facing demands of even steeper discounts than the 50% one, with those operating in strategically important sectors like energy and resources needing President Vladimir Putin’s seal of approval, before they exit the country.

Just before the Ukraine war, Russia approved measures that could lead to the nationalisation of foreign firms suspending their operations in the country’s domestic market.

In April 2023, Moscow took control of the Russian subsidiaries of two energy firms, Germany’s Uniper and Finland’s Fortum, after Putin signed a decree ordering the move.

The Kremlin defended the move as it stated that the seizes were in retaliation to the “similar moves from Western nations”, as the latter reportedly blocked/seized $58 billion of assets controlled by Russia in the one year since the beginning of the Ukraine war.

“In July, Moscow targeted the Russian assets of food and beverage giants Danone and Carlsberg for seizures. Russia did not give any specific reasons for the seizures, but they happened after people close to Putin’s regime expressed interest in the assets,” Business Insider noted.

Nabi Abdullaev, a partner at Control Risks and former editor of the Moscow Times, summed up the situation perfectly, as he told CNBC, “Some companies decide to stay because the risk of leaving Russia, at this moment at least, is higher than the risk of staying.”

The Ukraine war and the resultant economic warfare between Russia and the United States-led Western Bloc have made the scenario a dangerous one for Western companies. If they want to leave the country, they may end up jeopardising their assets being taken by the state, apart from what Abdullaev termed as “criminal prosecution of Russian staff”.

Along with Unilever, Nestle, Philip Morris, UniCredit, Raiffeisen and PepsiCo, some 500 Western firms are still operating in Russia. While they are looking for buyers before they leave or cut down their operations in the country, they have to pay taxes to the Russian government. This tax amount is subsequently getting diverted to Moscow. While these ventures are getting branded as “international sponsors of war,” they are not doing it willingly.

Beverage giant Heineken had 1,800 staff in its Russian unit and was unable to execute a quick exit. On August 25, the venture found a buyer in the Russian Arnest Group which purchased the companies’ Russian operations for a euro.

“Western companies that remain in the country are able to continue doing business because, despite sanctions, numerous transactions and activities are still authorised. As part of the ‘smart’ sanctions approach, the civilian and humanitarian sectors are not targeted, and many Western companies continue to operate in these sectors,” CNBC commented.

However, most of these ventures belong to the nations marked as “unfriendly countries” by Russia. So technically, these ventures are at the mercy of the Kremlin. Add the nationalisation of Uniper and Fortum, the territory gets stickier for these businesses.

The post The ‘Russian Minefield’ for Western businesses appeared first on International Finance.

The signal from Moscow suggests that both the stakeholders may prolong such voluntary cuts into October 2023. Russia, the second-largest oil exporter in the world, has been reducing output and exports in concert with Saudi Arabia in addition to current OPEC+ limits.

At a live-streamed cabinet meeting, Vladimir Putin questioned Alexander Novak, his point person for oil, on whether OPEC+ partners had approved a reduction in the supply of oil to global markets.

“We have agreed, but we will publicly announce the main parameters next week,” Alexander Novak replied.

Which parameters might be made public wasn’t immediately clear, and Alexander Novak’s office declined to make any further comments.

To support the market, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, started restricting supplies in late 2022. In June, the production restraints were extended through 2024.

Separately, Russia announced that it would reduce oil exports by 300,000 bpd in September and 500,000 bpd in August, or around 5% of total output.

Alexander Novak also stated that it was too early to make a firm prediction, but Russia may continue the cutbacks into October.

Analysts predict that Saudi Arabia will likely extend its voluntary 1 million barrel per day oil production cut for a third straight month into October 2023.

The voluntary cut was extended by Riyadh from August till September, with the energy ministry indicating that it may be “extended, or extended and deepened.”

The greatest monthly gain in Brent oil prices since January 2022 occurred in July when prices rose 14% over the previous month. On Wednesday, the price has grown by almost 1% on the day to USD 86.7 per barrel.

Meanwhile, Russian seaborne crude exports fell for a second consecutive month in July 2023 to fall below 3 million b/d for the first time this year while oil product exports held steady as domestic refineries emerged from the maintenance season, tanker tracking data showed.

Russia-origin seaborne crude shipments averaged 2.96 million b/d in July, a 15% fall on the month to the lowest since December and almost 890,000 b/d below the post-war high of 3.85 million b/d seen in May, stated S&P Global Commodities at Sea data. The latest export fall has put July’s total slightly below average pre-war levels of 3.1 million b/d.

Almost all the fall in Russian crude exports was seen to China where tanker shipments shrank by over 400,000 b/d, the S&P data stated further. Shipments to India, currently Russia’s biggest oil buyer, were little changed at 1.56 million b/d, while ship-to-ship transfers off Greece almost dried up in July.

“Overall, Russian crude transferred at sea in July slumped by 6.64 million barrels to 4 million barrels in July, the smallest STS volumes since November 2022. The crude export fall follows a surge in May when Indian refiners snapped up record volumes of discounted Russian crude. India refiners — which buy mostly Urals crude — saw imports of Russian crude soar to 1.9 million b/d in May,” S&P stated further.

The post Moscow plans to reveal new parameters, extends oil export reduction appeared first on International Finance.

One of the punitive measures included coming down hard on Russia’s oil and natural gas trade, which has been Moscow’s major source of revenue generation and also driving its war efforts against Ukraine till now.

The Western powers are also debating the idea of putting a price cap on Russia’s energy supplies from December, along with preventing European oil tankers and insurance mechanisms from helping Moscow anymore to ship their oil and natural gas to global markets. While the proposal hasn’t found unanimous support from G7 and European Union members, Russia has responded to these developments by cutting down its natural gas supplies to Europe through the Nord Stream 1 pipeline.

Vladimir Putin on October 12 extended the olive branches to Germany by ‘committing’ to resume natural gas supplies to the European Union nations via Nord Stream 2 pipeline (another supply chain that came under sabotage attempts recently). The offer got refused. Now there are reports emerging about leaks in the Druzhba pipeline, which supplies crude oil from Russia to Europe via Poland.

All these developments have sent Europe into a crisis mode. While the UK, and Germany are witnessing economic slowdowns and a cost of living crisis, a curtailed energy supply from Moscow’s side will ensure that the entire continent will stare at a ‘cold winter’ in the coming months.

Europe Suffers As Russia Chokes Energy Supplies
Since the sanctions kicked in, Moscow has been diverting a significant amount of energy supplies to India and China, while decreasing Europe’s share.

As per the data from Centre for Research on Energy and Clean Air, Russia earned some 158 billion euros worth of revenue from its energy sale, starting from February to August, 2022. Despite the EU going hard against Vladimir Putin, it has already imported some 85 billion euros worth of energy from Russia.

Germany, which has disagreed with the G7’s price cap proposal on Russian energy supplies, has itself bought fossil fuels worth 19 billion euros since the beginning of the Ukraine war. As per the data, Germany used to get some 40% of Europe’s energy imports from Russia before the Ukraine crisis. China has been the biggest importer of Russian energy, as it has bought some 35 billion euros worth of it. Despite Moscow’s export dropping by 18% since February, its energy revenue base is still growing.

While the European Union has reduced its energy imports from Russia by 35% since the beginning of the Ukraine war, the 27-nation bloc has now blocked the coal supplies from Moscow as well.

While the Centre for Research on Energy and Clean Air cited China and India importing a massive amount of coal and oil from Moscow in the months of July and August, the study group also said that the fossil fuel exports alone have contributed 43 billion euros to Russian exchequer.

While the European Union has been accusing Vladimir Putin of blackmailing the continent with reduced energy supplies, they have rushed to arrange alternatives.

While Nord Stream 1 has seen a drop in natural gas supply, due to ‘operational glitches’, as cited by Russia’s state-owned energy corporation Gazprom, one pipeline from Ukraine to Slovakia and another crossing the Black Sea to Turkey and then to EU member Bulgaria, are still working somehow.

As part of Russia’s counter against the West’s economic sanctions, Gazprom has already cut gas supplies to some European countries, giving way to apprehensions about ‘Zero Russian Gas’ in the coming winter, if the European Union still persists with its anti-Putin stance.

Shift Towards Nuclear, Geothermal Alternatives?
The European Union is preparing some 20 floating terminals to process liquefied natural gas from non-Russian sources like US and Azerbaijan into natural ones. This means putting the region’s climate commitments on the back burner, as they opt for cheaper yet environmentally harmful energy sources. Electricity prices are rising too due to demand and supply imbalance.

Germany went through a drought in recent times, impacting its hydroelectric power generation capacities. The nation is still keeping its coal plants running, reverting back from its earlier promise of shutting them down over environmental worries.

France has a good fleet of 56 nuclear power plants, but all of them are running on half of their operational capacities due to glitches and maintenance issues. While a European Commission study says that the continent saw a 25% decrease in nuclear power generation due to pressure on the environmental groups over the ‘radioactive waste’ worries, this may prove costly if the European Union still goes ahead with its 15% natural gas usage plan by 2023 March.

One ray of hope is Japan announcing its plan to restart the nuclear power plants idled since the 2011 Fukushima disaster. While Prime Minister Fumio Kishida cited soaring natural gas prices behind the decision, International Energy Agency Executive Director Fatih Birol said that this move can help Europe to deal with the power crisis to some extent.

Germany’s three operational power plants, which were supposed to be shut by 2022 end, may get an extended lifeline as the country’s chancellor Olaf Scholz voted in favor of it. In fact, the Green Party, a political organization that came into existence during the 1970s anti-nuclear movement and is currently a coalition partner of the present government, has also softened its hostile stance on the matter.

In the United States, the Joe Biden government has adopted an Inflation Reduction Act, which extends tax credits and funding to nuclear power plants. California has already committed to keeping its last operating facility open beyond the 2025 closure deadline. Boosting these developments further, US Company Westinghouse Electric has been bought in a USD 7.9 billion deal by a consortium comprising Canadian uranium fuel supplier Cameco and leading clean energy investor Brookfield Renewable.

While all these developments may brighten up Europe a bit, but still not enough to see off the energy crisis.

“Restarting nuclear power plants may be almost the only way to offset the loss of natural gas from Russia in the short term,” Professor Robert Kaufmann told International Finance, while commenting about whether Japan reopening its nuclear power plants can be one of the solutions for the crisis-hit continent.

“In the short run, nuclear power is a viable option for offsetting the loss of Russian gas. But it is not a medium or long-term solution. In these time frames, carbon-free (or low carbon) alternatives, such as PV, wind, and geothermal, should be the focus of investments,” he said.

While the Emmanuel Macron government has introduced a measure to fast-track the construction of six more reactors and ensure that they start operating by 2028, 26 out of the 56 existing reactors have gone off-line for maintenance works, prompting the country to deploy an army of experts as the winter nears.

There is a fund concern as well as the European Union requires some USD 462 billion just to keep its existing nuclear power generation capacities running.

Germany too will keep its three remaining power plants running till April 2023, apart from reactivating its coal-powered facilities.

Another viable alternative can be the geothermal energy market. A Rystad Energy research projects a purple patch for the sector in the coming days, especially in Europe. As per its report, the total installed capacity of the heating plants within the European Union will surpass the 6.2-gigawatt thermal mark by 2030, registering a huge 58% increase from the current total of 3.9 gigawatts. The total amount of investments will be an estimated USD 7.4 billion.

The report also talked about the phenomenon of many established energy companies investing in this sector.

The industry, which was mainly led by Iceland, France, and Hungary, is now witnessing windfall as Germany will spend over USD 1.5 billion by 2030. Its installed geothermal capacities have doubled from 200 megawatts thermal (MWt) in 2012 to 400 MWt in 2022. By 2030, the same figure will reach 850 MWt. The Netherlands will be investing to achieve a production capacity of over $1.1 billion by 2030.

The UK, which has only 20 MWt production capacities as of now, is eyeing to reach 100 MWt in the next eight years. It will be spending over USD 470 million to meet the target.

Things look promising on this front, despite initial higher operational costs and inconsistent drilling success rate, because these countries will be getting clean, 24/7 renewable sources of energy, once the power plants reach their production capacities.

But the question remains, what should be the financial roadmap for Europe towards it, amid the economic slowdown?

“If the market for geothermal drilling equipment is like that for oil and gas drilling equipment, the price for renting such equipment drops during a recession. Hence, maintaining or accelerating drilling during a recession may be economical,” Professor Robert Kaufmann remarked.

The energy crisis has been further complicated by OPEC and Moscow with their announcement of cutting down daily crude oil output by two million barrels, which will further raise the prices.

Things don’t look promising at all for the European Union, given that they don’t have an effective solution for the whole problem. While they are scrambling for energy supplies from the US, Azerbaijan, and the Middle East, they should not expect normal business ties with Moscow, even after the Ukraine war gets over. It’s high time they invest in wind, geothermal, and nuclear to avert another crisis in the near future.

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However, six months after the war’s start and the sanctions’ application, analysts are speculating whether the US-led Western bloc’s design of punishing Moscow financially has shown its real results. International observers have increased their estimates of the Russian GDP from earlier 2022. Russia’s economy has performed better than the original projections made immediately after the imposition of sanctions, partly due to factors like nimble technocratic Russian policymaking and competitive global energy markets.

However, the Russian economy is still experiencing a slower development rate than it did during the 2008 financial crisis, and it is unlikely that a post-crash recovery will follow this slowdown. Moreover, living standards are sustained by social spending, which will be challenging to maintain and require difficult budgetary decisions for the government in the upcoming years. As time goes on, the war’s price and the sanctions’ impact on regular Russians will only increase.

Russia Tightens Belt

Start by looking at some macroeconomic data to assess the state of the Russian economy. Since the start of the war, the fall rate has been rising, and Russia’s GDP has decreased by about 5% from 2021. Although the manufacturing sector has decreased by 4.5%, industrial production, including Russia’s energy industries, has reduced by just approximately 2% compared to 2021 (a reflection of the high energy costs). The inflation rate is just over 15%, a little decline from the peak of about 18% following the March collapse and subsequent recovery of the ruble. In addition, inflation-adjusted monthly salaries are down by around 6% from 2021.

Russia’s inflation statistics may not accurately reflect that purchasing some goods is now ranging from occasionally challenging to almost impossible. Similar problems in estimating the effects of a lower quality are seen with inflation statistics. The Russian government is modifying laws to permit the sale of cars without airbags or antilock brakes, which are now challenging to manufacture due to supply chain issues. Although economists won’t reflect this decline in quality in inflation statistics, Russians will soon notice it, particularly the urban, affluent section of the population who consume more of the imported goods that are now more difficult to obtain.

Even after accounting for the inflation recorded by official data, salaries drastically declined, falling by almost 6% from 2021. Inflation has been eroding social welfare payments like pensions since the Ukraine war started. To make up for this, the government raised pension payments by more than 8% in June 2022. However, if no substantial increases in social spending are made in the ensuing months, the average Russian’s income will decrease in the year’s second half. In addition, retail sales are down over 10%, which shows that consumers have already begun saving in preparation for future budget cuts.

Oil Continues To Flow

Some businesses have already been severely impacted by decreasing living standards, even if households are only now starting to experience their effects. Therefore, it is more enlightening to examine each sector independently rather than using aggregate industrial output numbers. The natural resources industry has not been significantly impacted, which is not surprising given the high prices and Western sanctions that have been put in place to maintain the free flow of primary commodities, including oil, up to this point.

The trade-in of natural resources is primarily responsible for the durability of the Russian economy. The United Kingdom and the EU have been softening sanctions set to go into effect against Russian oil exports with the covert assistance of the United States. The West has backed down from attempts to prevent Russia from diverting oil shipments to other clients, such as China and India, to prevent a spike in energy prices. As a result of recent changes to the restrictions, European businesses will now be permitted to ship Russian oil to third parties.

The volume of Russian oil exports has remained mostly steady since sanctions were put in place because the West has only recently enforced severe penalties for Russia’s energy exports and since the EU’s oil import ban won’t go into effect until December 2022. Russia is being forced by sanctions to sell oil at a discount of roughly USD 20 per barrel compared to market benchmark pricing. However, the most recent data on monthly oil tax receipts published by the Russian government indicates that the country is earning around the same amount from exports as it did in January 2022. Since the Kremlin prohibited its sale to Europe, natural gas export revenues have plummeted, far less significant to Russia than oil exports.

Troubled Industry

The output of vehicles, trucks, locomotives, and fibre optic cables has decreased by more than 50%, making them among the worst-affected industries. Businesses with less exposure to foreign ownership or complex supply networks, like textiles or food processing, have been on the flatter side or occasionally rising production compared to 2021.

The evacuation of Japanese, American, and European companies with plants in Russia is one reason for this industrial disruption. While some of these factories will reopen under new Russian management, running them could be challenging. Obtaining sufficient supplies is a challenge for manufacturers as well. It is now much more difficult to get components from outside because it is more difficult to obtain, ship, and pay for even goods that are not officially restricted. Regarding the challenges, his company faces in shipping and paying for imported components, the CEO of Moscow-based railroad equipment company Transmashholding told Russian media, “I cannot say we’re facing a total blockade. But there is more friction now.”

The crucial question is whether these industrial disruptions change for the better or worse in the coming months. On the one hand, Russia has had over six months to set up alternate payment and logistics systems, which should enable some essential unrestricted imports to enter the nation. However, Russian businesses, when polled, claimed that they were still using their existing inventories, suggesting that they were still having trouble finding the required components. Moreover, according to monthly data, Russian imports of industrial products and parts are still significantly below levels before the war.

Russia’s industrial sector must need to have a secure future, due to multiple reasons. First, the industry is a crucial source of employment, particularly in what the Russians call “monogamous towns,” dependent on a single factory or sector and frequently located in the Urals or Siberia. Layoffs in these cities have historically sparked large-scale riots and social unrest that have proven politically unstable. According to recent research by a Russian think group, sanctions will directly affect 50% of all monogamous towns. Given the government’s constrained budget, Russia’s government will have difficulty raising money to support hampered industries.

Since the Kremlin ceased disclosing spending information, perhaps to conceal the costs of the conflict, it has become more challenging to understand how Russia’s government finances operate. The last month for which Russia provided comprehensive data was April, and during that month, defence spending had grown by 40% annually. As a result, the Kremlin will need to set aside significant future resources to restore the massive stock of equipment lost or destroyed on Ukrainian battlefields, in addition to more substantial salaries and operating costs to pay for the attack on Ukraine. Moreover, as regional governments are requested to organise volunteer battalions, the costs of the war are mounting, not only for the central government but also for them.

Over 2023, inflationary pressure will increase due to this spending binge. As a result, the amount of money the government receives has decreased. Due to the minor dip in global oil prices since June and the vast discounts at which Russia must now sell its oil, Russia’s oil tax revenues have fallen to more typical levels than the bumper revenues it was generating in the first few months after the invasion. However, non-oil tax revenue has sharply decreased. After accounting for inflation, non-oil revenue fell by about 15% over the first seven months of 2022; this percentage is likely to rise throughout the rest of the year.

As a result, if current trends continue, Russia’s budget will be heading toward a significant deficit. Of course, this situation might significantly alter in the upcoming months if oil prices rise and tax revenue increases. But if the war rages on and living conditions drop, spending needs will not disappear.

The Kremlin will be in a difficult situation if the budget deficit increases. Although Iran had almost no debt when the war began, Western sanctions have prevented it from issuing new bonds to most foreign investors. It might allow the ruble to weaken versus the dollar, which would balance the budget since Russia’s government expenditure is in rubles. A decline in the currency, however, would increase inflation, worsen living standards as a result, and jeopardise the Kremlin’s claim that the Russian economy is solid and that the sanctions are ineffective.

A Toll Too High

The Kremlin is, in some ways, correct to claim that the Russian economy has stabilised. Most of its industries are working, as usual, its banks remain solvent, and its vital energy sector is still producing oil. Even though there aren’t many luxury cars available, there is still plenty of food on store shelves. Nevertheless, customers will put off making large purchases if they can because the production of vehicles and washing machines will be much lower than anticipated. The Kremlin’s best-case scenario is that Russians tighten their belts and manage.

Even though the first effect was less devastating than the West or Russia predicted, the consequences of the war and sanctions are still mounting. The Russian government is currently content with having lasted through six months of Western sanctions. However, the Russian industry will still have difficulty transitioning to a world without imported Western components during the course of 2023. If oil prices do not rise, the Russian government will have to make more challenging decisions on whether to maintain social expenditure while accepting budget deficits and high inflation. The Russian economy will not fall apart to the point where the Kremlin’s military efforts are put on hold. However, the country is currently experiencing a severe recession, a period of decreased living standards, and scant prospects for a speedy recovery.

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Cutting its earnings and easing inflationary pressure in the west, will in turn put more pressure on the Russian leadership.

G7 consists of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

This year’s G7 Summit was held at the castle resort in the Bavarian Alps where the war in Ukraine and its impact on the economy, particularly the soaring food and energy inflation was the main topic of discussion.

The world leaders discussed practical ways to tighten vice militarily around the Kremlin without having a disastrous spillover.

US President Joe Biden stated at the beginning of the summit that Russian President Vladimir Putin was taken aback by the level of cooperation displayed by the west.

The entire G7 and NATO have remained intact, despite the Russian president’s hopes that they would break apart.

There are worries that the west has not developed strong policies that would force Putin to back down as Russia continues its onslaught on Kyiv and seizes additional cities in east Ukraine.

Even the EU has not made it clear that it supports the UK and US decision to forbid the import of Russian gold.

In order to stop Russia from making money off of its invasion of Ukraine, the G7 is thinking of imposing a price cap.

Italy Premier Mario Draghi and France President Emmanuel Macron, both vigorously promoted the idea of a dual ceiling on the prices of pipeline gas and oil.

With the gas cap in place, European nations would decline to purchase Russian gas for more than a predetermined, yet to be determined, price.

It is thought that Russia does not now have a substitute market for its pipeline gas and will be obliged to sell at a price set by Europe.

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To prevent the impact of Russia’s invasion of Ukraine from fracturing the international coalition, Biden and his counterparts will meet supplies and combat the inflation of gold from Russia.

The principal new economic restriction against Russia that emerged from the summit appears to be the prohibition on gold imports, which may result in a fine of tens of billions of dollars.

Officials from the administration chose not to reply when asked if additional sanctions will be applied.

It would be more difficult for Russia to compete in international markets if imports of gold were prohibited as they are Moscow’s second-largest export after energy.

The US Treasury will release a decision to forbid the entry of new gold into the country, further isolating Russia from the rest of the world’s economies by barring its participation in the gold market, according to a senior administration official.

According to British Prime Minister Boris Johnson, the ban stated that it will directly hit Russian oligarchs and strike at the heart of Vladimir Putin’s war machine.

Boris Johnson further added that Putin is unnecessarily spending his resources on this pointless war.

According to the White House, gold accounted for almost USD 19 billion, or approximately 5% of global gold exports, in 2020.

Image Credits: Narendra Modi @ Twitter

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The report further shows that Putin is often gifted yachts, palaces, and vineyards by his friends and oligarchs. The trail shows how all the individuals, companies, and charities are linked through a common email domain name, LLCInvest.ru.

LLCinvest is a domain on a server operated by Moskomsvyaz, a telecom business with close ties to Bank Rossiya, rather than a regular email service accessible to the general public like Yahoo.

The US Treasury refers to the St. Petersburg bank as “the personal bank for senior leaders of the Russian Federation” and is subject to western sanctions.

The Guardian had also got access to leaked snapshots of the email exchanges between the administrators who handle the entities in charge of the assets which were linked to Vladimir Putin.

The findings were studied by an anti-corruption expert in Russia who states that the evidence collected from the digital paper hints toward a level of “common management”.

He stated the common email domain name, LLCInvest.ru seems more like an association where members can exchange benefits and property.

Putin has often been criticized for accumulating a huge amount of wealth by taking advantage of his presidency but all this has been denied by the Kremlin.

According to the documents, there were 86 businesses and nonprofit organizations that were allegedly connected to the enormous riches. The Organized Crime and Corruption Reporting Project (OCCRP) and the Russian-language news outlet Meduza carried out the investigation.

As per the OCCRP, at least five properties have been found under the domain name LLCinvest.ru and appear to be in use, these include:

A USD 1 billion residence was allegedly constructed for Putin’s personal use in Gelendzhik on the Black Sea, according to Alexei Navalny.

Around the Gelendzhik, the palace is acres of vineyards. According to Navalny, Putin’s “hobby” of owning wineries has gotten out of hand. A non-profit organization created by two Putin associates owns the vineyards that surround the palace.

The 2013 wedding of Putin’s daughter took place at the Igora ski resort in the Leningrad region. A residence dubbed “Putin’s Dacha” by locals is located north of St. Petersburg. The Fisherman’s Hut is a wood-clad structure located north of St. Petersburg.

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However, Katerina and Maria have never been confirmed to be the offspring of the former KGB spy, but they are believed to be his daughters from his marriage with former Aeroflot cabin crew Lyudmila. The marriage ended in 2013 with a divorce.

Putin has been always secretive about his children and there is no official count from Kremlin about his children. Neither have the two women confirmed to be the daughters of the most powerful person in Russia.

According to the US Department of Treasury Katerina was born in Dresden, Germany where Putin was posted as a KGB agent. Katerina according to a Reuters investigation use the surname of her maternal grandmother and has studied Maths and Physics. She has a master’s degree from Moscow State University.

The report had shown that she was holding a top position in academics at the Moscow State University in 2015 and was involved in public-funded projects where she was signing off multi-million dollar contracts. She is touted to be part of the Kremlin’s defence ecosystem.

In addition to this, she had caught the limelight for her participation in Rock ‘n’ Roll World Championship in the same year where she along with her partner emerged as the fifth-best.

She was also married to one of Russia’s youngest billionaires Kirill Shamalov for five years between 2013 and 2018.

Maria, on the other hand, is a medical doctor specializing in paediatric endocrinology. She is also involved in genetics research for the government. She was married to a Dutch businessman born in Russia named Jorrit Faassen.

Earlier, other than Russia’s sovereign assets, government officials, politicians, and super-rich oligarchs believed to be closely associated with Putin has faced the wrath of these economic sanctions. A major highlight of them is top-flight English football club Chelsea being snatched away from Roman Abramovich.

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Alexander Ryazanov, the former deputy chairman of Gazprom had put forward the idea to build the 2000 kilometers long corridor to link Russia’s border with Kazakhstan to the main Russian road network. Ryazanov’s company, Russian Holding has already bought out around 80 percent of the land required for the construction of the road.

The project, termed the Meridian highway, has received the approval of the Russian government.  However, the project will completely rely on investor’s fund as the Russian government will not use its fund. But the government will help the project attract funds from investors.

The investors want the government to ensure minimal revenue of around $550 million which would cover risks such as closure of state borders. The Meridian highway would stretch over 2,000 kilometers from the Russia-Kazakhstan border to a junction of an existing highway that connects Minsk, Belarus, with Moscow. The project could take up to 12 to 14 years to be completed.

The project is also part of China’s transcontinental trade and infrastructure project called ‘One Belt One Road’.Russian President Vladimir Putin earlier visited China to take part in the second Belt and Road Forum for International Cooperation. During his visit, he said that the Chinese initiative will ensure sustainable economic development and economic growth in the region.

According to Sergei Sanakoyev, the head of the Russian-Chinese Analytical Center, the construction of the motorway connecting Europe and China is economically justified and can create more jobs and new transit revenue sources for Russia.

In 2016, a similar project was proposed by Russia’s Federal Centre of Project Financing and its cost was estimated to be $11.7 billion.

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