Last Week in Review


Energy Outlook with Nick Trickett

Gazprom denies false profits

Rosneft is looking for partners to sell 42-49% of its Suzun gas field, in line with company strategy to partner with others in the gas sector. The company needs money to service debts and Chinese contracts. Meanwhile, Rosneft’s fight with Sistema is now extending to a request that the courts lift a freeze on the transfer of 52.09% of Detskiy Mir, a toy store caught in the line of fire as part of Bashneft’s holdings. Kurdistan is reportedly looking to sign new contracts with Rosneft, vital for Russia’s regional foreign policy ambitions. Deputy minister Arkady Dvorkovich was dispatched to signal that Russia is also interested in investing into social infrastructure in Iraq through its oil firms.

Novatek won an auction for Geotransgaz from Alrosa, paying 30.3 billion rubles. Alrosa strongly asserted that the auction was completely legal and fair, despite complaints by Rosneft to the contrary. It’s expected that the acquired assets will double in value for Novatek due to its ability to produce condensate. The company will soon unveil final plans to invest $1.5 billion into an LNG transshipment terminal in Kamchatka. With base agreements to import gas and a talk of investing into Arctic-2 LNG, Saudi Aramco has emerged as a potential partner for Novatek. If a major deal comes out of SPIEF this year, it may tip towards likelier Russian involvement in Aramco’s IPO.

The Russia-China-Saudi Arabia connection is the dominant energy story now circulating, with the possible involvement of the Russian Direct Investment Fund in bringing together a consortium to buy 5% of the Saudi giant. Coverage talking up Russian-Saudi “strategic partnership” is misplaced. There are concrete corporate interests at play.

Gazprom really needs cash, going as far as forcing pipe manufacturers to offer discounts as a way to keep costs down on projects like Turk Stream. Though Gazprom had a small win recently – it can now sell gas directly to end consumers in Greece – it’s finding itself constantly reassuring investors that the Power of Siberia will in fact be profitable. Aramco would gladly undermine Gazprom, since it will throw off the energy market in Russia over time and Rosneft recently lost a chance to export LNG from the Pechora field. Backing the up-and-coming Novatek disrupting the balance of the Kremlin’s market while beating Rosneft to secure refinery deals across Asia is a winning play.

Word on the Street with Anna Nadibaidze

This week in Telegram gossip…

The main intrigue this campaign season remains Putin’s address to the Federal Assembly, which has been delayed (again) to March 1st. On March 2nd, Putin is supposed to be at the All-Russia People’s Front Forum, which will also serve as a pre-election platform for him. That means we’ll see two speeches one right after the other, just two weeks before Russia votes.

Reports say that fears of low turnout have led the Kremlin to put pressure on powerful diasporas in Russia, such as the Armenian and Azerbaijani communities, to encourage their members to actively vote ‘for the right candidate.’ Seems desperate…

In Russia’s current political model, candidates are not competing for votes, so much as elites for Putin’s attention, writes @obrazbuduschego. In such a situation, people should engage in a protest vote, and currently the best candidate for showing protest is Grudinin. This could explain his popularity in polls. The President’s Administration thinks Grudinin’s popularity is temporary… but what if it isn’t?

Medvedev said the government to be formed after the election will be working ‘in difficult conditions’ leading many commentators to jokeabout whether the PM will get to see those times. One of the more authoritative channels, @russica2, predicts he will stay. Fair enough, but we can’t say the same about Moscow Mayor Sergei Sobyanin. Elections for the position are also this year and the battle (we’ll see between who) promises to be fierce, writes @politjoystic.

In order to reach the ‘70/70’ turnout goal, Putin’s campaign managers have considered plays such as: sacking the PM, finding a new competitor, registering Navalny, and having Putin participating in debates. As none of these have been tried, the model currently in use combines an increase in turnout thanks to Grudinin, a new image for Putin’s new term (to be presented in upcoming address to the Federal Assembly), and deploying the ‘administrative resources’ of government corporations to drive workers to the polls. Many Telegrammers are skeptical this will work.

Politics and Regions with Chris Jarmas

Turning screws, turning out

Opposition activist and unofficial candidate Alexei Navalny has been detained – again. This time, Moscow authorities will likely hold him for 30 days for “repeated violations” of organizing unauthorized protests. It’s a common refrain in the West that Putin’s unwillingness to subject himself to criticism is a sign of weakness; but Putin is genuinely popular in Russia. To square this circle, I am reminded of this quote from former Kremlin insider Gleb Pavlovsky, taken from an interview conducted during the 2012 protest wave: “Ever since Yeltsin’s 1993 attack on the Parliament, there has been an absolute conviction that as seen as the power center shifts, or if there is mass pressure, or the appearance of a popular leader, than everybody will be annihilated.” Putin may well be confident in his popularity at the present moment, but authorities understand well that public opinion can shift rapidly – after all, in 1999, Putin himself saw his popularity skyrocket from 31% in August to 84% by January.

The same logic explains the regime’s obsession with turnout in an election Putin will surely win. With less than one month to go before March 18, authorities up and down the vertikal’ are getting the message. How does the turnout push translate on a local and regional level? This week, Navalny tweeted an image of a newsletter from Chelyabinsk-based metal producer MECHEL, which instructed employees how to vote and, most importantly, how to inform their superiors that they have done their civic duty. Workplace mobilization is hardly new in Russia, but it is revealing of how Putin’s system works. Does this mean that the Kremlin or its regional agents are specifically instructing MECHEL to produce a certain electoral result? Probably not. More often than not, the vertikal’ relies on signals rather than direct orders – and everyone in the system seems to be getting the message. In Sverdlovsk Oblast, the regional electoral commission will be issuing cash prizes for local branches which can produce the highest turnout. It’s easier to produce high turnout when regional officials know their jobs depend on it, firms know their tax breaks depend on it, and individual workers know their bonuses depend on it.

Weekly Round-Up with Aaron Schwartzbaum

A Wagner lead

I thought I had a good, or at least plausible explanation for what happened near Deir al-Zour on February 7th. It was the classical principal-agent problem: the Kremlin had a foreign policy aim that it delegated to Yevgevniy Prigozhin’s infamous Wagner group. Wagner, however, has interests of its own, and may have been looking to grab oil assets in the area. Indeed, that’s another business line for Prigozhin (along with internet trolling). It would also be typical of how things work, or do not, in Russia: an actor interprets often vague signals from Putin and co. and tries to implement them as best he can, potentially at cross-purposes with other actors trying to do the same.

A news item yesterday, however, threw a wrench in that line of thought: that US intelligence evidently intercepted Prigozhin in conversation with a Syrian official, commenting that he had “secured permission” from a minister for a “fast and strong” initiative set to occur in early February. That, and Prigozhin evidently had several conversations with Putin’s Chief of Staff, Anton Vaino, as well as his deputy, in the run up to the incident. So what happened, then? With the caveat that this is a hypothesis, I reckon this story starts earlier than the narrative suggests: in January, when Khmeimim Airbase, home to much of Russia’s presence in Syria, came under drone attack on several occasions. In one such incident, several fighter aircraft were purportedly destroyed. At the time, Russia’s Ministry of Defense suggested that the United States was behind the attacks, having supplied the relatively advanced hardware to local fighters, potentially even providing guidance and targeting.

If we take the Ministry of Defense at its word and assume that is the prevailing view in the Kremlin (it matters little whether or not that’s what Putin himself thinks), responding in a similarly arms-length manner may have seemed proportional. Now we arrive at a fork in the narrative: either the Wagner mercenaries were viewed as expendable and a signaling tool (“we’re willing to attack”), or decision makers wildly miscalculated US resolve – or both. American forces, points out Aleksandr Golts, likely knew the attack was coming, as evidenced by having a B-52 bomber conveniently around for the fight. The ensuing engagement, in short, was the calling of a bluff; a demonstration. “If they’re not yours,” replied Washington, “surely it won’t matter if we bomb them.” The information leaked in the WaPo story, meanwhile, is just more signaling to Moscow: “we know what happened,” and “you’re going to have a hard time working with Prigozhin.”

I can’t state enough how concerning this incident is. Indeed, points out Golts, it’s the first time since the Korean War that US and forces from Russia (not quite Russian forces) have fired at each other in anger. If Prigozhin was acting on his own accord, he viewed attacking US forces as on-side: that’s not good. If he wasn’t, the Kremlin tried something extremely dangerous: not good either.

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