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UKRAINE UPDATE: 11 MAY 2022

EU oil sanctions talks hinge on Hungary; Finnish Parliament committee backs Nato membership

EU oil sanctions talks hinge on Hungary; Finnish Parliament committee backs Nato membership
A Ukrainian soldier cleans an operating room at a frontline field hospital near Popasna, Luhansk region, eastern Ukraine, on 9 May 2022. (Photo: EPA-EFE / ROMAN PILIPEY)

A video call between the European Union and Prime Minister Viktor Orban to discuss proposed sanctions on Russian oil imports that Hungary is resisting was postponed. Meanwhile, a key committee in Finland’s Parliament backed Nato membership.

Ukraine’s natural gas grid said Russian flows to Europe via a key entry point will stop from Wednesday as Moscow’s forces disrupt operations, a move that has the potential to reduce supplies.

The EU approved the release of €600-million in aid for Ukraine as it considers issuing joint debt to finance the country’s long-term reconstruction, which may end up costing hundreds of billions of euros.  

Key developments

EU seeks to boost Ukraine’s food exports via land 

The EU is finalising a plan to facilitate land exports of Ukraine’s stocks of food products with the Russian invasion blocking access to the country’s vital Black Sea ports. The bloc on Wednesday will consider a strategy that would address technical and bureaucratic initiatives to speed up the shipping of vegetable oils, corn and wheat, some of Ukraine’s key exports, people familiar with the discussions said.

The EU’s executive arm is concerned about logistical bottlenecks that could hamper efforts to use alternative land routes via neighbouring countries, since infrastructure gaps could hinder exports despite recent moves to remove trade barriers with Kyiv. It will be a challenge to move a significant portion of the 25 million tonnes of products stuck there in time for the beginning of the next harvest season.

Ukraine gas grid says Russia flows via key entry point to stop  

Ukraine’s natural gas grid said Russian flows to Europe via a key entry point would stop from Wednesday as occupying forces disrupt operations, a move that has the potential to reduce supplies.

The Gas Transmission System Operator of Ukraine said it can no longer accept Russian gas transit via Sokhranivka from 7am local time, according to a statement on its website. It’s still possible for the fuel to be rerouted via another key entry point, allowing European contracts to be fulfilled, though it’s unclear who is responsible for making that decision.

Ukraine had already warned Russia that the actions of its troops and occupiers in the Luhansk region could end up disrupting about a third of the gas the Eastern European nation transits to Europe. 

NSA probes Kaspersky’s reach in US  

The National Security Agency is investigating the extent to which software made by the Russian cybersecurity company Kaspersky is embedded in US businesses and organisations amid rising security concerns over Russia’s invasion of Ukraine.

“I am still very worried about US companies that are using Kaspersky,” said Rob Joyce, the NSA’s director of cybersecurity, in an interview in which he revealed the inquiry. “We think that is ill-advised with this global situation.”

Some companies, including those in financial services, voluntarily abandoned Kaspersky antivirus products after the US government banned the company’s software from federal systems in 2017, citing espionage fears. But the company’s products continue to be used in the US, which Joyce called “an installed base across random critical infrastructure and industry”.

Swedish ruling party reported saying yes to Nato 

Sweden’s ruling Social Democrats are set to declare their support on May 15 for the country to join Nato, Finland’s largest newspaper, Helsingin Sanomat, reported, citing sources it didn’t identify.

Finland’s government has been aware of the conclusion since at least last week, the newspaper said. 

Previous reports by news agency TT indicate that Swedish Prime Minister Magdalena Andersson wants to wait for the delivery of the country’s cross-party security policy review, due on May 13, before she decides on the Nato position.

Zelensky urges Slovakia to back Russian oil ban 

Ukrainian President Volodymyr Zelensky urged Slovak lawmakers to back the EU’s proposed ban on purchasing oil from Russia as the government in Bratislava tries to negotiate a three-year exemption with the bloc because of its heavy dependence on Russian crude.

Zelensky thanked Slovakia for supplying his military with weapons but said that the EU’s sixth package of sanctions was also vital for Ukraine’s defence. 

“If they will be weaker, it will be harder for us. We need this sixth package.” Zelensky told legislators in a video speech. “We understand it will be hard for you, but banning oil is important.”

 

 

 

Finnish Parliament committee says country should join Nato  

Finland should join the North Atlantic Treaty Organization (Nato) to best ensure the security of all Finns, according to the Parliament’s defence committee, as the nation prepares to decide on an application within days.

Russia’s invasion of Ukraine galvanised public support for joining the military alliance. Finland is, along with Sweden, considering Nato membership and giving up its non-alignment that stretches back to before the Cold War.

EU approves release of 600m for Ukraine 

The EU has approved the release of €600-million to help Ukraine with its urgent financial needs, according to bloc officials who asked not to be identified. The money is part of the EU’s €1.2-billion emergency assistance package adopted by the bloc early this year.

The European Commission was expected to complete the process on Wednesday and the funds could be transferred in the coming days, according to one of the officials.

Ukrainian troops retreat from Popasna in Luhansk region 

Ukrainian troops retreated from Popasna in the Luhansk region to more fortified positions, the area’s Governor Serhiy Haiday said in a statement on Facebook. 

Fighting over the city, which is near the border between the Luhansk and Donetsk regions and occupies strategic heights, was ongoing over the last two months. 

German, Dutch foreign ministers visit Kyiv 

German Foreign Minister Annalena Baerbock and her Dutch counterpart Wopke Hoekstra travelled to Kyiv on Tuesday where they held meetings with Ukrainian government officials.

Baerbock visited the town of Bucha near the capital, which is the site of alleged Russian atrocities against civilians, while Hoekstra was in the Kyiv suburb of Irpin, where he viewed bombed-out houses and buildings. “These acts cannot go unpunished,” he said in a tweet. “The Netherlands is committed to establish the truth and achieve justice.” 

Macron speaks with Orban on energy security 

Orban spoke about energy security on Tuesday with Macron, whose country holds the EU’s rotating presidency, an aide to the Hungarian leader said, as diplomacy over potential sanctions on Russian oil continues. 

A video call between Orban, European Commission President Ursula von der Leyen and Hungary’s neighbours was not held on Tuesday, according to a spokesman for the bloc. He didn’t immediately explain why the call, which was announced the previous day, was delayed. 

The EU’s sixth sanctions package would ban crude oil shipments over the next six months and refined fuels by early January, but Hungary has threatened to veto the measures due to its reliance on Russian energy imports. Orban and Von der Leyen made progress in talks over the issue on Monday but failed to reach a breakthrough, according to both sides.

German investor confidence stabilises 

Investor confidence in Germany’s pandemic rebound improved but remained deeply negative as the war in Ukraine darkens the outlook for Europe’s largest economy.

The ZEW institute’s gauge of expectations rose to -34.3 in May from -41 the previous month, defying expectations for a third straight deterioration. Germany’s economy is feeling the effects of Putin’s invasion in large part due to its high dependence on Russian energy imports. 

Ikea still buying Russian wood despite pledge – Aftonbladet  

Ikea is continuing to source wood from Russia despite making a public promise to halt trade with the country following the war in Ukraine, Sweden’s tabloid Aftonbladet reported, citing internal email exchanges between Ikea’s purchasing managers.

In early March, the Swedish retailer said it was pausing operations in Russia and Belarus, including all exports and imports with those countries. Ikea representatives didn’t immediately respond to a request for comment.

Mazda halted Russian plant – Nikkei  

Mazda Motor Corporation halted production at its Vladivostok joint venture with Sollers in late April after it previously stopped exporting parts to Russia, Nikkei reported, citing the company.

Russia’s auto sector has been among the hardest hit domestic industries from sanctions as parts supplies have dried up. Volkswagen, BMW, Ford  and every Japanese car company with production in the country have suspended operations there.

Oil extends slump as EU softens sanctions proposals 

Oil extended its biggest drop in more than five weeks after the European Union softened its proposed sanctions on Russian crude exports and as economic growth concerns weighed on sentiment.

West Texas Intermediate futures fell below $103 a barrel in Asian trading after sliding around 6% on Monday. The bloc will scrap a proposed ban on EU-owned vessels transporting Russian crude after objections from members including Greece.  

 

 

 

Independent Russian media turns to crypto for funding 

Meduza, a prominent independent Russian-language news site, is soliciting donations via cryptocurrencies as President Vladimir Putin’s crackdown on the press and Western sanctions made raising money in Russia impossible.

The site lost about a third of traffic after the Kremlin blocked its content in Russia and was forced to become creative in its fundraising to keep the lights on. Data show that Meduza’s Bitcoin and Ether wallets listed on its website held crypto worth around $230,000 at current prices.

Munich Re writes down $740m over war 

Munich Re wrote down Russian and Ukrainian bonds in its investment portfolio and warned that the war poses “considerable uncertainty” to its outlook.

The German reinsurer cut the value of the securities by almost €700-million in the first quarter and recorded about €100-million in costs related to the conflict.

Putin’s invasion has forced a series of financial hits among reinsurers, in part because of Russia’s move to effectively impound planes leased from foreign lessors. Swiss Re said earlier this month that it had set aside $283-million in reserves related to the war during the first quarter, and Hannover Re made additional provisions for possible losses in the low triple-digit million-euro range in the period. 

Ukraine’s economy to shrink 30% this year – EBRD  

That forecast is more than previously expected and in a scenario where the war ends this year, the European Bank for Reconstruction and Development (EBRD) said. 

Read more: Ukraine’s economy to shrink 30% this year due to war, EBRD says

Russia’s invasion has upended trade in energy, agricultural commodities and fertilisers and disrupted supply chains, resulting in slower growth across eastern Europe. DM

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