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UKRAINE UPDATE: 18 JULY 2023

Russia pulls plug on grain export deal; Putin vows to retaliate after drone attacks on Crimea bridge

Russia pulls plug on grain export deal; Putin vows to retaliate after drone attacks on Crimea bridge
An image taken from a video from the Russian National Anti-Terrorist Committee on 17 July 2023 shows repair work on the Kerch Strait bridge connecting Crimea to mainland Russia. Russia blamed Ukraine for the overnight blast. (Photo: EPA-EFE / Russian National Anti-Terrorist Committee)

Russia halted the Black Sea grain deal, heightening uncertainty over global food supplies by closing a crucial export route for Ukraine, one of the world’s top suppliers of wheat and vegetable oils.

Russia’s decision to halt the Black Sea grain deal followed blasts that Moscow said had forced it to suspend road and rail traffic across the flagship Kerch Strait bridge that links Russia to occupied Crimea. The Kremlin blamed Kyiv for waterborne drone attacks that killed two people and shut Russia’s key artery for military and civilian access to the peninsula.

President Vladimir Putin discussed the US provision of cluster munitions to Ukraine in a TV interview, saying Russia would retaliate if the weapons – which have already arrived in Ukraine – were used on its forces. Monitors from the Organisation for Security and Cooperation in Europe concluded last year that Kremlin forces had used cluster bombs during its invasion.

Latest developments 

Putin vows response against Ukraine over Crimea bridge blasts

President Vladimir Putin threatened to strike at Ukraine in retaliation for explosions that damaged Russia’s flagship bridge to Crimea.

“Russia will, of course, respond,” Putin said late Monday in a televised meeting with officials. “The Defense Ministry is preparing the appropriate proposals.”

Russia’s National Antiterrorism Center said two Ukrainian surface drones attacked the bridge in the early hours of Monday, damaging a section of the roadway. The operation was carried out by “Ukrainian special services”, Russia’s Investigative Committee said in a statement.

State television showed part of the roadway had buckled after the explosions on the 19-kilometre bridge connecting Russia to Crimea across the Kerch Strait, which were the most serious since a massive blast in October.

The explosions caused the suspension of road and rail services. Officials said rail transport resumed later Monday, though roads remained closed as repair operations began on the link.

The blasts took place hours before Russia announced it was terminating a deal permitting Black Sea grain exports from Ukraine that was brokered by the United Nations and Turkey.

Russia’s August oil export duty to rise to highest this year 

The export duty that oil companies pay to the Russian state will rise next month to the highest level this year, helping to partly offset the impact of production cuts on the nation’s budget.

Russia’s crude export duty will increase to $16.90 per ton in August, up by 8.3% from July, following an increase in the price of Urals – the nation’s key export blend, the Finance Ministry said in a statement on Monday. That equates to around $2.306 a barrel based on a 7.33-barrel-per-ton conversion rate.

Oil taxes are a key source of revenue for Russia’s budget, which is under growing strain due to the cost of the war in Ukraine. While the export duty is just one of the taxes paid by the country’s oil industry and accounts for just a fraction of total petroleum revenue, the August hike will compensate somewhat for lower overseas crude sales.

 

 

 

Ukraine business upbeat on outlook for first time since invasion

Ukraine’s business community struck an optimistic tone on the economy’s outlook for the first time since Russia invaded in February last year, according to a quarterly survey conducted by the central bank.

Expectations for changes in the financial and economic condition of businesses were positive for the first time in five quarters, the National Bank of Ukraine (NBU) said on Monday on its website. More than 660 Ukrainian companies representing 21 regions took part in the second-quarter survey.

“Respondents expect an increase in goods and services, while also being positive about the development of their own enterprises, given the restoration of the energy system, the gradual revival of domestic demand and the strengthening of the hryvnia exchange rate,” the NBU said.

EU’s influence push in Latin America dented by Ukraine clash

Leaders of the European Union are seeking to reboot relations with Latin America in a competition for influence against Russia and China, but wrangling over Moscow’s invasion of Ukraine is hampering their efforts.

The EU will help invest more than €45-billion in Latin America and the Caribbean until 2027, Ursula von der Leyen, the head of the European Commission, told a business conference on Monday ahead of a two-day summit in Brussels with leaders from the regions.

The funding – which would come from a combination of EU funds, member states’ contributions, development banks and the private sector – will be focused on areas including clean energy, critical raw materials, health and education.

A key goal for Europe in the summit is seeking stronger support for Ukraine in its efforts to counter the Russian invasion, reduce China’s sway, and ensure access to critical raw materials for its digital and green transition.

But diplomats are clashing on a possible statement to mark the end of the summit. The EU wants a section condemning “the ongoing war against Ukraine”, deploring “in the strongest terms the aggression by the Russian Federation” and demanding “its complete and unconditional withdrawal”, according to a draft seen by Bloomberg.

Latin American and Caribbean countries, however, currently prefer to “express concern” about the war, and support efforts for an immediate cessation of hostilities, the draft shows.

Cuba and Nicaragua are among the main countries blocking a harder stance in the statement against Russia over its invasion of Ukraine, according to two people who asked not to be identified on confidential talks.

Russia pulls the plug on Ukraine grain export deal

Russia ended the Ukraine grain-export deal nearly a year into the agreement, heightening uncertainty over global food supplies and escalating tensions in the region.

The pact, previously extended in May, will cease to be effective as of Tuesday, the foreign ministry in Moscow said in a statement. Russia had repeatedly threatened to leave the deal, which had marked a rare example of cooperation during its war in Ukraine. The corridor’s shutdown will hit key buyers such as China, Spain and Egypt.

“Unfortunately, the part concerning Russia in this Black Sea agreement has not been fulfilled so far,” Kremlin spokesman Dmitry Peskov said, according to Russian news agency Tass. “Therefore, it is terminated.”

The move jeopardises a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia said on Monday that Ukrainian drones had damaged a key bridge to Crimea.

The pact – brokered by the United Nations and Turkey – has ensured the safe passage of almost 33 million tons of crop exports via the Black Sea since it was signed in July 2022, helping world food commodity prices ease from the record levels reached after Russia invaded. However, it has been bogged down by issues including slow vessel inspections in recent months.

Russia cited obstacles to its own shipments and a bias toward Western interests as reasons for discontinuing the pact, though the nation is the world’s top wheat shipper. It said it would be willing to reconsider the deal when its terms are met.

Putin’s budget maths gets ugly as election looms after mutiny

An aborted armed mutiny by Wagner mercenaries exposed Russia’s porous home front, shook President Vladimir Putin’s authority and resulted in the removal of thousands of seasoned fighters from the battlefields of Ukraine.

Remedying the fallout will be costly, especially with elections looming next March in an economy worn down by almost 17 months of war and sanctions. And in a reminder of the threats Russia now faces, authorities on Monday said two Ukrainian drones caused explosions that killed two people and damaged the symbolic Kerch Strait bridge to Crimea, the peninsula Putin annexed from Ukraine in 2014.

Read more: Russia says Ukrainian drone attacks damaged bridge to Crimea

The implications for the budget will go far beyond the sheer price of fortifying positions in Ukraine that were manned by a group of Wagner fighters estimated at 50,000.

Building a larger security presence around Moscow – alongside committing more resources to the war effort – may prompt the government to increase spending by 5% relative to its current budget plan, according to Bloomberg Economics, meaning an extra 1.3 trillion roubles ($14-billion) of expenditure this year.

Another likely priority for Putin, as he looks for another six-year term in office, will be to buy off the electorate. A surge of around 12% in real wages accompanied previous election periods, Bloomberg Economics estimates, primarily as a result of pay hikes in the public sector.

The changing calculus caused by the rebellion will end up swelling what are already some of the biggest-ticket items in a budget that ran a deficit of 2.6 trillion roubles in the first half of 2023, or more than three-quarters of the total targeted by the government for the entire year.

The fiscal taps have been fully opened this year. Months before the mutiny, Putin announced an increase of 18.5% in the minimum wage from 2024, a hike that will extend to nearly five million people in Russia.

“There will be other handouts but they are likely to be very precisely targeted to alleviate poverty and reward those fighting in Ukraine and compensate their families,” said Tatiana Orlova of Oxford Economics.

Russia says Ukrainian drone attacks damaged bridge to Crimea

Russia said two Ukrainian drones caused explosions that damaged its flagship bridge to Crimea, killing two people and causing the suspension of road and rail traffic.

“Two Ukrainian unmanned surface vehicles attacked the Crimean bridge” in the early hours of Monday, the National Antiterrorism Centre said. The attack that damaged a section of the road bridge was carried out by “Ukrainian special services”, Russia’s Investigative Committee said in a statement.

State television showed part of the roadway had buckled after the explosions on the 19km bridge connecting Russia to Crimea across the Kerch Strait, which were the most serious since a massive blast in October. They took place hours before Russia announced it was terminating a deal permitting Black Sea grain exports from Ukraine that had been brokered by the United Nations and Turkey.

Kremlin spokesperson Dmitry Peskov said the decision was unrelated to the bridge incident. Russia indicated last week that it was likely to withdraw from the agreement.

Two people died and a teenage girl was injured in a car on the bridge at the time of the attack, the Investigative Committee said.

Ukraine didn’t directly claim involvement. Putin called construction of the bridge a “historical mission” for Russia before it opened in 2018, four years after he annexed Crimea from Ukraine.

Train services later resumed across the bridge, state-run Tass news service reported, citing Russia’s Transport Ministry. Ferries would also be used to transport trucks between the peninsula and Russia, according to local officials.

 

 

 

Europe wants permanent gas buyers club for post-Russia strategy

The European Union wants to make joint gas purchases, a crisis measure to stop member states bidding against each other, a permanent feature of the bloc’s post-Russia energy strategy.

The European Commission, the bloc’s executive branch, is proposing extending the measure to include the purchase of hydrogen and decarbonised gases, like biomethane, according to a document seen by Bloomberg News. It could also include other energy commodities or services, like carbon capture and storage.

Participation in the joint purchase platform would be voluntary, except in the event of another energy crisis when the bloc could make pooling demand obligatory. It would still exclude Russian gas, according to the document.

“This exclusion is driven by the war started by Russia and its weaponisation of energy and the objective to diversify away from Russian fossil fuels,” it said.

The move shows the commission believes the emergency measure intended to avert the kind of energy price surges seen last year, has been a success and provides a model for future cooperation. Two gas tenders have matched buyers with sellers for about 23 billion cubic metres of gas, equivalent to around 15% of annual pre-war supplies from Russia. DM

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