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UKRAINE UPDATE: 13 OCTOBER 2023

Moscow mounts heavy attacks in Donetsk; US imposes first sanctions over Russian oil price-cap violations

Moscow mounts heavy attacks in Donetsk; US imposes first sanctions over Russian oil price-cap violations
A damaged residential building on a shelled street in Avdiivka settlement near a front line in Donetsk region, Ukraine, on 28 August 2023. (Photo: EPA-EFE / Alex Babenko)

Russia was mounting the biggest attack on Avdiivka in the eastern Donetsk region since its invasion of Ukraine started, city administration head Vitaliy Barabash said on local TV. The town has been under heavy assault for the past three days as Russian forces try to find cracks in Ukrainian defences there, he said.

The Ukrainian army hit a bridge with a missile strike to block Russian forces seeking to advance toward Avdiivka, Anton Herashchenko, an adviser for the Ukrainian interior minister, said on Telegram. The only option for Russian forces now is a 15km detour via open ground, Herashchenko said.

Ukraine was discussing the use of Russian frozen assets to insure war risks for companies with the International Monetary Fund, the US and other partners, Prime Minister Denys Shmyhal told a conference in Kyiv. Shmyhal said Ukraine expects between $300-billion and $500-billion to be used for reconstruction projects.

Latest developments

Fear grips global gas market facing winter supply threats

Mounting threats to gas supply are sending most global fuel prices higher as fear takes hold of the market just ahead of the first signs of winter.

Natural gas in Asia and Europe jumped this week, with the latter surging to the highest level in eight months, driven by the Israel-Hamas war, potential strikes at key export plants and infrastructure vulnerabilities, including a leak in a Baltic Sea pipeline where sabotage is suspected.

The US stands apart, and price swings there have been much more muted thanks to ample domestic production.

The multiple risks highlight the fragility of other markets, in particular Europe, which is starting its second winter without much of the pipeline gas flows from Russia that it once took for granted. The continent’s benchmark futures continued their rally on Thursday, adding 15%.

The good news is the market is in a much better place now than this time last year. Inventories are high, industrial demand is down, and several new import facilities have been added. In addition, some forecasts suggest Europe will have a relatively warm winter, which should reduce gas needs.

But the energy crisis is still far from over, and a cold snap is set to hit Europe in the coming days. Any hint of disruptions to global gas flows could send shockwaves through the market, particularly as households crank up the heat.

US imposes first sanctions over Russia oil cap as impact fades

The US imposed the first sanctions for violations of the price cap on Russian oil introduced by the Group of Seven nearly a year ago, as signs mount the restriction is failing to cut Kremlin revenues as hoped.

The Treasury Department called the steps a new phase in the enforcement of a policy aimed at limiting the flow of money to Russia to fund its war in Ukraine. It announced sanctions on two firms and blocked two vessels it said had violated the cap.

That measure was aimed at keeping Russian oil flowing to the world market to ensure prices didn’t spike but choking off the Kremlin’s financial gains. To do that, the cap bans companies from providing services like shipping and insurance to any cargoes priced above the $60/barrel limit.

Russia has managed to accumulate a fleet of its own, however, and shifted export flows to countries like India, which didn’t join the price cap. In recent months, the price of Russian sales has reached $80 or more and even US officials began to publicly admit the limit was losing effectiveness.

“We remain committed to implementing a price cap policy that has two goals: reducing the oil profits upon which Russia relies to wage its unjust war against Ukraine and keeping global energy markets stable and well-supplied despite turbulence caused by Russia’s unprovoked invasion of Ukraine,” Deputy Treasury Secretary Wally Adeyemo said in a statement.

The US Treasury Department sanctioned United Arab Emirates-based Lumber Marine, the registered owner of Primorye, and Ice Pearl Navigation Corp, the registered owner of the Yasa Golden Bosphorus.

The Primorye is accused of carrying Novy Port crude priced above $75 per barrel from a port in the Russian Federation after the cap went into effect in December. The Golden Bosphorus carried Espo crude priced above $80 per barrel after the cap took effect. Both vessels used US-based service providers while transporting the oil, Treasury said in a statement.

Russian Olympic body suspended over inclusion of Ukraine regions

The International Olympic Committee (IOC) suspended Russia’s representative after it tried to include regional organisations under the sports authorities of Ukraine.

Russia’s Olympic Committee attempted to include the regional sports organisations of Donetsk, Kherson, Luhansk and Zaporizhzhia last week, a move the IOC said was a breach of the “territorial integrity” of the National Olympic Committee of Ukraine, according to a statement on Thursday.

The decision means Russia cannot receive any funding from the Olympic Movement. The IOC is yet to decide on whether individual neutral athletes with a Russian passport can take part in the Paris Games this summer or the winter competition in Italy in 2026.

Russia resumes wartime capital controls as Putin nears elections

Russia’s government is reimposing tougher capital controls over the objections of the central bank, according to people familiar with the matter, acting to keep a closer grip on the rouble as Russian President Vladimir Putin prepares for presidential elections.

The surprise announcement late on Wednesday imposed measures that will extend over the next six months, a period encompassing Putin’s campaign for a fifth term in elections scheduled for March. They will force 43 groups of exporter companies, including the country’s main oil producers, to sell their earnings from sales abroad on the domestic market for roubles to ensure a supply of foreign exchange.

The impact was immediate, with Russia’s currency heading for its best day this year on Thursday. It was up 3.1% against the dollar as of 2.40pm in Moscow, recouping some losses after suffering the third-biggest depreciation in emerging markets this year.

The Kremlin has been preparing for the presidential elections to deliver Putin a decisive victory and demonstrate he retains the full support of Russians almost 18 months into the faltering war in Ukraine. With the rouble losing a quarter of its value against the dollar this year, the currency is increasingly seen as a barometer of the health of the broader economy and a source of pressure on consumer prices.

Finland sees Russia escalating moves against it after Nato entry

Finland’s security service expects more influencing operations from neighbouring Russia after the Nordic country joined Nato, with the Kremlin seen focusing on information gathering in the cyber environment.

In a report released annually on security conditions, the Finnish Security and Intelligence Service Supo said that Russia’s operating conditions for human intelligence in Finland have “deteriorated” following the expulsions of its diplomats since the start of its war in Ukraine.

That means Russia is “highly likely” to shift its focus on the cyber environment to collect intelligence, the intelligence agency said on Thursday.

The report comes as Finland is investigating damage to an undersea gas pipeline that connects it with Estonia — another member of the North Atlantic Treaty Organisation — as potential sabotage, even as its officials have declined to comment on who could be responsible. Supo’s report didn’t address that incident, while it said that the nation’s critical infrastructure increasingly relies on satellite services.

Read More: Finland sees pipeline leak as likely caused by mechanical force

Russia will “probably strengthen” its countermeasures against Finland as a result of the Nordic country’s accession to Nato, the continuation of the war in Ukraine as well as Russia’s deepening confrontation with Western nations and growing sanctions, the agency said. Still, Nato membership is expected to provide protection against the “most violent forms of influencing”, Supo said.

The fall of Russia’s gas giant dulls key tool of Putin’s power

Putin overplayed his hand by trying to use Gazprom to bring Europe to its knees, and now his efforts to bolster the state-controlled gas giant are at the mercy of China.

After years of focusing Gazprom’s exports on pipelines to Europe and underinvesting in liquefied natural gas capacity, Putin has limited options for the national champion, and that will be evident when he meets his counterpart Xi Jinping in Beijing next week.

The Kremlin is keen for fresh export deals to shore up Gazprom’s international presence, which suffered after Putin failed to cow Ukraine’s allies in Europe with threats of freezing homes. China is the biggest foreign market available but won’t be a one-for-one replacement.

Even in the Kremlin’s best-case scenario — with current and planned projects all reaching full capacity in a timely manner — the Asian superpower would only account for about two-thirds of the volumes that once flowed to Europe. But prices will be lower and the deliveries would still take years and massive investment to get going.

“Putin appears to have miscalculated when he cut off Europe,” said Maria Snegovaya, senior fellow at the Washington-based Center for Strategic and International Studies. “Much of the European market has been lost to Russia, and Gazprom’s geopolitical relevance appears to be in decline — so much for Russia’s ‘gas superpower’ ambition.”

With deliveries to Europe only a fraction of what they used to be before Putin’s invasion of Ukraine, pressure is building in Russia to replace what was once its biggest market before the impact reverberates through the economy, according to Oxford Institute for Energy Studies. But China doesn’t have that kind of urgency.

“I don’t see a big chance for Russia to win a new gas deal with China this year, despite the eagerness on the Russian side,” said Kevin Tu, managing director of research firm Agora Energy Transition China. Beijing has already increased Russian energy imports since the outbreak of the war, but the European Union’s trouble with overreliance is clearly a big lesson for the world’s largest importer of fossil fuel, Tu added.

Russia Uber rival probed over fears secret service gets data

Russian ride-hailing app Yango is under investigation over concerns that it’s a conduit for Putin’s secret service to gather data on customers in Europe.

Yango, a unit of internet firm Yandex, faces a Dutch probe under the European Union’s data protection rules, following concerns previously highlighted by Finnish and Norwegian authorities about the risks stemming from a controversial law that took effect on 1 September, giving Russia access to data processed through taxi operators.

“We can confirm that we started an investigation into Yango,” a spokesperson for the Dutch Data Protection Authority said in an email on Wednesday, declining to comment further.

Finland’s data authority in August issued an emergency order for Yandex to suspend all transfers of Yango-related user data in the two nations to Russia starting on 1 September. The suspension was postponed until 26 September, after the Finnish, Norwegian and Dutch probe found that the new Russian law wouldn’t apply to Yango’s services in Europe.

Yango is “engaged” with the Dutch data authority to “demonstrate our compliance with the GDPR requirements, including with respect to data storage and international transfer,” it said in an emailed statement, adding that it’s already shown to Finnish and Norwegian watchdogs that its data processing “doesn’t pose any imminent threat to the fundamental rights and freedoms of the European users”.

The Russian rival of Uber has been under scrutiny since 2019 from the Finnish watchdog, which wants clarity around who controls data processing at the firm.

“The authorities’ investigations have revealed that personal data collected by the Yango taxi service has been transferred to Russia,” the Finnish regulator said in a statement on 31 August.

“It is possible that the FSB has access to data transferred to Russia regardless of the scope of taxi legislation, but the investigation is still ongoing,” it added, referring to Russia’s Federal Security Service. DM

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