Black Sea corridor traffic paused amid anti-graft clampdown; US to deliver $150m ordnance package to Kyiv

Black Sea corridor traffic paused amid anti-graft clampdown; US to deliver $150m ordnance package to Kyiv
Soldiers walk among destroyed trees as Ukraine’s 10th Mountain Assault Brigade ‘Edelveys’ operates at the front line in the Bakhmut district on 25 October 2023. (Photo: Kostya Liberov / Libkos via Getty Images)

Traffic through Ukraine’s new Black Sea shipping corridor was paused by local authorities amid a push to iron out tax and customs issues, and root out corruption, according to a Ukrainian official. The three big ports in the Odesa region were continuing to load ships despite the closure, which may threaten a key source of revenue if it is extended.

The US is pulling an additional $150-million in military equipment from stockpiles to aid Ukraine in its counteroffensive against Russia. The package includes more air defence missiles, rockets, artillery ammunition, anti-tank and anti-aircraft weapons, and uses funding authorised by Congress in the previous fiscal year, according to the departments of State and Defense.

European Union leaders gathered for a summit in Brussels on Thursday with question marks hanging over the bloc’s ability to provide Ukraine with a million artillery shells by March. Only about 30% has been supplied so far and the EU risks missing its target given the volume of contracts signed to date, according to people and documents seen by Bloomberg News.

Latest developments

Ukraine delivers biggest interest rate cut as economy returns to growth

Ukraine’s central bank delivered its biggest interest rate cut since Russia’s invasion and raised its forecast for growth this year as sliding inflation eased pressure on the war-battered economy.

The National Bank of Ukraine cut the benchmark rate by 4 percentage points to 16% on Thursday, deeper than the 18% forecast in a Bloomberg survey. Rates on deposit certificates remained steady. After collapsing by almost 30% last year following Russia’s attack, Ukraine’s gross domestic product will climb by 4.9% in 2023, up from a forecast of 2.9%, the bank said.

“We are seeing and responding to a sustainable trend of declining” inflation, Governor Andriy Pyshnyi told reporters in Kyiv. The bank said it would be gauging the market’s response to a loosening of capital controls on the nation’s currency.

The resilience of Ukraine’s wartime economy and falling prices have prompted rate setters to begin easing controls and deliver cuts faster than initially planned. Growth will return this year after the fallout from the destruction of infrastructure, the throttling of Ukraine’s key grain exports and population displacement.

Still, the central bank sees war risks extending through 2024 — a previous assessment cited mid-next year — as a grinding counteroffensive makes little progress in recapturing Russian-controlled territory and winter weather threatens to halt any advances. Ukraine’s military has pledged to press on through colder temperatures.

Russia rate hikes likely to continue despite world’s biggest currency surge

Russia’s reimposition of capital controls achieved in one go what three interest-rate increases by the central bank couldn’t do for the rouble.

It doesn’t mean policymakers are done hiking.

Despite the world’s biggest currency rally over the past month, the Bank of Russia was set on Friday to extend a cycle of monetary tightening that began in July when the pace of the rouble’s depreciation was just picking up. The exchange rate later weakened to levels unseen since the aftermath of last year’s invasion of Ukraine.

Read more: Why Putin is worried about Russia’s volatile rouble

A turnaround had to wait for the government’s decision this month to put up tighter restrictions on the movement of capital, a move initially opposed by central bank Governor Elvira Nabiullina. But it came too late to reverse the momentum of inflation that far exceeds the official 4% target and likely warrants at least one more round of policy tightening.

In the view of most economists surveyed by Bloomberg, the Bank of Russia will bring its key rate to 14% this week with a full percentage point increase, the same step it took at two of the past three meetings. A minority in the poll expects a hold and another analyst sees a smaller hike.

“The high pace of inflation and credit volume growth cannot but fuel the central bank’s concerns and desire to bring down the temperature of market expectations a little more,” said Sofya Donets, an economist at Renaissance Capital.

A rate hike of the magnitude forecast by economists would bring borrowing costs to the highest since April 2022 and risk tipping the economy into recession. But stabilising the rouble to get a better grip on inflation has emerged as a key priority for Russia at a time when Vladimir Putin prepares for presidential elections while the war against Ukraine rages into a 21st month.

Court backs Germany’s LNG push after Russian gas flow curbs

Germany’s top administrative judges gave another boost to government measures fast-tracking the construction of installations to secure energy supply after Russia’s invasion of Ukraine.

The Federal Administrative Court in Leipzig on Thursday threw out the first of a couple of lawsuits brought by two men over a liquefied natural gas (LNG) terminal and a floating unit in Brunsbüttel, in the northern part of Germany. Their property was provisionally seized to allow the construction of pipelines to connect the terminal with the gas network.

Germany’s highest administrative tribunal, which has exclusive and final jurisdiction over challenges against the LNG law, has now reviewed a series of key legal issues concerning the controversial legislation, Court President Andreas Korbmacher told the parties earlier at a hearing on Thursday morning.

The judges had already rejected two preliminary complaints filed by the same plaintiffs.

“We have reached fairly firm ground,” Korbmacher said. “We have issued several rulings which tackled a spectrum of legal issues.”

Germany fast-tracked the construction of LNG terminals last year to avoid a gas shortage after Russia curtailed shipments to the continent — in a law which cuts short environmental scrutiny of energy infrastructure projects. So far, three floating storage and regasification units in Wilhelmshaven, Brunsbüttel and Lubmin have started operations, with three more expected to go online this winter.

Jens-Ulrich Kanniess, a lawyer for the plaintiffs, said he would review any options his clients had to attack Thursday’s judgment.

The two men’s other case, which aims to topple the underlying construction permit for the terminals, will be heard in March. They lost a preliminary bid to halt the construction while that action is pending.

Several cases are pending over various LNG terminal constructions in Germany. So far the court hasn’t stopped any of these.

Russia’s frozen cash earns €3bn as EU haggles over how to tap it

Sanctioned Russian assets frozen in Belgium have generated nearly €3-billion in profits as European Union states continue to haggle over what to do with the money.

Euroclear results released on Thursday show that the immobilised assets have generated €2.9-billion from the time they were frozen through the third quarter of this year. That figure is expected to continue to rise.

The figures from the Belgium-based clearinghouse are likely to intensify the EU’s debate over how swiftly to pursue plans to apply a windfall tax on the profits generated by frozen Russian Central Bank assets and tap those proceeds for Ukraine’s reconstruction.

Estimates suggest that more than €200-billion of the sanctioned sovereign assets are in the EU, with the majority at Euroclear. Smaller amounts are located in other Group of Seven jurisdictions and elsewhere.

Read more: EU moves forward on plan to tax sanctioned Russian assets

The EU’s executive arm is pushing to move forward quickly with the windfall proposals despite cautions from some member states that want to proceed more slowly and concerns at the European Central Bank. European Commission President Ursula von der Leyen originally said she would present a plan this summer.

EU leaders planned to discuss the topic at a two-day summit starting on Thursday in Brussels.

Putin oversees drills by Russian nuclear forces 

Putin oversaw drills of Russia’s strategic nuclear forces, raising the stakes in a confrontation with the US and its allies over the war in Ukraine.

Ballistic and cruise missiles were fired during the exercises that involved nuclear forces on land, sea and air, according to a Kremlin statement on Wednesday. State television showed Putin being briefed on the drills by Defence Minister Sergei Shoigu.

Drills were conducted to test carrying out a “massive nuclear strike by strategic forces in response to an enemy’s nuclear attack”, Shoigu told Putin in televised comments.

Russia holds regular strategic drills toward the end of the year and this week’s tests took place as Nato conducted its annual nuclear exercises, Steadfast Noon, from 17-26 October.

Russia tested the Yars intercontinental ballistic missile in a launch from its Plesetsk cosmodrome in the western Arkhangelsk region to the country’s far eastern Kamchatka region, the Kremlin said. It also launched the Sineva ballistic missile from a nuclear submarine in the Barents Sea, and fired cruise missiles from Tu-95MS long-range bomber aircraft.

China Premier urges stepped-up trade, investment with Russia

Chinese Premier Li Qiang told his Russian counterpart that he wants to boost their trade and other cooperation, underscoring the nations’ close ties with the war in Ukraine well into its second year.

China is “willing to further align its development strategies with Russia” and “maintain the growth momentum of cooperation on trade and investment,” Li said in a meeting on Wednesday with Russian Prime Minister Mikhail Mishustin in Bishkek, Kyrgyzstan, according to the official Xinhua News Agency.

The partnership the two nations have built “is not targeted at any third party”, he added, remarks that may be intended to allay US worries. The Li-Mishustin meeting came on the sidelines of a summit of the Shanghai Cooperation Organisation, the nine-member bloc Beijing champions for coordinating security policies across Asia.

Li’s comments were a reminder that China-Russia relations have remained warm, especially since Putin ordered the invasion of Ukraine in February 2022. Beijing has provided diplomatic and economic support to Moscow that has helped blunt the effects of Western sanctions on Russia. DM


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