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UKRAINE UPDATE: 10 NOVEMBER 2023

EU mulls over aid plan to bypass Hungary veto; Russian strike on merchant ship threatens Kyiv exports

EU mulls over aid plan to bypass Hungary veto; Russian strike on merchant ship threatens Kyiv exports
Hungarian Prime Minister Viktor Orbán. (Photo: EPA-EFE / Alexei Nikolsky / Sputnil / Kremlin Pool)

Aides to Ukrainian President Volodymyr Zelensky sought to paper over cracks emerging between the nation’s political leader and its top military commander after the general warned of a ‘stalemate’ as the war with Russia heads into its second winter.

A Russian missile strike on a commercial ship at a major Ukrainian Black Sea port is adding to risks for commodity exports just as farmers in the war-battered nation are in the middle of this year’s harvest.

European Union countries are considering a backup plan to push through much-needed aid for Ukraine in its fight to repel Russia in case Hungary vetoes the current €50bn package.

EU mulls alternative Ukraine aid plan to bypass Hungary veto 

An alternative EU proposal would involve national guarantees from member states to raise funding in the markets should Budapest block the review of the EU’s long-term budget, which includes the package and requires unanimity, according to people familiar with the discussions.

Kremlin-friendly Hungarian Prime Minister Viktor Orbán has refused to supply arms to Kyiv and repeatedly said that Ukraine’s counteroffensive is doomed to fail, irking other EU capitals. And so far, he’s been unwilling to back a new EU aid package for Ukraine.

At the same time, Orban is banking on the release soon of at least some of the more than $30-billion in EU funds for his country that the bloc froze last year over concerns about democratic backsliding.

For Ukraine, the extended debate in Brussels over next year’s aid package is unsettling, particularly with the US Congress also at a stalemate over providing more assistance, particularly military aid, to Kyiv.

Speaking to European Parliament lawmakers on Tuesday, EU Budget Commissioner Johannes Hahn said the bloc cannot be blackmailed by any holdout members.

“Of course, you can make things more complicated, more cumbersome if you need unanimity, but we have seen in the past, being crystal clear, that you cannot stop us doing things,” he said. “Of course it might be more complicated, thinking about Ukraine. Of course, we can find a solution which is only including 26 member states.”

Read more: Zelensky urges Congress to pass Ukraine aid or risk bigger war

Some countries are in favour of finding an alternative solution soon for Ukraine funding to increase the pressure on Orbán, said the people, who spoke on the condition of anonymity.

However, Spanish Economy Minister Nadia Calvino, whose country holds the rotating EU presidency, and European Commission Vice-President Valdis Dombrovskis said on Thursday they aimed to reach an agreement within the long-term budget.

Big EU states cautious on tapping profits from Russian assets

Member states including France, Germany, Italy and Belgium are cautious about speeding up efforts to use profits from sanctioned Russian central bank assets to support Ukraine even as the European Union’s executive arm is pushing to finalise a proposal by the end of the year.

Key EU countries told the European Commission during a closed-door meeting on Wednesday that they would favour a more gradual approach, according to people familiar with the matter.

The governments first want to pursue a non-legislative document to continue narrowing down different options to ensure that the formula to use the profits generated by the frozen Russian assets is legally sound and won’t endanger financial stability, the people added.

The EU has been debating over the past months how swiftly to pursue plans to apply a windfall tax on the profits generated by frozen Russian assets and tap the 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 the Belgium-based Euroclear clearinghouse. Smaller amounts are located in other Group of Seven jurisdictions and elsewhere.

Sanctioned Russian assets frozen at Euroclear have generated nearly €3-billion in profits from the time they were frozen through the third quarter of this year, according to data published last month. That figure is expected to continue to rise.

Russian strike on merchant ship threatens Ukraine’s exports

A Russian missile strike on a commercial ship at a major Ukrainian Black Sea port is adding to risks for commodity exports just as farmers in the war-battered nation are in the middle of this year’s harvest.

A 750-feet iron ore carrier, the KMAX Ruler, was hit near Ukraine’s key port of Odesa on Wednesday, inflicting what the United Nations said was the first civilian casualty of a mariner since the war began. The incident highlighted the perilous risks for every type of vessel sailing to a country that’s under bombardment from Moscow’s forces.

Ukraine is collecting larger-than-expected crops of key staples like corn, much of which typically is sold abroad, despite Russia’s invasion. Burdensome logistics costs have already left farmers squeezed  — and any downturn in exports or spike in shipping costs could make matters worse. A trickle of metal shipments may also be in jeopardy.

The strike killed the pilot and injured others as the vessel prepared to load iron ore for China, according to Ukrainian authorities. The government in Kyiv said on Thursday that ships continued to move, although the strike added to safety concerns and could raise costs.

The UN’s humanitarian coordinator for Ukraine, Denise Brown, condemned what she said was the first wartime death aboard a civilian vessel — and a violation of international law.

“The consequences of this brutal and relentless pattern of Russian attacks on port facilities are devastating for Ukraine’s economy and the hundreds of millions of people facing hunger worldwide,” Brown said in a statement.

Alexandre Marie, chief analyst at Paris-based adviser Agritel, said the incident “is not good news for the navigation security”, adding insurance premiums and freight costs could spike.

The attack took place at the port of Pivdennyi near Odesa. The Black Sea hub is key to the new commodity export corridor Ukraine has opened after Moscow left a grain deal ensuring safe crop transit in July.

Infrastructure Minister Oleksandr Kubrakov sought to reassure the public and traders, saying that six vessels carrying some 231,000 tonnes of agricultural goods left Odesa-area ports, while five were waiting to enter.

“Traffic along the Ukrainian corridor continued despite Russia’s systematic attacks on port infrastructure,” Kubrakov said on social platform X. Since early August, 91 vessels carrying more than three million tons of agriculture and metal cargoes had been exported via the corridor, he said.

That’s in addition to crop flows moving from smaller ports on the Danube River and road and rail routes via the European Union.

Zelensky aides deny split with general over stalemate warning

Aides to the Ukrainian president sought to paper over cracks emerging between the nation’s political leader and its top military commander after the general warned of a “stalemate” as the war with Russia heads into its second winter.

Speculation about a growing rift between Ukrainian President Volodymyr Zelensky and the country’s army chief, Valeriy Zaluzhnyi, arose after the widely respected military commander wrote in The Economist last week that the fight against Russia was becoming “positional” and needed technological breakthroughs to give his country an edge.

Zelensky publicly contradicted his top general at a joint press conference with European Commission President Ursula von der Leyen, saying there was no stalemate, and Ukraine was trying to spare its soldiers in the face of Russia’s control of the sky over the battlefield.

“The president made an extremely important clarification,” said his adviser Mykhailo Podolyak. “I see no disagreements or conflicts at the level of the highest military-political leadership.”

Still, the public incident has stoked questions about tensions between the two leaders at a time when Ukraine faces growing uncertainty over future Western aid. Another of Zelensky’s aides, Ihor Zhovkva, said on national television on Saturday night that Zaluzhnyi’s assertion “eases the work of the aggressor” and had unnerved Kyiv’s allies.

Zelensky is in near daily contact with Zaluzhnyi, Podolyak said, adding he had seen no change in their communication over the past months. The president and his army chief continue to discuss adjustments to the nation’s military strategy, he said.

Another person close to Zelensky, who declined to speak on the record due to the sensitivity of the issue, described relations between the president and his top commanders as a world away from the “loud headlines” that appear in the media.

Read more: Ukraine’s missing EU ammunition could hand Russia advantage

Yet the pressure on the military is growing.

After pushing Russian forces out of large swaths of occupied territory earlier in the war, Ukraine has only achieved marginal successes along the front line over the past twelve months. Liberating Kherson a year ago was Kyiv’s last major military success, and since then, Russia has adapted its tactics, mobilised more troops and fortified defences.

Then last week, a Russian missile strike killed 19 soldiers at an award ceremony in Ukraine’s southeast, raising questions about why commanders gathered so many troops near the frontline for a purely symbolic event, exposing them to the targeted attack. Zelensky urged an investigation and promised that there would be “no avoidance of responsibility”.

The same day, Zelensky replaced the commander of Ukraine’s special operation forces, Major General Viktor Khorenko, without giving a reason. Khorenko had held the post since July 2022 and said he learnt about his dismissal from the media.

On Monday, Zaluzhnyi’s aide Major Hennadiy Chastyakov was killed by an explosive device during a family birthday party in the Kyiv region. That incident is also under investigation.

Russia’s new elite emerges to fill void after multinationals flee

A new cohort of Russian business elite has emerged to benefit from the void left when international firms suddenly exited following President Vladimir Putin’s invasion of Ukraine.

The latest wave of entrepreneurs to seize their chance have snapped up assets at discounted prices after the war prompted multinationals to leave because of pressure from sanctions and their own investors.

Fast food giant McDonald’s, packaging group Ball and chemicals maker Henkel are among the companies that have sold businesses worth at least $21-billion in 2022 and the first half of this year, according to an estimate from AK&M news and research agency.

In an example of how the war is reshaping Russia’s business world, the buyers don’t come from the ranks of the country’s wealthiest and most aren’t well-known outside the country. They’ve been in business for decades, in some cases at the operations they purchased and in several cases alongside famous billionaires. And unlike most of the old guard, they haven’t been put on US or EU sanctions lists.

The tycoons are beneficiaries of Russia turning further inward in the latest wave of asset redistribution. The original oligarchs built their wealth from resources and banking more than three decades ago after the collapse of the Soviet Union. They were largely replaced by a group who made their fortunes under Putin.

Ivan Tavrin, the former head of a Russian mobile firm and former partner of billionaire Alisher Usmanov, recently spent more than $2-billion on Prosus’s local classifieds business Avito. He’s bought other assets as well, making him the largest wartime dealmaker so far.

Alexey Sagal’s Arnest Group was focused on perfume and cosmetics before picking up Ball’s drinks packaging assets in September last year and then acquired Heineken’s Russian operations, including seven breweries, for €1 in August this year.

Sagal’s wife Elena used to be the general director of Arnest, before serving as a senator in the upper chamber of parliament for several years through 2012 as a member of the ruling party.

Alexander Govor was among the early dealmakers to pounce when foreign companies started to leave, purchasing the Russian business of McDonald’s in May last year and packaging plants in September. While Govor was an existing franchisee partner of the fast-food chain, buying the entire network of 850 Russian restaurants was a big step from operating just 25.

Govor’s fortune stems from his holding in Yuzhkuzbassugol, one of Russia’s biggest coking coal producers. He exited in 2007 after two deadly mine explosions, selling out to Evraz, the steelmaker part-owned by billionaire Roman Abramovich. Years later, the businessman became a McDonald’s franchisee partner.

Elsewhere, local management led by Timur Gabidullin bought Sylvamo’s pulp and paper mill. DM

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