Russia is considering an indefinite extension of wartime capital controls introduced to ease pressure on the rouble, despite objections from the central bank, people familiar with the discussions said. 

Ukrainian President Volodymyr Zelensky may dismiss Commander-in-Chief Valeriy Zaluzhnyi, who has led Ukrainian armed forces through nearly two years of war, according to Interfax-Ukraine.

A missile attack on Friday on a tanker taking Russian fuel through the Gulf of Aden may prove to be a defining moment for an oil market that had previously been somewhat immune to months of Houthi militants’ attacks on merchant trade.

EU pursues last-minute deal with Hungary on Ukraine aid

The European Union is considering options to address demands for tighter controls over a proposed €50-billion aid package for Ukraine as leaders aim to head off another veto of the package by Hungary.

EU leaders, who are holding a special summit on Thursday to try to advance the Ukraine package, are growing increasingly frustrated with Hungarian Prime Minister Viktor Orbán, who has demanded changes that would effectively give him veto power over aid deliveries each year. 

The bloc is discussing options such as an annual review at the leaders’ level — or the possibility of another mechanism to raise concerns over how the aid is used that wouldn’t include a veto — as member states want to ensure stability and predictability for Ukraine’s funding, EU officials and diplomats said.

The difficulties of reaching an agreement between the 27 member states comes at a particularly sensitive time for Kyiv, which is running short of funding as aid packages are stalled in Brussels and Washington. 

Relations in the EU are also fraying over Hungary’s stance on aid. The country’s currency fell by as much as 0.8% against the euro on Monday after the Financial Times reported on an internal EU memo suggesting that EU leaders should threaten to withhold any EU funds to Budapest. 

Read more: Forint slide gathers pace on Hungary’s central bank, EU tensions

A senior EU official said that the memo doesn’t outline a formal plan and instead represents a suggestion that isn’t in line with the current negotiations. Withholding all EU funds wouldn’t be legal, an EU official added.

Other officials pointed out that, while the proposal is just an internal document, its public discussion could put added pressure on Orbán to agree to a deal.

As part of an effort to mend bilateral ties, senior Ukrainian officials met with Hungarian Foreign Minister Peter Szijjarto on Monday, ostensibly to prepare a meeting between Orban and Zelensky. No date was agreed, Ukrainian presidential adviser Andriy Yermak told reporters after the meeting, though he said both sides agreed to work toward such a meeting as soon as possible.

EU officials insist they still aim to reach a unanimous deal with Hungary at Thursday’s summit, but some are beginning to discuss ways to punish Orbán if he continues to block an agreement. 

EU negotiators have been discussing formulas with Budapest in recent days but it’s unclear if they’ll be able to reach a deal with Orbán. If he sinks the package this week, the EU is prepared to move to a plan B that would ensure urgent financing for Ukraine although it would be less ambitious and more complex, the people said. 

Russia considers extending wartime capital controls

Russia is considering an indefinite extension of wartime capital controls introduced to ease pressure on the rouble, despite objections from the central bank, people familiar with the discussions said.

The government believes the measure is needed to help stem inflation and bolster the currency, according to officials and top business executives, who asked not to be identified as the information isn’t public. 

Under an order signed in October by President Vladimir Putin, 43 groups of exporter companies, including the country’s main oil producers, must repatriate at least 80% of their earnings from abroad to ensure a steady supply of foreign currency on the domestic market. Of that amount, 90% must be sold for roubles.

The restrictions, put in place until the end of April, were imposed when the currency slumped to the psychologically important level of 100 per dollar amid pressure on the economy from international sanctions over Russia’s war in Ukraine. At the time, Putin was also preparing to announce he’d seek a new term in March’s presidential elections.

The rouble rebounded, recording the second-biggest rally among emerging markets in the fourth quarter behind the Polish zloty.

The measures proved their effectiveness in stabilising the currency and should be extended, First Deputy Prime Minister Andrey Belousov said last week, without indicating how long the extension would be.

The Bank of Russia responded that it saw “no compelling reason” to extend the currency controls, which it said had only a moderate effect on the foreign exchange market.

“We believe that such restrictions — even if they make a difference — can only be a short‑term remedy,” central bank Governor Elvira Nabiullina said in October, two weeks after the measures were introduced. 

Putin’s economic aide Maxim Oreshkin said this month that he supported continuing the controls.

It’s become a political issue rather than an economic one ahead of the presidential elections, said Oleg Vyugin, a former first deputy governor of the central bank. Officials want to avoid a slump in the rouble ahead of a possible government shake-up after the presidential inauguration in May, he said.

Ukraine’s army chief Zaluzhnyi ‘faces dismissal’

Zelensky may dismiss Commander-in-Chief Valeriy Zaluzhnyi who has led the Ukrainian armed forces through nearly two years of war, according to Interfax-Ukraine. 

Zelenskiy and Zaluzhnyi agreed on his dismissal during a meeting, Interfax-Ukraine reported, citing a source in the country’s leadership it didn’t name.

Ukraine’s counteroffensive showed little progress in pushing the Russian army from its territories last year, prompting disagreements between Zelensky and his top military commanders. Zaluzhnyi has also said the war was in a stalemate and criticised the pace of drafting new soldiers as too slow.

Houthi hit on Russian fuel has traders recalculating risks

A missile attack on Friday on a tanker taking Russian fuel through the Gulf of Aden may prove to be a defining moment for an oil market that had previously been somewhat immune to months of Houthi militants’ attacks on merchant trade.

Why the calm? Because much of the oil flowing through the Red Sea and Suez Canal came from Russia and — so the theory went — it might be safe. The Houthis themselves signalled that Russian ships had nothing to fear, and Moscow is an ally of their sponsor Iran. Oil tankers generally had been largely spared.

But Friday’s attack made one thing clear: whatever assurances Yemen’s Houthis offer, they don’t extend to a ship’s cargo if the vessel itself has even a tenuous link to the US, UK or Israel. The Houthis had said they were targeting Israeli assets because of the war in Gaza and then extended their reach to US and UK vessels after those countries launched airstrikes in Yemen. 

The attack means that a greater slice of the three million barrels a day of Russian crude oil and fuel that has been flowing through the Red Sea to reach customers in Asia could be at risk. And Russian volumes matter to the global market — despite sanctions imposed because of Moscow’s war in Ukraine.

Read more: Red Sea shipping turmoil sends economic shockwaves

Risks were heightened further after the US said Iran-backed proxies struck a base in Jordan over the weekend that killed three US soldiers, intensifying pressure on President Joe Biden to respond. Iran said it had “no connection” with the attack. DM