The whole world braced for US strikes on Syria on Wednesday, notes Izvestia. US President Donald Trump published a string of tweets threatening Moscow as Damascus’ ally and calling for economic cooperation and ending the arms race. Against this background, Russia showed restraint, saying that it expects a serious approach to global affairs, rather than Twitter diplomacy.
"Very often it is difficult to understand President Trump’s tweets. I think the latest posts show his wish to avoid a conflict with Russia over Syria. Simultaneously, he wants to sound tough on Russia," Senior Fellow and Director of the Center for Political-Military Analysis at the Hudson Institute Richard Weitz said.
First Deputy Chairman of the International Affairs Committee of the Federation Council Vladimir Dzhabarov expects that Russia and the US won’t be drawn into a military conflict. Moreover, the pretext for delivering a strike is a bogus story, he noted.
The Russian military officially announced that it considered the deployment of the US strike group of warships to the Persian Gulf as a scheduled rotation. At a special briefing, the General Staff stressed that experts found neither traces of using chemical weapons nor victims in Ghouta. Moscow confirmed its readiness to provide assistance to the effort by inspectors of the Organization for the Prohibition of Chemical Weapons and ensure their protection. Sources in Russia’s Defense Ministry said now Russia has a full-fledged air defense grouping to protect its facilities in Syria.
According to military expert Dmitry Boltenkov, if the US hits Syria, this will be a limited strike carried out not by super weapons, but by Tomahawk cruise missiles from vessels like last year during the attack on the Shayrat airbase. "The sixth fleet has nothing more to send than these two destroyers," the expert explained. "An almost fantastic situation occurs when the US doesn’t have an air strike group in the Mediterranean Sea."
Another scenario is using aviation for delivering the strike, the expert said. “Judging by the number of aerial refueling tankers flying in this area, an airstrike is also possible,” the specialist said. In this case, the US may use B-52 strategic bombers which fire cruise missiles without entering the area where air defense systems are operational. "In theory, the Americans might use tactical aviation from bases in neighboring countries, but this is too risky."
Russia’s lower house, the State Duma, is expected to confirm the new prime minister on May 8, the day after President Vladimir Putin’s inauguration, Kommersant writes citing sources. This was the case in 2008 when Putin was appointed prime minister and in 2012 when Dmitry Medvedev shifted gears. Judging by the good mood in the atmosphere when Prime Minister Medvedev delivered his report on the government’s work to the State Duma on Wednesday, the chances of confirming his candidacy are rather high, the paper writes.
During his speech, Medvedev noted that he "has served the longest term in modern Russia’s history," calling the past six years "a durability test for our economy." State Duma Speaker Vyacheslav Volodin later described the prime minister’s report as "very fundamental." No criticism of Medvedev’s work was voiced and the lawmakers had only questions regarding the situation in particular areas and the work of some ministers.
According to a source in the State Duma, there are no grounds to delay the confirmation process for the prime minister. High-ranking Kremlin and government sources said the question regarding the candidacy "had been solved de facto several months ago." Medvedev is highly likely to retain his post. Moreover, two federal officials said, the decision is not expected to be delayed. Accordingly, following the prime minister’s confirmation, two weeks will be needed to talk things over and get the president’s support for the candidates to the new cabinet of ministers.
"Given the current foreign policy agenda, the issue that some elites may be exhausted from the incumbent premier may have to take a back seat," Head of the St. Petersburg Politics Foundation Mikhail Vinogradov noted.
The United States Treasury Department’s ban on US persons from dealing with a number of Russian businessmen and affiliated companies sparked the collapse of the Russian stock market and the ruble. However, the current market downturn is not expected to worsen Russia’s economic situation, economists questioned by Vedomosti said.
This is not the first time panic had gripped the Russian market over the past 15 years, said Vladimir Bessonov, an expert in the problems of Russian inflation and economic growth at the Higher School of Economics. However, geopolitical uncertainty is high and if it continues deteriorating it is difficult to forecast the events that may unfold, he noted.
Geopolitics aside, the ruble has long-term support, namely from high oil prices, Bessonov noted. When market jitters die down, this will support the national currency.
Investors who considered leaving the Russian market due to the sanctions will see that the ruble has weakened but the oil price remains high, Chief Economist at Alfa Bank Natalya Orlova said. This may even trigger a new round of investment in Russian securities, which won’t be hit by sanctions or federal loan bonds. Meanwhile, the market had been caught off guard on the sanctions, Orlova noted.
"This is pure politics, there is no sense in talking about macroeconomics," said Vladimir Tikhomirov, chief economist at BCS Financial Group, explaining that everything depends on whether new restrictions will follow suit. If the ruble plunges to 65 per dollar or more, this will affect inflation. The Central Bank will stop lowering the key rate and this will influence interest rates for both business and the public, and lead to falling consumer demand.
If there is no direct military confrontation with the US in Syria, the economic situation will normalize and the ruble will recover, Tikhomirov predicted. With the oil price at $73 per barrel, the dollar should cost 55 rubles or less, he noted.
Russia will start negotiations on extending its gas transit contract with Ukraine. According to Kommersant, Russian energy giant Gazprom and Ukraine’s Naftogaz will formally discuss this issue by this week and substantive consultations between Moscow and Brussels may begin in late May.
Sources told the paper that the talks would apparently last for many months. So far, the sides have only outlined key positions. Kiev wants transit at the level of at least 40 bln cubic meters of gas per year, while Gazprom is ready for just 15 bln cubic meters. According to Kommersant, the Ukrainian route will be without losses only if at least 25 bln cubic meters per year are pumped.
Ukrainian Minister of Energy and Coal Industry Igor Nasalik stated that with transit of around 40 bln cubic meters, the economic performance of the Ukrainian route would be equal to that of the North Stream gas pipeline.
The window for a compromise is open, moreover given that Gazprom will need the Ukrainian gas transportation system at least for 2020-2021, the paper writes. It is unclear whether progress at talks will be reached this year given the upcoming parliamentary election in Ukraine in November.
According to Simon Pirani of the Oxford Institute for Energy Studies, there are two key scenarios for the gas transit agreements - clinching a deal for three-five years or a number of short-term contracts. By the mid-2020s, the Ukrainian transit may plunge nearly to zero if political ties between Kiev and Moscow do not improve, he noted.
Amid the new round of US sanctions, Russia’s aluminum giant, Rusal, may lose some of its export markets and may be unable to supply aluminum to the United States soon, Vedomosti writes. The London Metal Exchange stopped selling Rusal’s products and ordered warehouses not to accept any. The Russian company has not revealed details on the figures of its sales through the exchange. Analyst at the AKRA agency Maxim Khudalov estimates them at 10-12%, but even so, a quarter of the company’s output may not be in demand.
Sanctions may be also slapped on those who carry out significant transactions with persons and companies who are on the blacklist, and there is the risk that other buyers may refuse to cooperate with Rusal, the paper says.
In the worst-case scenario, the company may supply its products only to Russia and some of its satellites. This won’t spell global doom, as Rusal accounts for just 6% of global metal production. However, this will be a disaster for the company, which supplies just 18% of its output to Russia and former Soviet states. This is less than 1 mln tonnes of aluminum per year out of 3.955 mln tonnes produced last year. Dozens of plants of the company, which is the world’s second-largest aluminum producer, will become redundant, the paper says. Unlike other sectors, if aluminum production stops, it will be almost impossible to restore.
The Rusal case is unique because this is the first time when a public company has been targeted by sanctions, Vedomosti writes. The problem has been already discussed at a government level, a federal official told the paper. Russia’s officials have pledged to support the company, which has a huge debt of $7.6 bln. Promsvyazbank may issue the needed loans, according to the paper.
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