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Press Review: Anti-Russian sanctions over Skripal case and new wave of shale revolution

Top stories in the Russian press on Thursday

Kommersant: Skripal saga sending new ripples across the pond

Analysts doubt the efficiency of a new wave of sanctions against Moscow announced by Washington on Wednesday, which is now connected with Russia’s alleged involvement in the poisoning of Sergei and Yulia Skripal in the British city of Salisbury, Kommersant writes on Thursday.

The new package will completely ban exports of goods related to national security, such as electronic devices and dual-purpose components to Russia. Moreover, a stipulated ultimatum suggests should Russia fail to present evidence of not possessing chemical and biological weapons, it would further deteriorate diplomacy, put a tighter grip on exports and imports (excluding food) and potentially restrict flights of Russia’s top carrier Aeroflot to the United States. The first round of sanctions is expected to take effect on August 22, while the second round may be introduced in 90 days if Russia fails to meet the announced requirements, according to the State Department.

Asked about the reasons for such a drastic expansion of the sanctions package, political analyst Yevgeny Minchenko said he could hardly think of "reasonable grounds," adding that he finds the warnings about a potential ban on Aeroflot flights "insane." "However, there are a few important domestic political issues for the Republican administration, particularly now, prior to the midterm elections to Congress. Today’s US leadership considers it necessary, first, to show a tougher approach towards Russia compared with Barack Obama, second, to demonstrate that the solidarity inside NATO is not challenged: if the UK has said that Russia is to blame, it means it is so," he told Kommersant.

According to Ivan Timofeyev, Director of Programs at the Russian International Affairs Council (RIAC), sanctions against Aeroflot connected with the Skripal case will mean three main consequences.

"First, they will hollow out the sanctions instrument in the hands of American diplomats even greater as such measures for unproved crimes are likely to irritate Moscow rather than generate any other reaction. Second, they will unveil a lack of strategy regarding the use of sanctions and inconsistency not only between Congress and Donald Trump’s administration, but inside the administration as well. Third, this will be a senseless move from the viewpoint of the sanctions victim. Aeroflot is a responsible international air carrier that has nothing to do with the Skripal case. The Americans will thus acknowledge the crush of their glorified ‘targeted sanctions’ policy," he explained. According to the expert, the US sanctions policy is thus becoming "similar to a cowboy on a shooting spree" unlike "a far more pragmatic stance of the EU."

Washington’s recent move puts the implementation of any foreign energy projects by Russia, from export gas pipelines such as Nord Stream 2 to investments in small startups, in jeopardy, Kommersant says. The notion of an ‘energy project’ has not been specified yet, which gives full rein to potential interpretations - from hydrocarbons geological exploration to Rosatom’s projects on overseas nuclear plants construction. According to Aleksei Panich, a partner at Herbert Smith Freehills, "the uncertainty has been created on purpose to intimidate everyone and oblige them to run to Washington for explanations." However, the expert expects the least harmful sanctions to be imposed. "In any case, as a consequence, the possibilities to receive financing in those sectors will be reduced, bringing the need to raise funds either in Russia or from non-US persons," he concluded.


Izvestia: Russia’s suspected hacker to undergo mental health checkup in US jail

The defense of the Russian national Yevgeny Nikulin, who was extradited in March 2018 from the Czech Republic to the United States, has applied for a detailed psychiatric examination for their client, Izvestia says with reference to Nikulin’s lawyer Arkady Bukh. According to the lawyer, Yevgeny Nikulin is "not in his best condition," which could have been caused by strong psychotropic medications he was subjected to following his arrest in Prague. After the checkup a decision will be taken whether he is mentally competent and can appear before the trial jury. Bukh told Izvestia he believes his client "cannot come before the jury to defend his innocence." Nikulin’s friend Anna also spoke to the paper, saying he spends 24 hours a day in solitary confinement and has "said many times he’s slowly going insane".

Nikulin was detained in Prague on October 5, 2016, at the request of a Californian court on suspicion of hacker attacks against targets in the United States. He is accused in the United States of hacking big Internet companies in 2012 and 2013, which include LinkedIn and Dropbox. Charges against Nikulin include computer intrusion and identity theft. In November 2016, Russia asked the Czech Justice Ministry to extradite Nikulin as he was accused in Russia of stealing $3,450 through the Internet in 2009. In November 2017, the Supreme Court in Prague turned down an appeal of Nikulin’s lawyers against the Prague City Court’s decision regarding his possible extradition to the United States.


Nezavisimaya Gazeta: Second wave of shale revolution around the corner as US projects to become solvent

This year is going to be a breakthrough for the US shale sector, which is about to become financially self-sufficient for the first time ever, Nezavisimaya Gazeta says. In 2018, shale oil companies will be relieved of the need to borrow funds, able to generate their own free positive cash flow, the paper says with reference to the International Energy Agency (IEA), adding that this will bring the United States to the spot of the world’s biggest crude producer. Analysts polled by Nezavisimaya praise the achievements of the US shale sector. Finam’s Alexei Kalachev considers American shale companies to be "more stable today and capable of surviving yet another price drop and keeping positive results."

"Now we are witnessing the second wave of the US shale producers’ development," Alen Sabitov, an analyst at Freedom Finance, told the paper, warning though that it is too early to speak about the lowest initial cost of shale production in the US compared with other crude producers. "Despite the technological progress, the cost value of production is still higher than that of cheap Middle Eastern oil, which is why the OPEC+ production growth can threaten the US shale," he emphasized. Alexei Kalachev indicated that prime costs in Russia are also lower than in the US.

"The current situation will eventually continue improving if the oil prices remain stable, particularly as the US is virtually trying to isolate Iranian oil, supporting the crude futures in general," BCS Broker’s Albert Koroyev said. Experts admit that the US is going to take the lead in terms of crude production globally. Sabitov expects it to happen by 2023, adding that "the US crude production rise will cover 80% of the global growth of demand for several years ahead." The country is also keen to expand to the global commodities markets, analysts said. According to Sabitov, amid this background the US sanctions against Iran that will particularly affect its exports of commodities, are becoming economically viable. "Iran’s niche can be taken by the US, Saudi Arabia and Russia," he noted.


Izvestia: Resource exports giving ground to other Russian goods

Russia’s non resource-based, non-energy exports soared 23% to $70 bln in the first half of this year, the Russian Export Center’s head Andrey Slepnev told Izvestia. The positive dynamic has been developing for the 20th month in a row, he said, adding that sales of metals, food, timber and paper products demonstrated the highest growth. Wheat is the most demanded commodity among Russian food products as wheat exports grew by $1.4 bln in the first half of 2018 to around $3.2 bln. This outrunning growth pertains to last year’s record wheat harvest of 134.1 mln tonnes of grain, a representative of the Russian Export Center told the publication. The demand for Russian goods mostly surged in CIS countries, eastern Asia, western and eastern Europe and the Middle East.

According to Slepnev, currently the share of Russia’s non resource-based exports in is 33%. Valery Mironov, Deputy Director of the Higher School of Economics’ Center of Development Institute, does not think the time is right to say that the country’s exports have substantially diversified. It is necessary to make sure that the share of goods with a high degree of processing, which now stands at 13.5%, rises to 30% of total exports. Alisen Alisenov, assistant professor at the economic and social sciences department of the Russian Presidential Academy of National Economy and Public Administration (RANEPA), expects Russia’s non resource-based export to increase by another 20% by 2021. However, he noted that to reach this target, the country needs to restructure its economic model, particularly easing the currency and customs regulation, and lowering administrative barriers for exporters.


Vedomosti: Economists say Russian state-owned assets should be privatized despite sanctions

The Russian state should withdraw completely from companies in sectors where state-owned firms generate less than one third of the proceeds, and gradually reduce their share in sectors where this share is high, such as transport, energy, mining, finances, and public utilities, according to a study by economists of the Russian Presidential Academy of National Economy and Public Administration (RANEPA). After analyzing the performance of big Russian companies - 16 state-held and 133 private in the period between 2006 and 2016, the authors of the research come to the conclusion that privatization is necessary despite sanctions and potentially selling assets at a lower price, Vedomosti writes. In 2014-2016, the dividend yield of private companies increased, while that of state firms declined, which restricted the budget income basis, the research said. Private companies could have been more profitable than companies with state participation after 2016 due to sectoral sanctions, which forced state firms to pay off external debts without refinancing more actively, as well as the burden of strategic and social functions, the paper said.

Meanwhile, the Finance Ministry does not expect a major privatization, with planned revenues from privatization transactions expected at 13 bln and 11 bln rubles ($196 mln and $166 mln) in 2019 and 2020, respectively. Moreover, it does not plan any such revenues in 2021, Vedomosti says. A source in the government’s central office told the paper that both First Deputy Prime Minister Anton Siluanov and Economic Development Minister Maksim Oreshkin consider private business to be far more efficient. "Ideally, if Russia did not face sanctions, the (government’s) financial and economic block would have been lobbying for privatization now," he said, adding that amid the current environment major privatization deals are only possible with a huge price discount.


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