Moscow Lifts Most Covid Restrictions as Glimmers of Economic Recovery Appear; Media Reports US Troops to Leave Germany, Russia Deploys More Troops to Western Border

The Gagarin Monument, Moscow

Beginning yesterday, the city of Moscow lifted most of its Covid-related restrictions. According to TASS:

Moscow Mayor Sergei Sobyanin has lifted most restrictions imposed on city residents due to the coronavirus pandemic, including self-isolation rules and digital travel permits. Hair salons will reopen on June 9, sidewalk cafes, museums and dental clinics on June 16, and restaurants and gyms on June 23. However, the wearing of face masks and gloves in public remains mandatory. The mayor attributed the move to a downward trend in coronavirus cases. Experts consider it to be a political decision stemming from lockdown fatigue, Kommersant writes.

The Moscow Times recently reported that Moscow authorities stated that the date when the first Covid case appeared in the country had been moved back from March to January.

“I don’t know how anyone noticed when [Covid-19] came to Moscow, but in reality it was in mid-to-late January. When China was making its first announcements there … in fact, [Covid-19] was already here,” the Moscow administration’s IT chief Eduard Lysenko told the Khabr news outlet in a YouTube interview Tuesday.

Various media outlets have been reporting since Friday that the U.S. has ordered a draw-down of 9,500 troops from Germany, which would leave around 25,000 remaining. However, German authorities have stated that they have received no formal communication from the U.S. about the troop reduction and their only knowledge of it is via media reports. The removal of U.S. troops is popular with the German public.

Apparently, these reports did not dissuade the Russian military from deploying more troops to its western front on the same day to counter what it sees as intensified and provocative NATO actions near its borders, including the scaled down Defender 2020 exercises that had initially been postponed to the pandemic. Newsweek reported:

The Western Military District press service said Friday that the Separate Guards Motorized Rifle Sevastopol Red Banner Brigade was included in Moscow’s Novomoskovsky Administrative District, joining the Guards Red Banner Tank Army “to perform tasks on ensuring the defense of the Russian Federation in the Western strategic direction,” according to the state-run Tass Russian News Agency.

The motorized rifle units are equipped with “more modern weapons and specialized vehicles,” including the T-90A tanks, BTR-82A armored carriers, BMP-3 combat vehicles, and 9A34 Strela-10 and 2S6M Tunguska air defense systems, the Russian military said.

The moves came just days after Colonel General Sergei Rudskoi of the Russian General Staff slammed “anti-Russian” activities conducted by the U.S. and allied states of the 29-member NATO defense pact near his country’s borders. The largest deployment of U.S. troops in a quarter-century was scaled down due to novel coronavirus concerns in March, but the U.S. still stepped up its presence through other maneuvers.

My first thought on hearing about the removal of troops from Germany is: where are they going? I wouldn’t be shocked to find out that they end up in Poland who would be more than happy to host them. This idea is reinforced by the actions of U.S. diplomats to Germany and Poland last month. As Scott Ritter discussed in an article right afterwards:

Richard Grenell, the US ambassador to Germany and the acting director of national intelligence, put matters into motion by writing an OpEd for the German newspaper Die Welt, criticizing politicians from within Chancellor Angela Merkel’s ruling coalition who were openly calling for the US to withdraw its nuclear weapons from German soil.

Adding fuel to the fire, the US ambassador to Poland, Georgette Mosbacher, tweeted out two days later that “If Germany wants to diminish nuclear capability and weaken NATO, perhaps Poland – which pays its fair share, understands the risks, and is on NATO’s eastern flank – could house the capabilities here.”

Granted, this was specifically in reference to nuclear capabilities but it likely reflects the overall thinking by Washington of possibly shifting military resources around Europe to keep the pressure on Russia. Needless to say, these kinds of actions would not go down well in Moscow.

On a more positive note, there were some signs last week of the beginning of a gradual economic rebound for Russia, including a modest increase in the price of oil. Ben Aris from Business New Europe’s Intellinews reported the following:

Oil prices have also recovered remarkably quickly, driven by optimism over a new OPEC++ production cut deal that will reduce the production of oil by 9.7mn barrels per day (bpd) that was signed on April 13. The price of oil broke back above $40 briefly on June 3, which is once again in the Kremlin’s comfort zone.

So far Russia and most of the other cartel members are sticking to the new deal. Indeed, Saudi Arabia has said that it will cut even more than it committed to in the deal to help prices recover even faster….

…According to the OPEC+ agreement signed in April, production cuts should ease on July 1 from a cumulative 9.7mn bpd to 8mn bpd. The Wall Street Journal reports that Saudi Arabia wants to extend the current 9.7mn bpd quota up until the end of the year, while Russia wants to increase output in July. The two countries reportedly see September as a middle ground and are close to reaching an agreement.

Russia’s official position is now that supply and demand in the oil market could finally be balanced by June or July. That is partly why it is reluctant to extend the OPEC++ production cut deal to the end of the year and wants to ramp up production as early as July. But the Kremlin appears willing to compromise. President Vladimir Putin held talks with Saudi Crown Prince Mohammed bin Salman (MbS) last week and pledged “close co-ordination” between their respective energy ministers. Saudi needs oil prices to be closer to $80 for its budget to balance.

Recovery already feeding through to the capital markets

Step back a moment and mull those changes. With oil prices at $40 Russia Inc. is back in business, as the budget more or less breaks even.

And with the ruble trading at RUB68 it even gains some competitiveness on exports as well as seeing budget revenues (which are denominated in rubles) improve from the increased revenues from the recovering oil price (which are converted from dollars). One of the quirks of the Russian budget is it is actually one of the biggest winners of ruble devaluations, as it gets more rubles to meet its obligations in the budget (which are not adjusted for devaluations), even if those rubles are worth less.

Indeed, Russia closed out the first quarter with a triple surplus – trade ($3.8bn), current account ($1.8bn) and federal budget (0.2%). While the budget will also certainly go into deficit in the second quarter – especially after the government just announced a new RUB7.3 trillion National Recovery Plan – the drain on the RUB9 trillion Russia holds in its National Welfare Fund (NWF) reserve fund to cover budget deficits in times of crisis will be greatly reduced.

That is not to say the economy has not been hurt by the coronacrisis. Russia’s economy will contract by 5% in 2020 and will start to recover at the end of the year, Economic Development Minister Maxim Reshetnikov said in a statement published on May 22.

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