The secret British intelligence plot to blow up Crimea’s Kerch Bridge is revealed in internal documents and correspondence obtained exclusively by The Grayzone.
The Grayzone has obtained an April 2022 presentation drawn up for senior British intelligence officers hashing out an elaborate scheme to blow up Crimea’s Kerch Bridge with the involvement of specially trained Ukrainian soldiers. Almost six months after the plan was circulated, Kerch Bridge was attacked in an October 8th suicide bombing apparently overseen by Ukraine’s SBU intelligence services.
Detailed proposals for providing “audacious” support to Kiev’s “maritime raiding operations” were drafted at the request of Chris Donnelly, a senior British Army intelligence operative and veteran high ranking NATO advisor. The wide-ranging plan’s core component was “destruction of the bridge over the Kerch Strait.”
Documents and correspondence plotting the operation were provided to The Grayzone by an anonymous source.
The truck bombing of the Kerch Bridge differed operationally from the plot sketched therein. Yet, Britain’s evident interest in planning such an attack underscores the deep involvement of NATO powers in the Ukraine proxy war. At almost precisely the time that London reportedly sabotaged peace talks between Kiev and Moscow in April this year, British military intelligence operatives were drawing up blueprints to destroy a major Russian bridge crossed by thousands of civilians per day.
The roadmap was produced by Hugh Ward, a British military veteran. A number of strategies for helping Ukraine “pose a threat to Russian naval forces” in the Black Sea are outlined. The overriding objectives are stated as aiming to “degrade” Russia’s ability to blockade Kiev, “erode” Moscow’s “warfighting capability”, and isolate Russian land and maritime forces in Crimea by “denying resupply by sea and overland via Kerch bridge.”
Ukraine’s economy will shrink at a rate eight times that of Russia this year as a result of the war triggered by Moscow’s invasion in February, the World Bank has estimated.
In its latest report on Europe and central Asia, the Washington-based institution said the Ukrainian economy would contract by 35% in 2022, compared with a 4.5% fall in Russian GDP.
Earlier estimates had suggested the Kremlin faced a bigger economic hit this year, but the World Bank said the impact of sanctions had so far been less severe than forecast.
Kyiv has been making military advances in recent weeks, and since April the Ukrainian economy has shown signs of growth. Yet the Bank said recovery would be slow and the cost of repairing the damage inflicted by the war would be enormous. It put the cost at a minimum of $349bn (£303bn) – more than one-and-a-half times the country’s prewar gross domestic product.
Ukraine was already Europe’s poorest country even before the war began in February this year, but more than seven months of conflict meant a third of its population of 44 million had been displaced and 60% were living below the national poverty line.
“Russia’s invasion of Ukraine has triggered one of the biggest human displacement crises and exacted a heavy toll on human and economic life,” said Anna Bjerde, World Bank vice-president for the Europe and Central Asia region.
“Ukraine continues to need enormous financial support as the war needlessly rages on as well as for recovery and reconstruction projects that could be quickly initiated.”
Inflation had accelerated rapidly, reaching an annual rate of just under 24% in April, with high food price inflation hurting families, particularly the poor.
The repercussions of the war were expected to persist, with the economy scarred by the destruction of productive capacity, damage to arable land, and reduced labour supply. The risk of refugees not returning was becoming more and more likely, with the war now running into its eighth month and those fleeing the conflict increasingly settled in host countries.
By contrast, the World Bank said rocketing energy prices had helped cushion the blow to Russia from sanctions.
“The sanctions imposed on Russia following its war in Ukraine are having significant adverse economic impacts, albeit less severe in the short term than first expected”, it said.
“The initial shock was mitigated by the authorities’ strong fiscal response, capital controls, monetary tightening, swift action to stem financial sector risks, as well as high foreign exchange inflows driven by the surge in global commodity prices.”
The World Bank said the freezing of half Russia’s international reserves and weaker domestic oil and gas revenues had helped make the country more vulnerable to a fall in global energy prices.
“Moreover, the sanctions have led to a dramatic drop in total imports, restricting access to new technologies and equipment, and external financing, and thereby dampening medium to long-term growth prospects,” the report added.
Earlier this month, the Department of State circulated to our embassies around the world its report on Russian efforts to sway elections and exert political influence in more than two dozen countries over the past ten years. According to the study, Russia has covertly given at least $300 million to political parties and politicians in order to “shape foreign political environments in Moscow’s favor.”
The State Department wants our embassies to share this information widely as part of the Biden administration’s Summit for Democracy and to ensure that governments are not complacent about the Russian threat. In calling attention to this study, the Washington Post editorialized that “democracies must stand guard.”
The policy and intelligence communities have substantial expertise in this area because the United States has been the global leader in election interference and regime change since the end of the Second World War. The strategic failures of the Central Intelligence Agency in this field are legendary. The classic case of CIA interference took place in Guatemala from 1952 to 1954, an operation codenamed PBSUCCESS. The congressional investigations of illegal CIA activities in the 1970s omitted the Guatemalan operation because it was such an embarrassment to the image of the United States and the Eisenhower administration.
President Dwight D. Eisenhower was also responsible for the strategic nightmare in Iran in 1953, when we paved the way for the accession of the Shah of Iran, and in the Congo, which led to the emergence of Joseph Mobutu, the worse tyrant in Africa’s history. In Iran, the CIA harassed religious figures, even bombed their homes, in order to turn them against the Mossadegh government. In the Congo, Eisenhower endorsed an assassination attempt against Patrice Lumumba in 1959 because of the latter’s socialist leanings.
As a result, dozens of U.S. embassies should think twice before informing their host governments of Russian influence operations because these governmental officials presumably have vivid memories of far worse U.S. and CIA covert operations that supported various criminal, dictatorial, or militarist organizations in their own countries. The White House endorsed CIA operations that tried to assassinate foreign leaders; sponsor guerrilla wars or insurgencies; or bankroll key members of political parties, such as the Christian Democratic Party in Italy or the Liberal Democratic Party in Japan. The list of targeted countries is a long one that includes Afghanistan, Albania, Angola, Bolivia, China, Cuba, the Dominican Republic, Georgia, Greece, Haiti, Hungary, Indonesia, Iraq, Laos, Malaysia, Nicaragua, North Korea, North Vietnam, Oman, Poland, Thailand, Tibet, Turkey, and Venezuela to name a few. We know little about the efforts of the United States to invest several billion dollars on influence operations in Ukraine and Georgia, including the promotion of anti-government riots, in the wake of the collapse of the Soviet Union
Much of the covert activity stemmed from a putative belief in the domino theory that posited that, if one country in region came under the influence of communism, then the surrounding countries would follow suit. Again, it was President Eisenhower, referring to communism in Indochina, who described the “falling domino” theory as a “beginning of a disintegration that would have the most profound influences.” In 1954, Eisenhower warned that “if Vietnam were lost, or if Laos and Vietnam were lost, the dominoes would fall.”
The military-industrial complex had enormous success using the simplistic domino theory to exaggerate the threat to U.S. interests. The Pentagon was the initial source of the threat exaggeration, regularly overestimating the military capabilities of the Soviet Union and now China. The U.S. General Accounting Office concluded in 1992 that the exaggeration of the Soviet threat was used to justify the modernization of U.S. strategic nuclear systems in the administrations of Carter, Reagan, and Bush. More recently, the importance of “counterinsurgency” and the tactics of “terror and extortion” have been similarly ridiculous battle cries. The mainstream media have largely echoed U.S. propaganda in this regard.
Political theorists and politicians are citing the combined Sino-Russian threat to justify another wasteful round of spending on strategic weaponry. The lead editorial in the New York Times on September 28 argued that the Biden administration is “endangering” the United States by not funding a military that can “adequately carry out our defense commitments, a dangerous posture for a great power.” In fact, the United States allocates more spending to defense than the rest of the world combined. The editorial argued that Congress was forced to increase the defense budget because the Biden administration has not issued a National Security Strategy, a boilerplate document that actually carries little weight in national security decision making. Congress typically asks for greater spending on defense than the White House or even the Pentagon deems sufficient because of a bipartisan agreement that views the defense budget as a jobs bill to bolster the economies of each and every state.
Democratic and Republican administrations have used false notions regarding a domino theory to justify various covert actions, including political assassination and regime change. The Truman administration used the domino theory to justify aid to Greece and Turkey. The chairman of the Senate Foreign Relations Committee, Arthur Vandenberg, told Truman that he would have to “scare the hell out of the American people” to get support for aiding Greece and Turkey.
Secretary of State Dean Acheson argued that “corruption of Greece would infect Iran and all [nations] to the east. Such corruption would also carry infection to Africa through Asia Minor and Egypt, and to Europe through Italy and France.” The domino theory was similarly used to justify U.S. involvement in Vietnam, although the North Vietnamese were conducting a nationalist revolution. American presidents regularly use Vandenberg’s scare tactics to bolster defense spending.
Most recently, the Pentagon used the domino theory to defend a continued military presence in Afghanistan, and to provide an obstacle to the efforts of the past three presidents to withdraw U.S. forces. Politicians and pundits are arguing that Russian success in Ukraine would enable the Kremlin to threaten Ukraine’s neighbors, even though it is obvious that Russian forces cannot even contend with the challenge of occupying Ukraine, let alone take on additional military challenges. Decades of political and military futility in Vietnam, Iraq, and Afghanistan have only worsened the atmosphere of fear and uncertainty in decision making circles that leads to the exaggeration of the threat and the misuse of military and clandestine capabilities.
The United States and Russia are powers with self-serving ambitions, but their covert actions have produced more failures than successes. Even so-called short-term “successes” such as the coup in Iran have become long-term failures or liabilities. Clandestine Soviet activities in East Europe in the Cold War have created an East European membership for the North Atlantic Treaty Organization that is passionately anti-Russian. U.S. covert action in Central America merely increased the violence in that region, bringing great embarrassment and substantial emigration to the United States.
“Whatsoever a man sowed, that shall he also reap.”
Melvin A. Goodman is a senior fellow at the Center for International Policy and a professor of government at Johns Hopkins University. A former CIA analyst, Goodman is the author of Failure of Intelligence: The Decline and Fall of the CIA and National Insecurity: The Cost of American Militarism. and A Whistleblower at the CIA.
The Kremlin is preparing for a protracted conflict and putting the Russian economy on a war footing. Details from the draft 2023-2025 budget show that spending on the Russian army this year will amount to almost RUB5 trillion ($86.2bn), up from the RUB3.5 trillion originally planned. In subsequent years spending will also exceed forecasts.
The extra spending is to cover the surge of troops being sent to Ukraine following Russian President Vladimir Putin’s partial mobilisation order on September 21.
According to some estimates, 300,000 draftees will cost the Russian federal budget RUB1.3 trillion per year. This is slightly less than the budget’s surplus in the first half of this year. The salary of a contract soldier sent to Ukraine is RUB250,000. One contractor will cost the Ministry of Defence RUB373,000 a month, if contractors and other expenses are taken into account, and 300,000 would be RUB112bn a month.
“Mobilisation spending will put a new burden on the federal budget, where this year, according to the Ministry of Finance, the deficit will be RUB1.7 trillion, and next year it will increase to RUB3 trillion (2% of GDP),” BCS GM said in a note.
Initially, RUB3.5 trillion was included in the 2022 budget, some details of which were released in the middle of September, under the “national defence” item, but that spending has now been dramatically increased.
At the same time, the Kremlin is increasing expenditures on the police, apparently fearing opposition protests, report independent journalists Farida Rustamova and Maxim Tovkaylo in a substack post on Putin’s escalation of the war.
According to expert calculations, Russia will spend at least RUB7.7 trillion on the war in Ukraine and the reconstruction of the annexed territories in 2022-2025.
War spending is likely to lift the breakeven oil price for the budget to $97 per barrel in 2022 vs $60 per barrel in 2021, says BCS GM.
“Oil and gas revenues have been the main support for the Russian economy in 1H22; however, since 2H22, the situation changed as sanctions pressure on Russian energy exports increased. Concurrently, the ruble strengthening also reduced the domestic currency value of oil and gas revenues. A combination of these forces together with higher budget spending increased the breakeven oil price for 2022 to $100 per barrel (last seen in 2014),” BCS GM said in a note.
In addition, the Ministry of Finance has ordered a 10% cut in expenditure across the board of non-protected items, excluding key payments like pensions.
The government surprised with an unexpected announcement in September that it was raising tariffs for households on energy, water and heat up to 9% early from December 1, instead of the scheduled mid-2023 increase within 4%. The move is especially sensitive for poorer Russians including pensioners.
And the business lobby protested loudly after the finance ministry increased the obligatory social payments as a way to raise taxes and revenues. Russia’s largest business lobby, RSPP, issued an unusually stark statement complaining about “surprising amendments to the system of social insurance payments which contradict earlier agreement [between large businesses and the state]”.
From 2023, the government plans to increase the base for calculating social insurance premiums. The single cap on fully contributory salaries will rise to RUB1.92mn. against the RUB1.57mn contribution planned before tough sanctions were imposed.
The maximum value of the base for calculating insurance premiums, which employers will begin to pay in a single payment from 2023, will be RUB1.917mn from January 1, 2023. This follows from the draft budget of the Social Fund, which RBC got acquainted with.
From 2023, Russia will merge the Pension Fund (PFR) and the Social Insurance Fund (FSS) into a single Social Fund. In addition to administrative changes, the merger involves a new model for paying insurance premiums: from 2023, all employers will pay both pension contributions and payments for social and medical insurance in the same amount (30% of the wage fund), but in the form of a single payment and based on the availability of a single base.
As long as the employee’s cumulative total salary within a year does not exceed the base, companies pay the full tariff (30%) from it, and if the amount of earnings is higher, the tariff is reduced to a preferential rate of 15.1%. Thus the higher the marginal value of the base, the longer the full insurance premiums for the employee are transferred.
Russia’s budget deficit will stand at 0.9% of the gross domestic product (GDP), or RUB1.313 trillion, in 2022, according to the draft budget for 2023-2025 seen by PRIME on September 23.
Russia’s budget deficit will amount to 2% of GDP or around RUB3 trillion in 2023, Prime Minister Mikhail Mishustin said on September 20 at a meeting of the government’s budget commission.
In a speech in early September, Putin said there would be no deficit this year.
Budget revenue will amount to RUB27.693 trillion, including RUB11.666 trillion of oil and gas and RUB16 trillion of non-oil and gas income, while spending will be RUB29 trillion, according to the new draft budget that will be sent to the Duma for approval before the end of this year.
In 2023, budget revenue is expected to be more than RUB26.1 trillion and spending to hit RUB29.056 trillion.
The finance ministry plans to borrow RUB1.747 trillion through OFZ government bonds in 2023, RUB1.938 trillion in 2024 and RUB2 trillion in 2025 – less than half of the annual borrowing plans of preceding years.
The finance ministry’s moves are designed to head off problems further down the road. Although Russia’s economy has been doing better than expected and its balance sheet looks strong, the structure of the government’s revenues contains some large weaknesses.
“While on the surface Russia’s fiscal accounts appear strong, with debt-to-GDP at about 17% and a fiscal deficit of 2% in 2022, they hide important vulnerabilities due to Russia’s reliance on oil and gas revenues. Energy extraction and export taxes account for more than 40% of total federal budget revenues. Without them, Russia’s federal budget would have been in persistently large deficits over the last decade,” Institute of International Finance (IIF) said in a note.
Russia has been enjoying very large inflows from oil and gas exports after the war pushed the prices of both commodities up to record levels.
Russia’s current account was still well in surplus in August. According to the preliminary estimate of the Russian central bank, the surplus was $16.5bn in August. The surplus was clearly smaller compared to the peak readings of recent months, but still at a historically high level. In January-August, a surplus of around $180bn was accumulated – more than double the previous record. This year, the surplus has also varied exceptionally widely from month to month.
“However, fiscal dynamics are even more critical for Russia’s ability to wage the war on Ukraine. Due to the high commodity prices and the seasonally low government spending, Russia ran a fiscal surplus of RUB1.3 trillion during 1H2022. However, a combination of the ruble strengthening, sharply lower gas exports, as well as somewhat higher expenditure pushed the federal budget into substantial deficits in July – August. While expenditures picked up markedly in July, the trend did not continue into August, so we will be closely watching the developments into the end of the year,” IIF said.
Even though Russia initially budgeted a fiscal surplus of 1.1% of GDP this year, IIF expects it to reach a deficit of about 2-3% in 2022. With Russia already cutting off the gas supply to Europe and oil prices stabilising, pressure on Russia’s fiscal accounts will continue to mount.
“For now, Russia can finance higher spending from the National Wealth Fund (NWF), currently at about 8% of GDP or $200bn, and domestic MinFin bond (OFZ) issuance,” says IIF. “However, up to 40% of the NWF appears to be already committed to anti-crisis measures, and close to $35bn allegedly frozen alongside the Bank of Russia reserves.” The finance ministry restarted OFZ issuance in September, which had been temporarily cancelled due to market volatility. The first auctions were heavily oversubscribed, given the limited investment opportunities for domestic banks flush with liquidity. Russia’s financial sector is dominated by public banks (accounting for more than two-thirds of total assets) with room to increase their holdings.
“The financial system has largely recovered from the March liquidity shock, and the structural liquidity surplus of the banking system vis-à-vis the Bank of Russia is back at RUB2.8 trillion ($47bn), which should allow banks to absorb significant additional issuance,” says IIF.
But the government is well aware that things will get tough soon. The medium-term budget for 2023 and beyond assumes a 25% reduction in oil and gas revenues by 2025 and a fall in oil prices to about $60 per barrel.
As a result of the sharp decrease in oil and gas revenues, the government is considering bringing back the fiscal rule that requires saving all oil and gas revenues above a certain Urals price cut-off point, reports IIF.
“We believe the authorities are overly optimistic expecting other revenues to fully compensate for the loss of oil and gas inflows, thus allowing government spending to stay flat in nominal terms. The government will need to find spending cuts of at least 10-15% during this period to keep the deficits in the 2-3% range,” says IIF. The finance ministry has already ordered 10% spending cuts, but it remains to be seen if they can be implemented.
In response to the combined oil price drop and sanctions shock in 2014, Russia implemented expenditure cuts on a par with most of the IMF crisis programmes.
