The Bell, 8/30/24

Russia’s mid-term future: high interest rates and high inflation 

Russia’s Central Bank published Thursday a document laying out its vision for the economy over the coming three years. Titled the “Main Directions of Monetary Policy 2025-27,” it examines four different scenarios (the worst of which would see Russia plunge into a deeper crisis than 2008). Taken together, the scenarios appear to confirm that Russia will continue to increase spending on the war in Ukraine, and that the country is likely to face persistent high inflation and several years of double-digit interest rates.

Four scenarios

This is an annual report, and the Central Bank always reviews several different scenarios for economic development. Last year, there were three such scenarios, this time (“due to complex internal and external circumstances”) there were four: one baseline, two pessimistic (persistent inflation and high-inflation) and one optimistic (low-inflation).

The bank’s baseline scenario assumes that inflation will slow to 4-4.5% next year, and will continue to hover around 4% in the longer term. To achieve this, monetary policy will remain tight. GDP would grow by 3.5-4% in 2024, before slowing in 2025 and 2026.

The baseline scenario is the one considered most plausible. However, one of the biggest variables is the level of state spending and state subsidies in the coming years, Central Bank deputy chairman Aleksei Zabotkin told journalists at a press conference.

Both pessimistic scenarios (persistent inflation and high-inflation) assume that interest rates will remain in double digits. In the persistent inflation scenario, the labor market would remain tight and inflation would be driven by high domestic demand (which, in turn, would be supported by state spending), as well as increased wages. In this scenario, average interest rates would have to stay one or two percentage points higher than in the baseline. But even under such tight monetary conditions, inflation was not predicted to fall to 4-4.5% until 2026.

The high-inflation scenario is even more dire. In this eventuality, the problems in the Russian economy are amplified by a serious deterioration in external circumstances: disbalance on the financial markets leading to a global financial crisis and recession. While the Russian economy is internationally isolated, falling demand for Russian products was still assumed to cause significant damage. This scenario also envisaged more Western sanctions on Russia. If this comes to pass, the prediction is that the Russian economy would enter recession, inflation hit 13-15% and interest rates soar to 22%.

There is also an optimistic scenario – low-inflation. This assumes significant increases in investment, and growth in productivity. In this case, inflation would fall faster than in the baseline scenario, economic potential would increase, and GDP would rise.

However, with the Kremlin’s current economic policies and existing structural restrictions, the chances of this scenario occurring are not great.

Inflation is here to stay

Under current circumstances the persistent inflation scenario is the most likely of the four. It assumes that the high demand we witnessed in the second half of 2023 will be sustainable, and will continue through 2025. In other words, the state will maintain high levels of spending in order to fund the war in Ukraine.

The persistent inflation model also assumes stronger protectionist policies, as well as the imposition of import tariffs to stimulate import substitution. Winegrowers and winemakers, domestic electronics assemblers, polymer and plastic processors, manufactures of Russian trucks and automobiles and many other sectors are already urging the government to impose import tariffs. Of course, any new foreign trade tariffs are, by definition, pro-inflationary. They make imported goods more expensive and push up demand for domestic goods, which translates to increased prices. 

However, government spending is the biggest inflation driver. The Central Bank estimates that the cost of fulfilling all of the goals set by President Vladimir Putin in this year’s state-of-the-nation address will be 18 trillion rubles ($199 billion) between now and 2030. This includes new social spending, loan write-offs, tax breaks and more. In its reports, the Central Bank highlighted Putin’s promises to increase the minimum wage by an annual average of 10.5% through 2023; index pensions at 8.8-14.7% every year; resume indexed pensions for working pensioners from 2025; and increase payments for children. In addition, Putin announced major spending on road building, housing and communal services. Of course, the government can always postpone these spending plans, and use alternative sources of income to fund its war (read more about this here).

State spending has a huge impact on demand and inflation, according to the Central Bank. It results in organizations and the public demanding more credit to expand production and consumption, including real estate purchases – and increases in interest rates are unable to fully keep pace with these pro-inflationary factors. Moreover, in this scenario, businesses and households will focus more on past cases of high inflation when making purchasing decisions, which risks fixing inflationary expectations at a higher level.

The Central Bank has already alerted the Kremlin to the risk of increasing inflation. At a meeting on Aug. 26, Putin urged the government to assist the bank in curbing rising prices, Vedomosti reported. The discussion focused on measures to reduce subsidized lending.

Why the world should care

The most likely economic scenario for Russia’s economy over the next three years appears to be one of accelerating inflation and high interest rates. The Central Bank’s latest three-year forecasts assume increases in state spending (far outstripping what will be collected via higher taxes). This would be yet another major boost to inflation.

EU imports to Russia in June hit lowest monthly level for 20 years 

The volume of imports from the European Union to Russia in June reached its lowest level for more than 20 years, according to Eurostat figures. Total exports from the EU to Russia in June were worth €2.472 billion – the lowest figure since Jan. 2003. 

• The main reasons for the ongoing collapse in these figures are EU sanctions and the threat of secondary U.S. sanctions, plus the voluntary withdrawal of European companies from trade with Russia since its full-scale invasion of Ukraine.
• The decline is visible in all sectors—from automobiles and alcohol to microchips and machine tools. However, the same Eurostat data indicates that Russia is meeting its need for European goods with the help of “friendly” nations.
• This is illustrated by one of Russia’s key defense sectors: machinery and transport. Here, the drop in European exports to Russia has been matched by a sudden increase in exports to some ex-Soviet nations, the UAE, and Turkey. This growth cannot be explained by surging demand in those countries and strongly suggests that the buyers are simply re-exporting EU goods to Russia.

• Evidence of re-export is also visible in microchips (the EU has almost completely banned microchip exports to Russia). Direct trade in these crucial parts between the EU and Russia plummeted from being worth €56 million in June 2021 to just €2,500 in June 2024. However, at the same time, Russia’s neighbours actively started importing microchips from Europe: for example, Turkey bought €14 million worth in June 2021 and €24 million worth in June 2024. The growth is even more steep in countries like Armenia in the South Caucasus and Kyrgyzstan in Central Asia, although the volumes are smaller.
• This can also be seen in the market for ship propellers and blades. Before the war, Russia imported €2.5 billion worth a year of these products. Now, they are classed as dual-usage goods and cannot be delivered directly. However, countries like Turkey, the UAE and even landlocked states such as Armenia and Kyrgyzstan have significantly increased their orders of European propellers.
• It’s difficult to gauge China’s role in re-exporting to Russia from these statistics as the volumes are too big to pick out tell-tale anomalies. Nevertheless, many believe that Beijing is the biggest re-exporter of EU goods to Russia.
• Western countries have long been concerned about the re-export of sanctioned goods to Russia, especially dual-use goods. The recent 14th package of EU sanctions addresses the issue by requiring exporters to check the final purchaser. The U.S. also threatens to impose secondary sanctions in case of re-exporting the sanctioned goods. The effect of these measures will take some time to materialise in full.

Why the world should care

It’s unlikely that the recent anti-circumvention measures will completely stop or greatly reduce re-exports to Russia. However, the more barriers are put in place, the more expensive it will be for Russian companies to obtain the Western goods they require. This pushes up inflation inside Russia and limits productivity.

Figures of the week

Inflation is falling. Between Aug. 20 and Aug. 26, weekly inflation was 0.03% (last week, it was 0.04%), according to the Economic Development Ministry. Annual inflation slowed from 9.04% to 9.01%. Despite the seasonal fall in fruit and vegetable prices, food prices continue to rise. Only regulated prices, as well as the costs of household and tourist services, are falling.

In the first half of this year, state-owned gas giant Gazprom increased its net profits 3.5 times year on year to 1.04 trillion rubles, according to the company’s financial statement. The growth is primarily due to increased gas exports following last year’s catastrophic fall, plus rising oil exports. In the first six months of 2024, gas exports to the EU were up by a quarter, from 14.8 billion cubic meters to 18.3 billion cubic meters. Over 2024 as a whole, Gazprom expects deliveries to China to increase by a third, from 22.7 billion cubic meters to 30 billion cubic meters, rising to 38 billion cubic meters next year. However, the price of selling gas to China is lower than to Europe, and exports are limited because there is only a single pipeline connecting the two countries. For the moment, the Chinese market is not enough for Gazprom to replace the losses it has suffered from the war and Western sanctions. 

After a slight slowdown in June, industrial output in July returned to growth, according to Russia’s State Statistics Service. The industrial production index was up 3.3% in July, driven by the manufacturing sector. The four sectors with the biggest growth are all related to the war in Ukraine: computers and optics, finished metal products, medicine and healthcare, and transport.

Russian government website, 8/27/24

Mikhail Mishustin: “The tasks are significant and complex, requiring substantial resources. To keep the budget balanced, careful planning is essential to ensure funds are used efficiently and yield specific results.”

Mikhail Mishustin’s opening remarks:

Good afternoon, colleagues.

Today, we are finalising the creation of a new portfolio of national projects for the next six years. The initial concepts emerged at the end of last year, immediately following the meeting of the Council for Strategic Development and National Projects. The process of defining specific areas of activity for the future documents began in accordance with the objectives set out in the Presidential Address to the Federal Assembly and the May executive order.

In this process, not only the heads of relevant departments were involved, but also a diverse group of experts, including representatives from the business sector, scientific and expert communities, the Federal Assembly, and the regions.

As a result, 19 projects were developed, each with ambitious goals for our country’s development through the end of the current decade, along with a detailed list of those responsible and project overseers.

The President also addressed key approaches in this area during yesterday’s meeting. He stressed the importance of evaluating how each decision, event, and legal amendment contributes to achieving the national development goals.

I will highlight the most crucial projects that deserve our focused attention. These include Family, Infrastructure for Life, Long and Active Life, and, of course, Youth and Children. These projects encompass essential decisions aimed at enhancing the lives of our citizens. They are designed to improve the quality of the environment in communities, address demographic challenges, and provide support for motherhood and childhood, as well as improve the healthcare and education systems, and housing availability.

Implementing these projects will enable the construction of thousands of new schools, kindergartens, and sports facilities, as well as major renovations of cultural and higher education institutions. It will also support the ongoing modernisation of housing and utility services, improve public transportation, road conditions, and advance the landscaping of various areas.

A priority was given to achieving technological leadership, which is of vast importance in the current situation, where a number of states are still a source of external challenges and unfriendly actions.

There are nine national projects aimed at reaching this goal. Within the next few years, Russia must continue to work pro-actively to create a technological and production base of its own. In the chemical industry, for example, dozens of new technological chains should emerge before the end of this decade. In the composites, over 15 production facilities and 60 products are expected to be added. The output of drones should be increased five-fold.

As for the transport sector, it should provide people with extensive opportunities for wayfaring and business and private travel in a comfortable environment and at affordable prices. Businesses, at the same time, should have enough funds for effective freight transportation. For this purpose, the share of Russian-made aircraft in the national fleet should constitute no less than 50 percent by the end of the current decade.

We will do this within the framework of national projects, including Means of Production and Automation, New Materials and Chemistry, Transport Mobility, New Health-Saving Technologies, Remotely Piloted Aircraft Systems, and others.

These solutions should help our country both to meet the existing challenges and continue the in-depth transformation of the Russian economy, primarily with an eye to shaping a supply-side economy, with its non-resource component on the upgrade. By 2030, we will have to increase the share of gross value-added in real terms and the manufacturing industry’s production index by no less than 40 percent on 2022. Yet another goal is to ensure that Russia is one of the top ten world leaders in R&D and to increase the domestic spending on these purposes to no less than 2 percent of the GDP.

It is also necessary to increase the share of domestically produced hi-tech goods and services created on the basis of Russian innovations in the overall volume of their consumption by 50 percent and the earnings of small-sized technological companies – by no less than 600 percent as compared with last year’s level. Economic growth should be accompanied with a rise in people’s wellbeing and increased industrial earnings, a build-up in private investment, definitive solution of the personnel shortage problem, and introduction of a modern governance model based on Big Data. The Effective and Competitive Economy, Personnel, Data Economics and Digital Transformation of the State, and Tourism and Hospitality Industry national projects are aimed at reaching these objectives.

In this area, by the end of the decade, 40 percent of medium-sized and large enterprises in basic non-resource industries, as well as all state and municipal social sphere organisations will need to be involved in the implementation of projects aimed at increasing labour productivity. This is in order to create favourable conditions for small and medium-sized businesses to develop tourist infrastructure, build new federal year-round resorts and adopt state-of-the-art platform solutions and services for public administration, benefiting people and businesses.

Colleagues,

The tasks are significant and complex, requiring substantial resources. To keep the budget balanced, careful planning is essential to ensure funds are used efficiently and yield specific results.

Today, we will discuss in detail our priorities and the financial component because we have little time for adjustments.

I want to remind you of what the President said during yesterday’s meeting. National projects should not include insignificant, non-working items that serve only bureaucratic purposes, but should instead focus on producing real results and practical, positive changes in people’s lives.

As early as in September the entire portfolio of new national projects should be submitted to the Presidential Council for Strategic Development. Please, keep this in mind as we proceed.

By John Helmer, Website, 8/26/24

Remember the old adage — sticks and stones will break my bones but words will never harm me.

In the war by the US and its Anglo-European allies to destroy Russia since 1945, the propaganda war has been lost by the Russians many times over. That war is still being lost [3].

But for the first time since 1945, the battlefield war is being won by the Russian General Staff.

The uncertainty which remains is whether President Vladimir Putin will continue to restrict the General Staff’s war plans in order that Putin can go to negotiations with the Americans on terms which will forego the demilitarization and denazification of the Ukrainian territory between Kiev and the Polish border, and concede to the Kiev regime unhindered control of the cities to the east — Kharkov, Odessa, Dniepropetrovsk.

Call those terms Istanbul-II. As with the draft terms initialled in Istanbul at the end of March 2022 [4], Istanbul-II amounts to an exchange of dominant Russian military power for US and Ukrainian signatures on paper with false intention and temporary duration.  

The US administration says it believes Putin will concede. It also believes that by staging its war of pinpricks — that’s the drone, artillery and missile barrages fired by the Ukrainian military, directed by the US and UK – in the Black Sea and Russia’s western border regions, Putin’s red lines and threats of retaliation are exposed [5] as empty bluff. The same interpretation of Putin, and confidence that he will accept US terms, are the foundation of the Ukraine “peace plan” of Donald Trump’s advisors [6]. The Trump plan’s offer of “some limited sanctions relief” reflects the conviction in Washington that Putin’s oligarch constituency can be bribed to push Putin into the same “frozen war” concessions as Roman Abramovich got Putin to accept at Istanbul-I – until the General Staff stopped them both.

Putin’s restrictions on the General Staff’s proposals for neutralizing the US and British air surveillance and electronic warfare operations; and his orders to stand by while the Ukrainians have assembled several thousand forces, first to cross into Kursk, and then into Bryansk and Belgorod, are now as visible in Moscow as they have been in Washington.

Moscow sources believe it was the Kremlin which was taken by surprise by the Kursk attack on August 6, but not the General Staff and the military intelligence agency GRU. They understood the battlefield intelligence as it was coming in and requested Putin’s agreement to respond. In retrospect, they say “we told you so”; they imply their hands were tied by the Kremlin orders.

“My understanding for now,” says one of the sources, “is that these are pinpricks that feel painful but they are not life threatening. Russia will not take any land, for now, other than the four regions. It should be the eight regions but it’s obvious Putin doesn’t have the will and the military does not have the capacity to hold. So we will see Ukrainians inside Kursk for a while. But it should be downplayed because it should not be allowed to be a bargain chip in negotiations the other side is aiming at.”

Putin said this himself, the source points out at his meeting on August 12 [7] with the Chief of the General Staff, Valery Gerasimov, and others. “These [Kursk] actions clearly aim to achieve a primary military objective: to halt the advance of our forces in their effort to fully liberate the territories of the Lugansk and Donetsk people’s republics, the Novorossiya region.”  Putin also said: “It is now becoming increasingly clear why the Kiev regime rejected our proposals for a peaceful settlement, as well as those from interested and neutral mediators…. It seems the opponent is aiming to strengthen their negotiating position for the future. However, what kind of negotiations can we have with those who indiscriminately attack civilians and civilian infrastructure, or pose threats to nuclear power facilities? What is there to discuss with such parties?”

“It’s obvious at this point,” comments a military source, “that the Americans and Ukrainians have decided that Putin will come to terms if they snatch enough Russian territory and keep up their strikes behind the Russian lines…The Ukrainians are going for broke in the north while the centre collapses. But they know, no matter how expensive it is, the longer they remain on the attack, the worse it looks for the Russian leadership. They also have the measure of Putin who gives orders for half measures.”

This is also obvious in the Security Council in Moscow. The Council’s deputy secretary, ex-president Dmitri Medvedev, made the point explicitly in his Telegram account declaration on August 21 [8], implying that until he had said it, no one else dared: “In my opinion, recently, even theoretically, there has been one danger – the negotiation trap, into which our country could fall under certain circumstances; for example. Namely, the early unnecessary peace talks proposed by the international community and imposed on the Kiev regime with unclear prospects and consequences.” Medvedev was referring to Istanbul-I. “After the neo-Nazis committed an act of terrorism in the Kursk region, everything has fallen into place. The idle chatter of unauthorized intermediaries on the topic of the beautiful world has been stopped. Now everyone understands everything, even if they don’t say it out loud. They understand that there will BE NO MORE NEGOTIATIONS UNTIL THE COMPLETE DEFEAT OF THE ENEMY! [Medvedev’s caps]” 

Medvedev’s reference to the “idle chatter of unauthorized intermediaries” is to the Hungarian Prime Minister Victor Orban, whom Putin endorsed at the Kremlin on July 5 for the ill-concealed purpose of sending a message to presidential candidate Trump with whom Orban talked on July 10. For that story, click [9].  

Days before his meeting with Orban, Putin had announced [10] his abandonment of the demilitarization, denazification objectives of the Special Military Operation in exchange for “the complete withdrawal of all Ukrainian troops from the Donetsk and Lugansk People’s Republics and from the Zaporozhye and Kherson regions.” 

This change of objective has not yet been acknowledged by the Kremlin media; it is opposed [11] by the Russian military and by the majority of Russian voters.   “War is war — either we go to war or surrender” – is a popular slogan on Russian social media for Putin to stop restricting the General Staff.

 “The problem for the Russians,” comments a military source, “is that they, especially the Kremlin, the Defense Ministry, and the Foreign Ministry have lost the propaganda war. This puts them in a bad spot as they need more than stopping, then pushing the Ukrainians back in Kursk, or a Donbass victory, in order to recover. They need to knock the Ukrainians out of the war. But on that Putin says one thing — he does another.”

The Ukrainian border crossing began between 5 and 5:30 in the morning of August 6.

The first reports from the Defense Ministry in Moscow were false. On the afternoon of August 7, Chief of the General Staff, Valery Gerasimov, in a public briefing of the president and other officials, claimed [12]: “At 5.30 am on August 6, units of the Armed Forces of Ukraine numbering up to 1,000 people went on the offensive with the aim of capturing a section of the territory of the Sudzha District in the Kursk Region. The joint actions by the state border covering units together with border guards and reinforcement units, air strikes, missile forces, and artillery fire stopped the enemy’s advance into the territory in the Kursk direction…We will complete the operation by defeating the enemy and reaching the state border.” 

This Ukraine force count was much too low; their advance was not stopped; the restoration of the state border has not been achieved after three weeks of fighting. Either Gerasimov knew much better and was lying to Putin for public propaganda; or else he didn’t know what the true situation was.

The General Staff’s misdirections were repeated by the only independent Russian media sources not directly under state control – the military bloggers, the best of whom are Boris Rozhin (Colonel Cassad) and Mikhail Zvinchuk (Rybar). Rozhin tried to downplay the attack through the first day, relying on Defense Ministry and region official releases. Rozhin’s first report appeared at 10:12 on the morning of August 6: [14] “The governor of the Kursk region reported an attempt by the enemy forces to break through on the territory of the region. The attack was carried out by limited forces and was repulsed. The Armed Forces of the Russian Federation and the FSB did not allow the breakthrough of the enemy’s forces”. This was false.

Gerasimov’s report to Putin exposed himself, the General Staff, and the Defense Ministry to a round of allegations of incompetence and negligence which were published a week later by media under Kremlin control. These allegations [15] include a failure by Russian intelligence to detect the concentration of Ukrainian forces in advance of the border crossing, and a personal failure by Gerasimov to “ignore several warnings about a Ukrainian buildup near the Kursk border. ” An anonymously sourced report by a non-Russian reporter with a record of plagiarism and fabrication claims to be based on “hawks in the siloviki apparatus [who] don’t make it a secret that Gerasimov should be fired” and replaced, the reporter claimed, by a combination of the discredited General Sergei Surovikin and the head of the Federal Security Service, Alexander Bortnikov.

The campaign against Gerasimov also appears to be a defence of Putin’s advance knowledge and his operational orders to Gerasimov before August 6 [15]: “President Putin’s reaction to the Kursk invasion was visible in his body language. He was furious for the flagrant military/intel failure; for the obvious loss of face; and for the fact that this buries any possibility of rational dialogue about ending the war.” 

Moscow sources explain these are Kremlin claims aimed at whitewashing Putin’s refusal to allow the General Staff to extend their operations into the Ukrainian Sumy region to break up the attack concentration in advance; and at concealing Putin’s purpose in preparing for the Istanbul-II negotiations. The sources also point out that the National Guard, the well-armed and highly mobile presidential force, has failed to appear in any role in the Kursk region, not even in defence of the predictable target of the Kurchatov nuclear power plant. The Guard commander, Victor Zolotov, Putin’s former bodyguard, did not appear in the Kremlin meetings on the Kursk operation until August 12, when he was at the bottom of the table on Putin’s right, sitting opposite Gerasimov; in the Kremlin record [7] Zolotov had nothing to say….

As the Russian analysts struggle to explain what has happened at Kursk, they have largely ignored the history illustrated in this chart and this map. In order to blame the regional administrations and scapegoat the governors, as the Kremlin has encouraged, the record of repeated requests to put the regions on a war footing in advance – not an anti-terrorism operation after the event – has been censored, along with the record of Putin’s temporizing, procrastination, and refusal. For Putin’s comparable form in responding to high-casualty coalmine accidents in Kemerovo region and to coke and steel plant pollution in Chelyabinsk, both of them caused by oligarch supporters of the president, click to read this [40] and this [41]. 

Because Martyanov is based in the US, he has used his military reports to imply political blame at the level of the civilian regional administrations. “The best equipped Ukrainian (practically all of it fresh NATO hardware) and motivated troops, and NATO generals who planned this catastrophe for them, covered part (about 11-12 kilometers) of what is called the security zone, which was not prepared (why, we will know in a due time–administration of Kursk Oblast has a lot to answer for)…”

The national politician closest to the war front has carefully reversed the scapegoating down the command line, and at the same time held the Kremlin to account for its insistence on the war as an anti-terrorist operation. This is Dmitri Rogozin [42] – at one time the civilian minister in charge of the military-industrial complex, a potential presidential successor, and currently senator for Zaporozhye . According to Rogozin as early as August 7 [43], “the transfer of responsibility for restoring order and legality in these territories to the National Anti-Terrorist Committee, which is headed by the FSB and which includes or involves all those who are necessary for the case, including the Ministry of Defense, is also a recognition of the fact that in the person of the Kiev regime we are dealing with terrorists, and not with the state. With all the consequences…” 

By that last phrase Rogozin (right) meant that since the Kursk attack was a terrorist operation directed by terrorists in Kiev, the Russian anti- terrorist operation should extend to Kiev, Putin’s restrictive orders to the General Staff  should be lifted, and the “terrorist regime” should be destroyed throughout the territory to the Polish, Romanian and Hungarian borders. “The situation in the world and in our country has changed radically, and these decisions are urgently needed.” Rogozin was addressing [43] Putin as the decision-maker.

“[Alexander] Syrsky is not a Ukrainian,” Rogozin said on August 11, referring to the Russian- born Ukrainian general staff chief. “He’s one of our traitors. Zelensky is also not a Ukrainian. He’s one of the Jewish traitors. They don’t feel sorry for Ukrainians. They’ll definitely throw them at us… Zelensky is threatening us with a series of terrorist attacks across the country, including the Urals, Siberia and the Far East. That’s how you should understand his words. If his threats are not military, but terrorist in nature, he positions himself as the leader of a state terrorist organization and is subject to liquidation. I hope that my logic is clear and obvious to those who should immediately make a decision to start planning an operation to eliminate Zelensky.” 

This is as close as a national politician has come so far to reverse the logic of Putin’s proposals for Istanbul-II, and instead to empty the territory of its “terrorists” and their weapons to the full limits of the demilitarization and denazification goals of February 2022.

“Whoever is to blame on the Russian side for the invasion of Kursk,” comments [45]a military source, “this is officially now a tar baby for the Ukrainians.  They can’t afford to stay but they can’t afford to leave either. They should thank their lucky stars for Putin. It not for him, they’d have no place to leave for or return to.”

Reversing the operational logic of the anti-terrorism operation has a domestic political corollary which Rozhin admitted ruefully on August 24. [46] “Many people are already talking about the need to use useful organizational solutions of the Stalinist period, especially in terms of mobilizing the country and society in war conditions, starting with the former de-stalinizer [Dmitri] Medvedev, who now scares the directors of defense factories with Stalin’s letters from the Second World War. The reason for this is simple — referring to the previous historical experience, in the 20th  century, in terms of decisions in a difficult period for the country, there is no one to turn to except Stalin. Well, not to Gorbachev nor to Nicholas II.” 

For “organizational solutions of the Stalinist period”, read the end of the Russian oligarchy.

An oligarch source in Moscow denies this. “The oligarchs are having the best time in the last two decades inside Russia,” the source says. “None of them wants to leave for the west and no one is asking Putin to make any compromise with the US. Everyone understands the money is not coming back; they have written off their London, their Sardinia properties. Their children are fine in the US and UK with their new nationalities, but they were not going to return anyway. So no, there is no real pressure from oligarchs on Putin for a war settlement. But everyone wants some sanctions softened.”

John Helmer discusses these issues with the hosts of The Duran here.

By Mark Episkopos, Responsible Statecraft, 8/27/24

The world of Cold War-era espionage was famously described by former CIA counterintelligence chief James Jesus Angleton as a wilderness of mirrors, one of those rare coinages that so beautifully captures its subject matter as to require little by way of elaboration.

The wilderness of mirrors is itself a rather brilliant literary appropriation from T.S. Eliot’s 1920 poem Gerontion, a hauntingly foreboding portrait of interwar abjection that gripped a generation of Europeans hurtling at breakneck speed toward another, even greater calamity lurking just around the corner.

Angleton plucked this phrase from its original, admittedly vastly different context to capture the grasping in the dark — or, as Eliot put it, braving life’s many “cunning passages” and “contrived corridors” only to arrive at a distant echo of the truth — that is part and parcel of intelligence and counterintelligence work.

But these problems of perception are no less salient in the peripheral world of statecraft, where leaders must deter adversaries and uphold international commitments not, for the most part, by their actions but by the signals they transmit to their counterparts. The structure of the international system is held aloft by these signals and the vast array of policies, institutions, and arrangements underpinning them.

The basic currency behind signaling is credibility, backed by a commensurate capability to make good on the signal one is trying to send. For instance, the NATO alliance and its collective defense provision, Article 5, rest on America’s assurance that it will come to the defense of its European partners if they are subject to aggression by another state. As I have written with my colleagues Anatol Lieven and George Beebe, all the available evidence suggests that the Russian leadership more or less sees this U.S. security assurance as credible and shapes its approach toward NATO’s eastern flank accordingly.

Meanwhile, Russia’s most formidable challenge — one that rivals and potentially outstrips the battlefield difficulties it is facing in Ukraine and, now, its border region of Kursk– has been finding ways to credibly deter the West from continuing to aid and supply Ukraine. Just under 30 months ago, the day the invasion commenced, Russian President Vladimir Putin warned that anyone who interferes will suffer “consequences like you have never seen.”

Since then, the West has successfully coordinated a colossal, by some measures unprecedented security assistance operation for Ukraine, steadily deepening its involvement with new types of weaponry and by relaxing or altogether abandoning its previous injunctions curbing Ukraine’s ability to strike within internationally recognized Russian territory.

Moscow enjoys a considerable degree of deterrence on the question of direct Western intervention in the war, if for no other reason than the eventuality of such a move spilling into a wider regional war one hair’s breadth removed from a nuclear confrontation. But the same cannot be said of its ability to deter the West from doing all it can to aid Ukraine indirectly.

Putin’s latest scheme to dissuade further Western involvement in the Ukraine war was to threaten to arm the West’s adversaries in retaliation, supposedly under the belief that this policy would raise costs on Ukraine’s Western partners such that they would either back down or at least refrain from further deepening their commitment to Kyiv.

Yet, three months later, Russia has yet to make good on this threat. As it turns out, this kind of punitive tit for tat was never quite fit for purpose, not least because Russia lacks the capacity to make good on it without running a red pen through other parts of its global portfolio of military, economic, and political interests.

Just as the Kremlin was reportedly getting ready to arm the Houthi rebels in Yemen against the United States, Washington coordinated a diplomatic push with Saudi Arabia to stay Moscow’s hand. Russia and North Korea signed a defense pact in June, advertised by both sides with much pomp, but there is no evidence to date that the Russians are planning to send any major weapons shipments to North Korea. It’s so far been the other way around, with the DPRK shipping millions of artillery shells to Russia.

Perhaps the North Koreans believe themselves to be benefiting in other ways, including the political leverage their relations with Russia give them over their prime benefactor and partner, China, but there has not been anything approximating a comparable exchange of weapons between Moscow and Pyongyang.

It’s not difficult to see why: any large-scale effort to arm the DPRK could prove fatal to Russia’s relations with South Korea, which have not completely tanked following the 2022 Ukraine invasion despite the ROK’s tight-knit partnership with Washington and obvious susceptibility to U.S. interests. Beijing, too, would be left unsmiling by the destabilizing effects that large Russian arms infusions into North Korea could exercise throughout the region, and the China relationship is one Russia can ill afford to complicate.

Turning to the Middle East, Iran emerges as an obvious candidate for Russia’s generosity — it is, after all, a U.S. adversary locked in a bitter struggle with one of America’s closest allies, Israel. But here, too, the Kremlin finds itself navigating gingerly between Scylla and Charybdis.

Part of Russia’s complex Middle East strategy following its intervention in the Syrian civil war has been to support a stable, partner-level relationship with Israel. Both Putin and his Israeli counterpart Bibi Netanyahu regard cordial ties between their two countries as a personal achievement, and they have been remarkably loath to jettison this relationship even as the Ukraine war and 2023 Gaza War have found them on different sides of the barricade.

Though Moscow has recurrently needled Israel over its conduct in Gaza, these kinds of rhetorical pinpricks are one thing; supplying Israel’s avowed Iranian enemy with major weapons systems is quite another, and, so far, not a bridge Putin has been willing to cross.

Simply put, Russia is running out of Western enemies that can be armed without negatively impacting its own interests. Smaller potential players remain in Latin America and parts of Africa, but in these cases, the impact of such provisions is likely to be far too small to carry the punitive effect that is Russia’s raison d’être for pursuing this arms transfer policy in the first place.

The conundrum Moscow finds itself in reveals a deeper facet of its war effort in Ukraine: Moscow’s ability to maintain relationships with almost the entire non-Western world in spite of the West’s persistent isolation campaign is both an asset and a liability. It buffers Russia from Western economic and diplomatic pressures that may otherwise have successfully crippled it in the war’s opening stages. But these relationships also carry with them a set of barriers constraining Moscow from pursuing many forms of escalation and retaliation.

These limitations point to a wilderness of mirrors that has developed around the war in Ukraine — a set of expectations and norms that, though never codified and largely unspoken, nevertheless has a real disciplining effect on its participants. This logic should be studied more deeply and integrated as part of the U.S. policy toolkit for bringing the war to a close on maximally advantageous terms for the West and Ukraine.

By Ray McGovern, Consortium News, 9/5/24

As the drums beat louder and louder about alleged threats from Russia, the Biden administration today blew perilous new life into the debunked and disgraced Russiagate disinformation operation.

Russiagate seems too good of a weapon for the Democrats to give up. Its initial appearance, beginning in 2016, dangerously raised tensions with nuclear-armed Russia.  But in the midst of today’s escalating crisis in Ukraine, a Russiagate repeat recklessly raises risk to insane heights.   

Here’s how The New York Times reported it today:

“The United States on Wednesday announced a broad effort to push back on Russian influence campaigns in the 2024 election, as it tries to curb the Kremlin’s use of state-run media and fake news sites to sway American voters.

The actions include sanctions, indictments and seizing of web domains that U.S. officials say the Kremlin uses to spread propaganda and disinformation about Ukraine, which Russia invaded more than two years ago.

Attorney General Merrick B. Garland detailed the actions taken by the Justice Department. They include the indictment of two Russian employees of RT, the state-owned broadcaster, who used a company in Tennessee to spread content, and the takedown of a Russian malign influence campaign known as Doppelgänger.

‘The American people are entitled to know when a foreign power engages in political activities or seeks to influence public discourse,’ Mr. Garland said. …

The State Department has offered a $10 million reward for information pertaining to foreign interference in an American election.”

Garland testified: “The effort in this case is to affect the preferred outcome of the presidential election. … the Director of National Intelligence has testified that Russia’s preferences have not changed from the preceding election.”

CNN’s Breaking News alert dredged up thoroughly disproven myths of “Russia’s 2016 activity, which included hacking the Democratic National Committee and leaking documents aimed at undercutting Hillary Clinton’s presidential campaign.”  

The Lie That Won’t Die

Most Americans (not attentive readers of Consortium News) will believe this recycled drivel from top Justice Department and F.B.I. officials, whose predecessors promoted the same gambit.

As we pointed out four weeks ago in “Decay, Decrepitude, Deceit in Journalism,” thanks to Establishment media, Russiagate continues to survive “like a science fiction monster resilient to bullets.” This, even though the $32 million Robert Mueller investigation found no conspiracy between Russia and the Trump campaign — a main plank in the Russiagate tale. 

The other main plank, that Russia hacked Democratic National Committee computers, was also debunked, as we shall get to shortly.

The government’s actions today were preceded by more Russiagate drivel last Saturday from a repeat offender, Michael Isikoff (via Spy Talk). This time around, Russiagate is consequential drivel as it helps grease the skids for war.

In 2017 Isikoff wrote (with David Corn) Russian Roulette: The Inside Story of Putin’s War on America and the Election of Donald Trump —  “how American democracy was hacked by Moscow to help Trump” (Amazon); a “most thorough and riveting account” (The New York Times).

It was all, as the British say, bollocks! In fact, a year after the “riveting” book came out, Isikoff had to admit publicly that the “Steele Dossier” and infamous “pee-tape” were “likely false.” He confessed during an interview on Dec. 15, 2018, (with an unsuspecting — and somewhat shocked) admirer.

[See: Michael Isikoff Cuts His Losses at ‘Russian Roulette’]

The Timing of Isikoff’s Confession

Isikoff during the Collision tech conference in Toronto in June 2023. (Vaughn Ridley/Collision via Sportsfile, Flickr, CC BY 2.0)

I wondered why Isikoff volunteered his confession at the time (I had thought prematurely). Perhaps there is a clue in what follows:

On Dec. 5, 2017, the House Intelligence Committee took closed-door sworn testimony from Shawn Henry, a top official of the cyber security firm CrowdStrike hired by the F.B.I. to do the forensics on the Democratic National Committee computers. 

Henry testified, we only found out years later, that there was no technical evidence that those DNC emails, which were so embarrassing to Mrs. Clinton when published by WikiLeaks, had been hacked, by Russia or by anyone else.

Did someone privy to that testimony tip Isikoff off, so that he could do a pre-emptive “modified, limited hangout” just 10 days later?

Wait! You did not know about Henry’s sworn testimony? Here’s why. Adam Schiff, then chair of the House Intelligence Committee, and the Establishment media have been able to keep that testimony hidden from nearly everyone for almost seven years.

The indignities do not cease. The C.I.A. analyst who wrote the first draft of the meretricious “Intelligence Community Assessment” of Jan. 6, 2017, which was used far and wide to “prove” Russian hacking of the DNC and other offensives, is bragging about the role he played.

Now retired, Michael van Landingham has told his story to Rolling Stone. We dissected it in our last piece. 

The unrepentant Isikoff, just a few months ago, in Jeff Stein’s SpyTalk pushed the (now thoroughly discredited) claim that Russia hacked the DNC emails.

To remind one: those emails showed that, because of DNC and Clinton campaign machinations, Bernie Sanders had as much chance of becoming the 2016 Democratic Party nominee as the proverbial snowball in hell.

The Vampire

Ukrainian President Volodymyr Zelensky with U.S. President Joe Biden in Kiev, Feb. 20, 2023. (White House/Adam Schultz)

“Russian hacking the DNC” is like a vampire, with no one able to drive a wooden stake into its heart and keep it there. President Barack Obama himself knew it was phony, yet he expelled 35 Russian diplomats for hacking and other alleged meddling in the 2016 election. 

Is Isikoff’s latest redux in SpyTalk a harbinger of more Russophobic brainwashing as National Security Advisor Jake Sullivan and Secretary of State Antony Blinken prepare a response to Russia prevailing in Ukraine? 

In the piece, Isikoff peddles the dangerous fantasy that Russia is threatening Europe beyond Ukraine, while at the same time saying Russia can’t even win in the Ukrainian “stalemate.”  Isikoff does this in an interview with John Sullivan, a former U.S. envoy to Moscow, who’s just published a new book about his time in the Russian capital. 

He says:

“’This is all about Russian aggression,’ Sullivan continued. ‘It happens to be directed at Ukraine, which is why the point of the spear is sticking into Ukraine, but it won’t end there. And I draw the analogies, many analogies in the book, to the Second World War and the start of the war in the 1930s and the late 30s.’” 

Former President Donald Trump’s spokeswoman Kellyanne Conway coined the expression “alternative facts.” With folks like Isikoff and van Landingham back in the saddle — and outlets like Spy Talk and Rolling Stone willing to promote them — expect as many “alternative facts” from Donkeys as from Elephants.

What is important to bear in mind is that the “alternative facts” about Russia are more dangerous by far, given the extremely high tension between Washington and Moscow.

— Joe Lauria contributed to this story.

Ray McGovern works with Tell the Word, a publishing arm of the ecumenical Church of the Saviour in inner-city Washington. His 27 years as a CIA analyst included leading the Soviet Foreign Policy Branch and conducting the morning briefings of the President’s Daily Brief. In retirement he co-founded Veteran Intelligence Professionals for Sanity (VIPS).

The views expressed are solely those of the author and may or may not reflect those of Consortium News.