The European Union has presented member states with two options to freeze Russian Central Bank assets for a longer period as it seeks to assuage US concerns over a Group of Seven plan to leverage the profits to provide Ukraine with some $50bn in aid.
Authorities in Moscow offered to pay a huge new bonus of 1.9 million roubles ($22,000) to recruits willing to join Russia’s war in Ukraine, the latest sign of mounting pressure to find enough replacements for troops killed and wounded on the battlefield.
Ukraine’s Foreign Minister Dmytro Kuleba arrived in China to discuss Beijing’s possible role in ending the war Russia launched more than two years ago.
EU eyes sanctions tweaks to reassure US on Russian assets plan
The European Union has presented member states with two options to freeze Russian Central Bank assets for a longer period as it seeks to assuage US concerns over a Group of Seven plan to leverage the profits to provide Ukraine with some $50-billion in aid.
The two options are an open-ended immobilisation of the assets that would be reviewed at regular intervals, or lengthening the roll-over period to, for example, 18, 24 or 36 months, according to a draft document seen by Bloomberg.
The EU, the US and other G7 allies have been working to finalise plans to provide Ukraine with $50-billion in loans by the end of the year covered by the future profits generated by the immobilised Russian central bank assets, following an agreement reached at a G7 leaders’ summit in June.
But the US had raised concerns that the EU’s sanctions regimen — which requires an extension every six months by a unanimous vote of 27 member states — could be a problem if the freeze isn’t renewed at some point. Most of the $280-billion immobilised by the G7 is in Europe.
The US was asking the EU to provide more durable assurances that the assets would remain immobilised, said a senior US Treasury official.
The agreement reached at the G7 summit envisions the EU and the US providing loans of around $20-billion to $22-billion each, according to people familiar with the matter. The UK, Canada and Japan would contribute with smaller loans.
The proceeds from the frozen assets are estimated to be worth between €3-billion to €5-billion annually. If the assets cease to be sanctioned, each G7 member would be responsible for covering their part of the financing.
The funds would be used to support Ukraine’s military needs and contribute to the country’s reconstruction.
Some EU diplomats were sceptical that Hungary, which has previously rejected proposals to renew sanctions annually, would agree to the changes, said the people, who were granted anonymity to discuss sensitive talks. Because of those reservations, it’s not yet clear if EU ambassadors will be asked to formally discuss the options when they meet later this week.
Still, the G7 and the EU have already agreed that the funds will remain frozen until Russia agrees to pay Ukraine for the damage it has done. The European Commission, the EU’s executive arm, is hoping that the bloc will adopt proposals as early as this month to allow its share of the loan plan to be implemented.
Moscow offers record $22,000 for Russians to fight in Ukraine
Authorities in Moscow offered to pay a huge new bonus to recruits willing to join Russia’s war in Ukraine, the latest sign of mounting pressure to find enough replacements for troops killed and wounded on the battlefield.
A decree issued Tuesday by Mayor Sergei Sobyanin pledged to pay 1.9 million roubles ($22,000) to volunteers who sign military contracts. That’s in addition to 600,000 roubles paid annually in monthly instalments by the city government to supplement wages and bonuses offered by the Russian Defence Ministry.
In total, according to the decree, those joining the war would earn as much as 5.2 million roubles in the first year, provided they survived. The average monthly salary in the capital last year was about 139,000 roubles, according to Federal Statistics Service data.
The offer vaults Moscow to the head of an accelerating pay race among Russian regions striving to find recruits for President Vladimir Putin’s army, amid huge casualties in the war in Ukraine that’s in its third year. With the Kremlin eager to avoid repeating the unpopular mobilisation of 300,000 reservists in September 2022, officials are relying on cash incentives to meet a target of enlisting 250,000 soldiers this year.
Western estimates put Russian casualties at as high as 500,000 since the start of the February 2022 invasion. The UK Ministry of Defence said Russia may have lost 70,000 killed or wounded in just the past two months, calling them the largest daily losses since the war began.
That’s as the Russian army continues a slow advance on the front against Ukrainian forces that are gradually taking delivery of tens of billions of dollars in new weapons from their US and European allies.
The military’s search for manpower is intensifying a labour shortage in Russia’s economy that’s forcing businesses to hike salaries to compete. That’s contributing to spiralling inflation in Russia, prompting the central bank to warn it may hike the key interest rate to try to curb price growth when policymakers meet this week.
Ukraine’s top envoy visits China for first time since Russian invasion
Ukraine’s Foreign Minister Dmytro Kuleba arrived in China to discuss Beijing’s possible role in ending the war Russia launched more than two years ago.
The first visit by a senior Ukrainian official in eight years comes as China has served as an economic lifeline for the Kremlin since its invasion began. Beijing has also put forward its own proposals for a peace initiative that would include Russia at the table.
“We’ll talk, search for touch points,” Kuleba said after his arrival in China on Tuesday for a three-day visit. “We’ll avoid a competition of peace plans and we have to move to a stable and just peace.”
Kuleba was invited by his Chinese counterpart, Wang Yi, for talks about “China’s possible role in achieving a stable and just peace”, according to a statement by Ukraine’s foreign ministry. Talks were scheduled for Wednesday.
Ukraine is attempting to improve ties with China as US presidential elections and waning Western support raise questions about the longevity of its defences. Beijing sat out a summit organised by Kyiv to rally support for a peace blueprint last month because it didn’t include Moscow.
Kyiv now seeks to hold a second summit ahead of US elections in November and has signalled it was open to Russia’s attending it.
The Kremlin’s increasing dependence on China means it is one of the few actors that could influence Moscow’s policy. Despite snubbing the peace summit in June, Beijing should play a “serious role” in ending the war, President Volodymyr Zelensky said in an interview with Bloomberg. Together with the US, the country may become a “potential mediator” in peace negotiations, he said.
Slovakia says Ukraine discord could cause cut in fuel exports
Slovakia said it could be forced to cut fuel exports to neighbouring countries — including Ukraine — if the war-ravaged nation maintains sanctions that have cut the flow of piped crude from Russia.
Oil supplies to Slovakia and Hungary from Moscow-based producer Lukoil were suspended last week following a decision by the Ukrainian government to impose stricter sanctions on the company.
Despite 2½ years of war, Russian oil has continued to flow into the two central European countries via a pipeline that crosses Ukraine. However, Kyiv’s recent measures effectively barred Lukoil from using Ukraine as a transit route anymore — even if other producers are still allowed to send barrels through.
Read more: Hungary, Slovakia ask for EU help as Ukraine targets Lukoil
But Slovakia’s economy ministry warned on Thursday a lack of Russian crude for a sustained period might force it to scale back exports of fuels.
“The energy security of Slovakia is not threatened in the immediate future,” the ministry said. However, “If this issue is not actively addressed, it could lead to restrictions on commercial supplies of petroleum products not only in Slovakia but also in the countries to which these oil products are exported (Czech Republic, Ukraine).”
Ukraine’s GDP-linked debt hits highest level since start of war
Ukraine’s GDP warrants rallied to the highest since early 2022 after the government promised to make some of its debt payments.
The warrants, a kind of debt security with payouts linked to economic growth, rose by about nine US cents this week to trade at 58 cents on the dollar on Tuesday, the highest level since Russia started its full-scale invasion of Ukraine.
The notes have rallied alongside Ukraine’s other debt after the government reached a preliminary agreement with some of its private creditors to restructure more than $20-billion of international bonds, a move that will help the country finance its defence efforts. When announcing the deal, the government also said it intended to restructure $2.6-billion in outstanding warrants and make some payments on them.
“Ukraine will commit to ensure the fair and equitable treatment of holders of the warrants in any prospective future liability management or other treatment proposal,” the finance ministry in Kyiv said in a statement on Monday. Ukraine intends to pay a consent fee on 1 August and a deferred 2021 payment on the notes, it added.
The government and a group of bondholders also agreed on removing a cross-default clause between its international bonds and the warrants, meaning that a default of one instrument wouldn’t affect the other. The warrants, due in 2041, traded below 20 cents on the dollar in the wake of Putin’s invasion in February 2022.
Oil tanker insurance payouts at risk after UK’s Russia sanctions
Transfers of oil at sea that involve a recently-sanctioned Russian insurer may prevent Western firms from paying claims if something goes wrong, a key provider of cover said.
Moscow-based Ingosstrakh has emerged as a major insurer of Russian oil-carrying vessels but was sanctioned by the British government last month.
Those measures could constrain the ability of UK-based insurers to pay out in the event of a spill, particularly if one were to happen when oil was being transferred between two ships, West of England P&I Club said in a notice on its website. West said it would be considered a “UK person” under the rules.
Before the invasion of Ukraine, almost all oil tanker cover was provided by a handful of mutual insurers that fall under an umbrella group called the International Group of P&I Clubs, which is based in London. West is one such club.
They collectively buy billions of dollars of reinsurance that would pay out in the event of a major disaster like an oil spill.
Some Russian cargoes are transferred between two vessels at sea before sailing to their destinations. Those instances could potentially see a Western-covered tanker come into contact with one insured by Ingosstrakh.
In a scenario where two such vessels collided and caused a spill, West might have to seek permission from the UK government to pay out, West said. That’s something that could potentially take a long time to obtain, or not be granted at all, it said.
Europe still vies with China as top market for Russia’s pipeline gas
Europe still contends with China for the title of top buyer of Gazprom’s pipeline gas, more than two years after Russia’s invasion of Ukraine slashed its Western energy sales.
This situation reflects both the Kremlin’s successes and failures.
Even after many rounds of international sanctions, Russia still supplies substantial volumes of gas to select European countries — and the amount has increased so far this year. Yet Moscow hasn’t made any new deals to accelerate the growth of its sales to China beyond what was already mapped out before the collapse of its biggest export market.
Gazprom’s pipeline gas supplies to its few remaining clients in Europe reached 14.6 billion cubic metres from January to June, according to Bloomberg calculations based on flows via Ukraine and the TurkStream link. That’s sharply lower than the annual sales of some 130 billion to 175 billion cubic metres to the region seen before the invasion.
Yet it’s comparable to the 15.2 billion cubic metres the Russian gas behemoth sent to China over the first half of this year, according to calculations based on China’s customs data and price estimates from the Russian economy ministry.
On a monthly basis so far in 2024, Europe and China have been taking turns as the largest buyer of Russian pipeline gas, the calculations show.
Since the invasion, most of the European Union sought out alternatives after Russia capped flows to the region in retaliation for its support for Kyiv. Norway now delivers 30% of the bloc’s gas, but for some countries including Austria, Hungary and Slovakia, Gazprom remains a critical and growing source of energy. Pipeline deliveries to the region were up by more than 26% in the first half from a year earlier, according to Bloomberg’s calculations.
There is a risk to the continuation of these flows. Around half of the gas passes through Ukraine, with which Gazprom’s five-year transit agreement expires in December 2024. Kyiv has on numerous occasions said it will not extend the deal, but European officials are in talks to keep gas flowing through the country. DM