RA’s Daily Russia News Blast – May 21, 2020

Today in Russia: US military plane arrives in Moscow with ventilators in tow; Kadyrov catches COVID-19; Rosneft’s $610m suit against RBC; Dagestan’s fudged numbers; US to withdraw from Open Skies Treaty, Russia prepares “Plan B”; Navalny warns “rage is brewing”; Russia floats summit between US and Palestinians; COVID-19 and Russia’s Asian energy ambition; Moscow quarantining antibody-positive patients; Putin wants things to get back to normal – not so fast; Budget rule will not be abolished; “Oil soaring almost everywhere”; Russia-Japan bickering over islands reignites

A US Air Force C-17 transport aircraft landed at Moscow’s Vnukovo airport with the first 50 of a planned donation of 200 ventilators to Russia. The US is returning the favor after Russia donated ventilators and PPE to New York last month – although some of the ventilators sent to New York were the same model of ventilator that caused deadly fires in Moscow and St. Petersburg.

Ramzan Kadyrov, the strongman Chechen leader who has very much been in character in his strong response to COVID-19 has caught the virus himself. Kadyrov was flown to a hospital in Moscow on the recommendation of doctors in Grozny, Chechnya’s capital.

Rosneft announced a 43 billion ruble ($610 million) suit against RBC for its coverage over Rosneft’s sale of its Venezuelan assets. The Moscow Times wrote, “The dispute concerns an article [in Russian] RBC published on May 14 detailing the mechanism by which Rosneft, which is majority owned by the Russian government, transferred its Venezuela-based holdings to another state-controlled organization, named Roszarubezhneft.

On Monday, President Vladimir Putin “sounded the alarm” about the COVID-19 situation in Dagestan. Last week, Meduza published an investigation alleging that there was a looming crisis in Dagestan. Now, Dagestan’s Health Minister Ruslan Kurbanovacknowledged that the region has significantly under-reported coronavirus deaths in official data.

The US announced its intention to withdraw from the Open Skies Treaty, a “nearly 30-year-old treaty designed to reduce the chances of an accidental war between Russia and the United States by allowing reconnaissance flights over the two countries.” The withdraw may further “drive a wedge” between the US and Europe, the latter being opposed to the US’ withdraw. US Defense Secretary Mark Esper said that Russia had been violating the treaty, claiming that the US was prevented from flying over Kaliningrad and over Russia’s southern border with Georgia.

The director of the Department for Non-Proliferation and Arms Control of the Ministry of Foreign Affairs Vladimir Ermakov said [in Russian] that Russia has a “Plan B” in case the US withdraws from Open Skies, and said the US “has long ceased to position itself as a reliable partner.” Deputy Foreign Minister Alexander Grushko said a US withdraw would damage an “already weakened” security infrastructure in Europe and harm US allies.

Opposition figure Alexei Navalny said that “rage is brewing” over Russia’s handling of the coronavirus. Navalny said, “Right now the degree of protest activity among citizens is probably one of the highest in recent times.”

US-based Axios and Russia’s Nezavisimaya Gazeta [in Russian] reported that there are moves to involve Russia in mediation between the US and Palestine. Axios wrote that “Russia has offered to facilitate a meeting in the next few weeks between the U.S. and the Palestinian Authority,” while Nezavisimaya Gazeta wrote that “Abbas turned to Russian President Vladimir Putin requesting to hold a conference on the issue. Russia once again might become a mediator in the peace process.”

Russia’s ambitious goals of becoming a major player in Asian energy markets may be hit by COVID-19 while increasing reliance on China. The Diplomat wrote, “The last decade, China’s been the key demand-side energy market driver underpinning Russia’s flow of dollars. Unfortunately for Russian policymakers, it’s likely to be a buyer’s market from here on out. As peak oil demand nears, Russia’s macroeconomic policy faces a reckoning. Reliance on external demand is a loss of economic sovereignty by another name when exiting this crisis. Whether the Kremlin realizes that is an open question.

Moscow has been testing citizens for COVID-19 antibodies, and fears those who test positive may be “dangerous.” Unexpectedly, it plans to quarantine for 14 days citizens who test positive for antibodies but did not show symptoms and had not tested positive for the virus previously. Kommersant wrote [in Russian], “The Decisions of the Clinical Committee say that if the detected indicator of immunity to the virus after the transmitted disease (IgM) is greater than or equal to 10, then the person who passes the analysis is recommended to self-isolate for two weeks if there is no information about a previously transmitted coronavirus infection.'”

President Putin wants to get Russia back to normal, but new outbreaks show that it is probably too early, The Moscow Times wrote. “‘Governors are making their decisions based on two factors,’ said Natalia Zubarevich, an expert on Russia’s regions. ‘The first is making sure that the economy doesn’t die. The second is making sure masses of people don’t…They are between a rock and a hard place.‘”

Russia’s taxes received from oil are at an 18-year low, Bloomberg reported. However, Finance Minister Anton Siluanov said [in Russian] that the budget rule will not be abolished in the face of COVID-19. The budget rule was passed in 2017 and ties spending to oil prices in a mechanism “that assumes a certain price of oil in composing the federal budget and manipulates surplus funds based on how accurate that assumption is.” Siluanov stressed that the budget rule has helped weaken the tie between oil prices and the ruble exhange rate, and said that the country will increase borrowing to fund any stimulus spending instead of suspending the budget rule, stating, “We expect a significant shortfall in non-oil and gas taxes, it is necessary to devote additional resources to anti-crisis measures.” Yesterday Russia held a record bond sale, enjoying the lowest borrowing costs the country has had since 2007.

Oil prices are “soaring almost everywhere.” Bloomberg wrote, “Brent crude traded on the ICE Futures Europe exchange has nearly doubled over the past month and is trading above $36 a barrel, while America’s West Texas Intermediate — which dipped into negative territory at one stage — has also soared. All that’s happened because global producers have slashed millions of barrels of output tightening the real supply of oil, while demand has started to recover, led by China.” Bloomberg noted that these dynamics have even led to premiums on certain varieties of crude compared to benchmark prices. Russia’s far-eastern crude varieties have enjoyed a rebound:

Russia’s ESPO crude, which is shipped mostly to Asian buyers from the country’s Far East, traded at premiums as high as $3.50 a barrel to its Dubai-crude benchmark this week. By contrast, June-loading cargoes changed hands at discounts of as much as $4.80 to Dubai last month.

Cargoes of another Russian variety — Sakhalin Blend — traded at a discount of $1-$2 a barrel against the Dubai benchmark for August loading, a sharp narrowing from discounts that were at $8.70-$9 just a month ago.

Russia and Japan continue their long spat over the disputed Kiril islands located off the coasts of Russia’s Sakhalin island and Japan’s Hokkaido. Japan’s Foreign Minister Toshimitsu Motegi presented the “Diplomatic Bluebook 2020” to the cabinet. While Russia holds de facto control over the islands, the dispute dates back to World War II and has not been diplomatically resolved. Nikkei Asian Review wrote,

The bluebook tweaks Tokyo’s stated stance on its dispute with Russia over the southern Kuril Islands, asserting that Japan holds sovereignty over what it calls the Northern Territories.

The 2019 edition had dropped a line stating that “Japan’s position is that the Four Northern Islands belong to Japan” as Abe negotiated with Russian President Vladimir Putin in hopes of ending the long-running row. The 2020 edition restores a softer version of this claim while expressing hope for resolving the issue and signing a post-World War II peace treaty.

Russian Foreign Ministry Spokeswoman Maria Zakharova blasted Japan for its stance, asserting that the islands belong to Russia “in accordance with international legal documents” and said that it runs counter to improving Russo-Japanese relations. She added, “We proceed from the fact that such a step [claiming sovereignty in the Bluebook 2020] runs counter to the task, set at the summit level, of creating a favorable climate in bilateral relations.” 

PHOTO: A US “Open Skies” aircraft (US Air Force).