Hello! The talk of Moscow and Washington this week was the announcement that Trump and Putin have set up a hasty meeting in just three weeks time: what will be on the agenda? The world also learnt one of Putin’s close associates may be running a terrifying-sounding murder squad targeting regime critics and that a company owned by Putin’s daughter has struck a big deal with a huge Russian mining outfit. More details have come to light about a possible Sberbank-Yandex tie-up (Yandex’s share price is still down) and evidence is piling up to show the Kremlin’s much-trumpeted economic “pivot” to Asia is faltering.
The list of crimes attributed to “Putin’s chef” Yevgeny Prigozhin just got longer. He is already alleged to have interfered in the U.S. elections and be the main sponsor of a private military company deployed across the world — but now he has been accused of killing Russian opposition bloggers and testing deadly poisons on Syrian soldiers. Evidence of cronies from Putin’s inner circle committing these sorts of murders is not only deeply disturbing in its own right, but bad news for the Kremlin.
- A reporter for Russian newspaper Novaya Gazeta talked at length with a man called Valery Amelchenko who claims to have worked with a group that took orders from Prigozhin’s security team in 2016-2017 to attack and kill selected individuals. You can read the story of the investigation in English here. The victims were either in a business disputes with Prigozhin or opposition bloggers. The most shocking of all the alleged episodes was Amelchenko’s description of a group visiting Syria in February 2017 to conduct experiments with poison on members of pro-Assad volunteer units. Moreover, Amelchenko said his group carried missions in European countries, but Novaya Gazeta has no details yet. The newspaper’s story looks credible: Denis Korotkov, the journalist who wrote the article, has been writing about Prigozhin for several years and played a key role in reporting on events in Syria where Prigozhin’s private military company, Wagner, saw action.
- A gang of crooks that carries out extra-judicial killings — to say nothing of experimenting with poisons on Syrian soldiers — are practices well outside the usual rules of the game in Russia. Opposition activists are regularly jailed, but, until now at least, murdering people without trial is an accusation that has only ever been levelled at Chechen leader Ramzan Kadyrov. This sort of story being aired in the press is uncomfortable for the Kremlin, not least because Washington is soon expected to announce sanctions against Russia for the poisoning of the Skripals in the UK.
- This is not the first time Prigozhin has caused trouble for the Kremlin. In February 2018, there was a battle between Russian mercenaries from Wagner and U.S. troops in Deir-al-Zour, Syria, which nearly ended up in a direct military conflict between the U.S. and Russia. Co-operating with Prigozhin and Wagner has become too risky even for the Ministry of Defence, which was known to award Prigozhin state contracts worth hundreds of millions of dollars. From 2017, Prigozhin’s companies no longer win big contracts and the Ministry has stopped giving military equipment to Wagner.
- It’s impossible to say how close Prigozhin really is to Putin, or whether he has the Kremlin’s backing, but the “Putin’s chef” moniker has stuck to him forever and his actions are considered by most in the West to be Kremlin approved. This means that many people in Russia’s government — if they are in their right mind — can’t approve of his actions, particularly when he is reckless enough to experiment with poisonings. After all, Prigozhin was Putin’s own personal chef: how can Putin be comfortable with taking food from a person who is known to poison people left, right and center? But don’t forget that the Russian authorities are not a monolith and those who work with Prigozhin may have their own aims that are not necessarily in tune with those of the Russian state.
Why the world should care
Every new revelation about Prigozhin poses a question: who wields real influence over Putin? In autocratic states, people in physical proximity to the leader are often more influential than high-ranking officials: and who can be closer than a chef or bodyguard? In the last few months, we have learnt a lot about both Prigozhin and Putin’s bodyguard, Viktor Zolotov, now the head of the 300,000-strong National Guard, who publicly threatened opposition leader Alexei Navalny. If there really are action-loving and dim-witted people in Putin’s inner circle it is a serious danger to both Russia and the whole world.
There are few hopes for any agreements at 3rd Putin-Trump meeting
Vladimir Putin and Donald Trump will meet for the 3rd time on 11 November in Paris at a gathering for the 100th anniversary of the end of the First World War. There will likely be a discussion of new sanctions against Russia, but no substantive agreements are expected. Trump’s National Security Advisor John Bolton has suggested Russia could participate in the strategic containment of China — but this has few advantages for the Kremlin.
- The meeting will take place after the U.S. midterm elections, in which the Republicans are widely expected to lose control of the House of Representatives, and just two weeks before the moment when Trump is due to introduce new sanctions against Russia. According to the law, the president must choose 3 of the 6 sanctions options presented to him. These could include very harsh measures like a complete ban on trade with Russia and stopping Russia’s national carrier Aeroflot from making U.S.-bound flights.
- Putin and Trump will almost certainly talk about sanctions, but this will hardly be on the official agenda. More likely, they will discuss nuclear arms control, according international relations expert Vladimir Frolov, although a mutually beneficial outcome is difficult to imagine. The U.S. has already announced it is withdrawing from the 1987 Intermediate-Range Nuclear Forces Treaty (INF) and expressed its reluctance to renew another pillar of arms control, the 2010 New Start agreement, when it expires in 2021. The nuclear question is a particularly sensitive one for Moscow as it is the only thing that allows Russia to claim the title of superpower. Moreover, Washington’s recent strident rhetoric on this topic gives little room for successful negotiations.
- On Friday, Trump’s National Security Advisor John Bolton said the U.S. would like to discuss with Russia the threats posed by China. This is an old idea of the Republican establishment, which sees China, not Russia, as the real strategic adversary for the U.S. — but in reality there is zero chance that Moscow will act against China, according to Alexander Gabuev, an expert on China at the Carnegie Center in Moscow.
Why the world should care
Russian foreign policy experts are sure the exit of the U.S. from the INF Treaty will trigger an asymmetrical response from Moscow, although what this could be remains just guesswork. In Paris, even if Trump and Putin manage to look like they are cooperating on something it will help lessen the diplomatic tension between the two countries.
Fear of collateral damage from sanctions is jeopardizing the Kremlin’s “pivot to Asia”
Russia’s drive to do more business in Asia in response to Western sanctions looks more and more like a flawed geopolitical strategy. In recent weeks, Russian companies have been encountering serious problems in both China and Vietnam as local banks and suppliers refuse to work with them over fears they could also fall foul of sanctions.
- The “pivot to Asia” (one of Putin’s phrases) has been the Kremlin’s main policy idea to keep the economy afloat in the face of sanctions. Putin regularly stresses that the Sino-Russian economic relationship is strengthening, and the only sensible part of Russia’s program for abandoning the dollar is to transfer international contracts into rubles and Chinese yuan. Trade between Russia and China is growing, but Asian markets have not become a real buffer against sanctions.
- In September, Russian officials complained to their Chinese counterparts that banks in China are either delaying — or blocking — transactions. EU or U.S. sanctions are the reasons given by China’s banks to explain their actions. The greatest difficulties are faced by sanctioned Russian companies, but even non-sanctioned companies have had problems. However, these issues go well beyond China. Russian machine-building firm Power Machines, controlled by sanctioned billionaire Alexei Mordashov (the second richest person in Russia according to Forbes), sought help this week from the Russian government to build an power plant valued at $900 million in Vietnam. Vietnamese companies have been unwilling to work with companies under U.S. sanctions and, as a result, payments have been frozen and 15 key contractors are refusing to work.
- The U.S. and Europe account for up to 90% of Chinese banks’ foreign transactions, while Russia’s share is tiny — so they are simply not willing to risk being affected by sanctions. According to one Russian businessman, the Chinese often fail to grasp the exact meaning of the sanctions and block any transactions with Russian companies, just to be on the safe side. Asian companies remember ZTE, China’s second-largest electronics manufacturer, which was nearly bankrupted when the U.S. blocked its work following accusations it had breached the sanctions regime against Iran and Korea.
Why the world should care
In short, the difficulties faced by Russian business in Asia prove that Western sanctions are effective. Russian businessmen can be hit anywhere in the world. On the other hand, how this helps achieve the main goal of sanctions — to force Russia to change behavior in the international arena — is much less clear.
Pressure increases on Yandex despite denials about imminent state bank takeover
The possible purchase of Russia’s largest — and only — independent Internet company, Yandex, by state-owned Sberbank remains the talk of the Russian business world. There is still no official confirmation of negotiations, but Yandex, having lost 30% of its value since news of the possible deal, is now having problems with the Russian parliament.
- The news of Sberbank’s bid to buy 30% of Yandex was first reported by The Bell at the end of last week. Sberbank at once denied negotiations were happening, but the news wiped about $3 billion off the company’s capitalization in New York. Yandex kept silent for three days, and then on Monday gave a statement in which it did not deny negotiations — but said that the company’s founder, Arkady Volozh, who controls 49% of voting shares, will not sell his stake.
- No one can get control over Yandex without consent from Volozh and other senior executives: together they own 57% of Yandex’s voting shares. Any bargain that puts control of the company into another party’s hands would require altering the shareholder agreement and must be approved by 66.6% of shareholders. In practice, this means that even if Volozh agrees to a deal, minority shareholders will also need to give their approval.
- The Bell was told by sources that Sberbank justifies its proposal to purchase equity in Yandex because it will protect the company from problems with competitors and the government. Coincidence or not, but this week Russian Duma deputies tabled as many as two bills which could hit Yandex’s business. On Monday, they proposed that foreigners be banned from owning news aggregators in Russia (Yandex, registered in the Netherlands, controls Russia’s largest aggregator Yandex.News). And on Thursday, there was a suggestion that online taxi aggregators be prevented from setting the rates for taxi rides. This would destroy the business of Yandex.Taxi, which accounts for 75% of Russia’s taxi market and swallowed Uber’s Russian division last year.
Why the world should care
There are two Russian Internet companies, Yandex and Mail.Ru Group, which are making credible bids to be all-encompassing online platforms, in the same way as China’s Alibaba and Tencent. The sale of Yandex to state-owned Sberbank would reveal a huge amount about the fate of online business and technology in Russia.
Putin’s daughter appears to benefit from government plan to confiscate company profits
If you’re looking for insight into how the Russian government sees the development of the high-tech sector, look no further. This autumn, an advisor to Putin suggested confiscating “surplus profit” from a list of natural resource companies and investing it in important national projects. Now, a major company on that list has announced a high-tech partnership with a firm founded by Katerina Tikhonova, Putin’s daughter.
- Russia’s largest mining company, Norilsk Nickel, has become the first co-founder of the Innovative Engineering Center Project, which was set up by the Innopraktika Foundation founded by Tikhonova, widely assumed to be Putin’s younger daughter (also known for her love of acrobatic rock’n’roll). The project envisages “creating a belt of 1,000 technology companies around Russia’s leading science universities by 2026, with total proceeds of as much as 100 billion rubles.” The idea is more than a little unrealistic: to implement just a pilot version in Krasnoyarsk Region (a big chunk of Siberia) will require about $18 million. After that, Tikhonova is planning to expand into other regions.
- The tie-up between Innopraktika and Norilsk Nickel is apparently the result of a scandalous proposal by Andrei Belousov, an economic advisor to Putin. He said that, because of high commodity prices, natural resource companies should be forced to invest $10 billion into projects that the government considers important for the country.
- There is nothing surprising in Tikhonova’s project being one of the first to get a windfall from Belousov’s idea. Innopraktika has in the past won contracts from state-owned oil giant Rosneft, oil pipeline monopoly Transneft and state-owned nuclear company Rosatom.
Why the world should care
The idea of taking a cut of the profits made by natural resources companies seems out of sync with the free market, but this sort of model is used all over the world, even in Alaska. The trouble in this case is that “taking money from the rich” does not mean it is given to the poor — rather, it appears to simply be a redistribution of funds to companies close to the government.
Anastasia Stognei contributed to this newsletter. Editing by Howard Amos.
This newsletter is supported by the Investigative Reporting Program at UC Berkeley.