Key announcements by Putin after his meeting with Xi:
- Russia and China agreed on 'almost all parameters' of the deal to construct the Power of Siberia-2 gas pipeline;
- Russia is ready to switch to RMB in trade with other 'friendly' countries;
kommersant.ru/doc/5888092 - Russia is ready to ramp up LNG supplies to China. The latest stats show that China has already increased the purchase of Russian LNG by 50%;
- New opportunities to export more grain and meat;
- Russia is ready to support Chinese businesses to replace Western companies that left

It's a long overdue, but I finally finished this super long read by Politico, based on extensive interviews with more than 30 key figures of the US government and Western allied response.
Main takeaways on sanctions and deterrence 🧵
politico.com/news/magazine/… The sanctions packages were discussed for the first time at G7 in Liverpool in Dec 2021. From the get-go, G7 became the main coordinating mechanism for sanctions. Infomal decision-making speeded up the process of sanctions imposition.

What next for Russian sanctions? While clamping down on sanctions circumvention will remain the main focus, three packages are coming soon: 🧵 1) With the price cap on Russian refined products looming next week, the EU is set to introduce two caps - one on diesel and the other one on fuel oil. The EU is floating a plan to cap the price of diesel at $100 a barrel and of fuel oil at a $45 threshold
bloomberg.com/news/articles/…

🇯🇵Japan has revamped its national security strategy, making economic security and resilience front and center. A whole-of-government approach and truly a Zeitenwende:🧵 The NSS opens up with two key messages:
- globalization and interdependence are no longer benign; they can't alone serve as a guarantor for peace;
- the scope of national security has expanded to non-military fields; everything can be weaponized.
cas.go.jp/jp/siryou/2212…

What products are likely to be weaponized? Those that have high concentration in global supply chains. Concentration in the mining and argicultural sectors is particularly pronounced: soybeans, iron ore and laptops. Not every concentrated relationship is a source of vulnerability, but it can become. Most concentration is due not to a lack of supplier economies, but bc of specific choices to source products from only a few countries despite the availability of other potential suppliers.

Forging and maintaining international sanctions coalitions will be a key feature - and challenge - for the sender states in future. Regardless of the target, investing time in contingency planning with allies and partners will be crucial to maximize the impact.🧵 The rise of the autonomous sanctions regimes and ad hoc export control coalitions will come with the burden of alliance management. The multilateralization of regimes requires time and significant economic and diplomatic efforts on part of the primary sender state.

The G7 are discussing setting the price cap on Russian oil at around $60-$70 a barrel. Russia's oil production costs range from $12 to $20; plus, the discount ($20-25) = a higher price is to encourage Russia to continue supplying oil to global markets.
wsj.com/articles/weste… The EU watered down its latest proposal for a price cap by delaying its full implementation and softening key shipping provisions. The EU proposed adding a 45-day transition to the introduction of the cap.
bloomberg.com/news/articles/…

The EU is making progress on enacting the Anti-Coercion Instrument. MS reached a negotiating position on a regulation. ACI is seen as a defensive instrument in the EU's toolbox of economic statecraft against economic coercion by third countries.
nsl.consilium.europa.eu/104100/Newslet… ACI is seen as a last resort measure when there is no other way to address economic intimidation. It's designed to de-escalate and induce discontinuation of specific coercive measures through dialogue as a first step.

Indian refiners are wary of buying Russia crude oil loading after Dec. 5 when the G7 price cap kicks in. Chinese refiners have already begun slowing down Russian oil imports from next month. reuters.com/business/energ… Uncertainty around the payment mechanism and the cap level has prompted a risk-averse behaviour in the short term. With more guidance being published, Indian/Chinese companies are likely to resume the purchase of Russian crude oil.

Divesting from Russia is getting harder. Moscow seeks to stir the process on its own terms, i.e. with a special authorisation from the Kremlin (Russia's version of specialed licenses) and with minimum exposure to "unfriendly" countries. 1/ Exxon has been struggling to sell its stake in the Sakhalin-1 project. In August, the Kremlin signed a decree banning companies from "unfriendly" countries in strategic sectors from selling stakes. Exxon threatened to sue the government. 2/
wsj.com/articles/exxon…

Prior to 2022, Russia's dedollarization efforts were top-down, resulting in the public-private divide. Now with unprecedented sanctions, local businesses are actively embracing it. Holding $ and € has become toxic, but also more expensive. As a result, business is moving to yuan Banks are more actively offering deposits in yuan: in early March there were a few of them, and now there are about 10-20.

IEA published a bleak outlook for Russia's gas market:
➡️The share of 🇷🇺gas in EU gas demand is expected to drop to 25% in 2022–its lowest level in more than two decades
➡️Sanctions limiting access to major capital markets and key energy technologies will impair new exploration ➡️Russia's ambitious goals to reach a 20% global market share in LNG by the next decade is questionable, as Novatek's Arctic LNG-2 is impacted by financial and technological sanctions.

As major Western tech companies withdrew or suspended their operations in Russia, Moscow's high dependency on foreign hardware and software in the financial infrastructure became even more pronounced🧵 The French company Thales Group provided payment protection and PIN-code verification on cards for 20 Russian banks. Today it has announced that it is no longer operating on the Russian market.
kommersant.ru/doc/5437027

⚡Russia is weaponizing energy flows now in the East: the government will create a firm which will take over all rights and obligations of the Sakhalin Energy. Foreign shareholders will have to get a permission to retain their shares in the project.
reuters.com/business/energ… If the foreign companies are not permitted to keep their stake, the government will sell their stakes and keep the proceeds at a special account of the shareholder = Russia's version of the West's escrow account mechanism.

Several of Russia’s biggest projects in the Arctic are at risk, as sanctions deprive developers of western technology and investments, making Moscow more reliant on China. At least five Chinese companies will have to stop work on Russia’s Arctic LNG 2 project by the end of this month. Fabricators given deadlines to stop work on units for second and third trains.
scmp.com/news/china/dip…

As part of my previous work in Helsinki, this paper for @HybridCoE analyses sanctions as a strategic concept of deterrence and coercion. It examines the successes and pitfalls of the past sanctions on Russia and presents conclusions on how to maximize their use today:

https://twitter.com/HybridCoE/status/1527198903174631424

The art of imposing sanctions rests on key principles which are valid regardless the context. One of the principles is that the threat of sanctions is more effective than their actual imposition. Yet, it doesn't mean that sanctions can be rubber-stamped.

Vladimir Potanin’s Interros Capital Ltd acquired United Card Services, one of Russia's largest independent processing companies. It accepts bank cards of the main payment systems Mir, Visa, MasterCard, JCB, UnionPay, American Express.
kommersant.ru/doc/5339390 The move aims to insulate Russian Mir cards from any sanctions-related risks. Credit card processing centers have remained the Achilles heel of the National Payment Card System.

Western sanctions didn't deter Russia, but they might be having a deterring effect on China: Beijing is very concerned with Western weaponziation of finance = freezing central bank assets.
ft.com/content/45d5fc… "Chinese regulators had an emergency meeting with domestic and foreign banks to discuss how they can protect the country's overseas assets from US-led sanctions similar to those imposed on Russia". The officials couldn't find a good solution to China's financial decoupling.

Poland seeks to create new powers within the EU to make it easier for the seized Russian assets to be redirected towards the reconstruction of Ukraine. Legal redress at EU courts and differences in national competencies will make it challenging.
ft.com/content/91ffdd… As the case of misappropriation sanctions showed, there are formidable legal hurdles to asset seizures in member states, including stringent safeguards and requirements on due process that make it difficult to confiscate property outside the framework of a criminal trial.

Russia is pushing ahead with its digital rouble project. The CBR plans to begin testing settlements with CBDC as early as 2023. The full launch of the digital ruble should take place before 2030.
news.bitcoin.com/bank-of-russia… Nabiullina emphasized that the digital currency will play a special role, now when Russia is under Western sanctions. The digital ruble can be used in the implementation of govt programmes, as it will allow to track the use of funds more effectively.
interfax.ru/business/836138

Russia is to accelerate its pivot to Asia (once again). The govt has instructed to submit a plan for the reorientation of infrastructure - energy pipelines, ports and railways - to the East by June 1st. Diversification to the East is very tricky though.
kommersant.ru/doc/5306878 Russia's infrastructure is heavily oriented towards the West. Take oil: the majority of Russian oil goes to Europe - ca. 140 mln t via the Druzhba pipeline vs. ca. 40 mln t towards China via the ESPO pipeline.