Continuing war and continuing nationalizations

Hello! Welcome to your weekly guide to the Russian economy — written by Alexander Kolyandr and Alexandra Prokopenko and brought to you by The Bell. This week we look at two meetings attended by Putin and what signals he gave about an end to the fighting in Ukraine, and Russia’s business environment. We also examine why Russia’s Central Bank decided to keep rates on hold at its latest meeting.

Putin signals no let-up in Russia’s ongoing property redistribution 

There are two big questions for businessmen in Russia – locals and foreigners alike: when will Russia’s war in Ukraine end? And when will the process of property redistribution stop? A group of influential businessmen tried – and largely failed – to get answers to both these questions from President Vladimir Putin at a meeting this week.

Preferring to talk about Ukraine

Putin held a meeting with an influential lobby group, the Russian Union of Industrialists and Entrepreneurs (often dubbed the “Oligarchs’ Union”), on Tuesday, just before his much-anticipated phone call with U.S. President Donald Trump. RSPP chairman Alexander Shokhin sought to focus on the protection of property rights. But Putin wanted to discuss geopolitics ahead of his call with Trump.

“We should not hope for full freedom of trade, payment and movement of capital, just as there is no hope that Western mechanisms will protect the rights of investors and entrepreneurs,” Putin said on the issue of Western sanctions during the televised part of the meeting. Putin apparently believes that sanctions must be lifted in full and without any conditions – not only by the U.S. but by all other nations as well. This means that Russia is unlikely to make any concessions in exchange for a partial easing of restrictions.

Behind closed doors, Putin also avoided the question of property rights, instead continuing to talk about Ukraine. He was reportedly not optimistic about the prospect of an imminent ceasefire. “This machine [war, sanctions, etc] will not be easy to turn around,” one of the people in the meeting told journalist Farida Rustamova afterward. Another source from the meeting told her that the Russian president had a “positive but objective” attitude: “There was no unbridled optimism that [a peace agreement] would come quickly.” 

Actions speak louder than words

Perhaps Shokhin got his answer about property rights the following day when Putin attended a meeting with Prosecutor General Igor Krasnov and other prosecutors. Krasnov’s agency has been leading the way on nationalization, and he told Putin that more than 2.4 trillion rubles ($28.7 billion) worth of property had been returned to the state (while he did not specify the period, Russia began seizing property after the full-scale invasion of Ukraine).

In particular, Krasnov highlighted that five strategic companies had been nationalized – four of them were previously owned by foreigners. “The owners gave instructions to transfer products and profits to jurisdictions that are unfriendly to us, did not invest in infrastructure development, did not fulfil social obligations to their staff, and did not pay taxes in full. They spent the money they withdrew from circulation on their own needs. In a number of cases, these funds were used to finance Ukrainian groups fighting against us,” Krasnov said. 

Putin said nothing about business concerns about nationalizations at the meeting and, instead, lavished praise on Krasnov. “I want to express my gratitude to Russian prosecutors for their professionalism and dedication in carrying out their duties,” he said.

At the same time, there has been no let up with nationalizations on the ground. Swedish manufacturer of telecoms equipment Ericsson lost control of its brand in Russia as a result of a court decision, business daily Kommersant reported Thursday. This is the first time a Western company has been deprived of its brand rights since the full-scale invasion of Ukraine, and there could be more such cases to come. In practice, this means that any Russian company can apply to register the equivalent of a Western brand, leading to familiar packaging returning to shop shelves. Consumers will likely be unaware exactly which company is behind the branding.

Why the world should care

It seems that Putin is profiting from the uncertainty facing Russian businesses, and is in no hurry to address their concerns. Prosecutors are coming up with new grounds for confiscating assets, and the country’s business environment is ever more unpredictable.  

Central Bank keeps rates at a record high

At its board meeting Friday, Russia’s Central Bank stated that prices are still rising fast, the labor market remains challenging, and the economy is overheating. In line with market expectations, however, the Bank kept interest rates at a record 21%. 

• Ahead of the meeting, the Central Bank published data on inflation expectations among business and the general public. It showed that inflation expectations had dropped 0.8 percentage points to 12.9%, the lowest level since September.
• Amid hopes of a breakthrough in Russia-U.S. relations, the Russian currency has continued to strengthen in recent weeks. This year alone, the ruble has gained 20% against the U.S. dollar. Ahead of Friday’s meeting, the U.S. dollar was worth 81.5 rubles, and the Chinese yuan was worth 11.2 rubles. That’s a level not seen since last year before Western sanctions against the Moscow Exchange. The U.S. dollar-yuan cross-rate broadly matches rates at China’s national bank, which suggests this is a genuine ruble strengthening (not just a market imbalance). 
• From March 11 to March 17, the retail price index went up 0.06%, compared with 0.11% and 0.15% in preceding weeks. The Economic Development Ministry estimated annual inflation at 10.08%. The main driver of this slowdown in inflation has been a fall in fruit and vegetable prices – primarily a drop in cucumber prices of 11% (prices for most other fruit and veg are still rising slowly).

Why the world should care

Right now, the signs that inflation could be slowing are shaky – at best. But, in the long term, few doubt inflation will begin to slow, and the Central Bank will cut interest rates.

Figures of the week

State-owned oil giant Rosneft reduced oil production 5% last year, according to a company report. Over the course of the year, Rosneft extracted 184 million tons of oil (3.7 million barrels a day) compared with 193.6 million in 2023. Rosneft explained the fall “first and foremost due to limiting oil production in line with government decisions.” This is a reference to Russians obligations as a member of oil cartel OPEC+.

It will take at least two years for Russian shares to reappear on the popular MSCI Index, analysts at investment bank JPMorgan wrote in a note to clients this week. The most optimistic scenario is 2027, while the baseline, according to the analysts, is “years later.”

Further reading

How the Ukrainian Orthodox Church Became a Weapon for Moscow and Washington

What’s the Thinking Behind Putin’s Maneuvering Around Trump?