Russia-Ukraine tensions rise

Hello! This week our top story is an analysis of the military escalation between Russia and Ukraine and whether it could lead to all-out war. We also look at the ruble’s recent woes, and have highlights from a blockbuster investigation into Chechen leader Ramzan Kadyrov’s matrimonial situation.

Tensions simmer between Russia and Ukraine amid troop build-up

The fighting between Ukrainian troops and Russian-backed rebels in Ukraine has been steadily intensifying since last month and senior Kremlin official Dmitry Kozak warned Thursday that full conflict could mark “the beginning of the end” for Ukraine. However, despite the rhetoric, all the analysts — on both sides — who spoke to The Bell said they saw no prospect of an all-out war.

What’s going on?

Increasing volatility on the front line in Eastern Ukraine dates back to at least the end of January when the Organization for Security and Co-operation in Europe (OSCE) recorded rising numbers of ceasefire violations. But it wasn’t until late March that this began to make international headlines.

• In one of the bloodiest incidents, four Ukrainian servicemen were killed March 26 in the Donetsk Region — the Ukrainian side blamed this on a mortar attack by the forces of the self-proclaimed Donetsk People’s Republic (DNR). Four days later, Ruslan Khomchak, commander-in-chief of Ukraine’s armed forces, said Russia was building up its military presence on the country’s borders. Since mid-March, the Russian military has conducted at least three training exercises on the Ukrainian border, according to independent media outlet Meduza.
• There are different estimates for the size of the Russian force on the Ukrainian border. Khomchak spoke of 28 battalions, which would mean about 22,000 soldiers. However, a United State military source cited in the New York Times gave a much lower number – 4,000 soldiers. A White House spokesman said Thursday that Russia had more troops at the border than at any point since 2014. And some observers have noted the presence of Russian Iskander missile systems among the military units near the border.
• President Vladimir Putin’s spokesperson, Dmitry Peskov, did not dispute the fact of a military build-up, saying that Russia “moves its armed forces around its territory at its discretion”.
• At the same time, the number of ceasefire violations are rising: in its daily report last Sunday, the OSCE noted incidents were up tenfold in Luhansk Region. Ukrainian Deputy Prime Minister Oleksii Reznikov announced Tuesday that Ukrainian representatives would no longer be travelling to the Belarusian capital Minsk for scheduled three-way talks on the conflict.
• Ukrainian President Volodymyr Zelensky visited the frontlines Thursday and spoke of a “big escalation”. Later that day, Dmitry Kozak, Russia’s lead negotiator on the conflict and deputy chief of staff of the presidential administration, made several saber-rattling statements. “If, as our president says, they are going to engineer another Srebrenica [referring to the massacre of Bosnians during the Yugoslav civil war in 1995, which has become a notorious example of ethnic cleansing – The Bell], clearly, we will need to defend them,” he said. “The start of a [possible] conflict is the beginning of the end for Ukraine,” Kozak added. “But if you stick to the agreements, the conflict can be resolved within a year.”

The West’s reaction

Since the end of March, Ukraine has been actively consulting with Washington. Senior Ukrainian officials have discussed the issue with the U.S. Secretary of State Anthony Blinken, U.S. Defense Secretary Lloyd Austin, U.S. Chief of Staff Mark Milley and President Joe Biden’s national security advisor Jake Sullivan. Zelensky spoke to Biden for the first time on 2 April. The Ukrainian side has reportedly received assurances of support in each of these calls.

Putin has twice discussed the issue with European leaders: on March 30 in a three-way conversation with German Chancellor Angela Merkel and French President Emmanuel Macron; and in a conversation Thursday with Merkel where he spoke of “Kyiv’s provocative actions”.

Following Kozak’s comments, CNN reported that the U.S. was planning to send warships into the Black Sea in a show of support for Ukraine. Officially, the U.S. has denied this. But a White House spokesman said that Washington was discussing the situation with its NATO allies.

Will there be war?

None of the analysts — Russian or Ukrainian — who spoke to The Bell believe Russian troops will engage in full-scale war in Eastern Ukraine. They tend to see the recent escalation as Moscow “testing” Biden, and attempting to win a bargaining chip ahead of possible new sanctions.

• “Everybody will do all they can to avoid getting into a full-on military conflict, which would be highly unpredictable for both sides,” said Andrei Kortunov, head of the Russian Council on International Affairs, which includes the Russian Foreign Ministry among its founders. Kortunov told The Bell that the build-up of troops was a psychological ploy aimed at putting pressure on Kyiv. Compared to 2015, the balance of power is very different and Ukraine now has a combat-ready army as well as close ties to friendly countries including the U.S. and Turkey. Kortunov believes that, while Kyiv is ready for an escalation, Russia is prepared to increase unofficial support for the rebel statelets in Eastern Ukraine.
• The signals coming from the Russian authorities are deeply alarming, according to Volodymyr Fesenko, a Ukrainian political analyst and head of the Penta Center for Applied Political Research. However, he said that both Moscow and Kyiv understand the dangers of escalation. For Russia, significant fighting would bring more Western sanctions, the destruction of relationships Putin has built with European politicians over the last five years and military losses. At the same time, Ukraine understands that nobody will fight on its behalf and that Western support is limited to sanctions and military supplies.
• Taras Kuzio, a professor at the Kyiv-Mohyla Academy, made a similar point in conversation with the Atlantic Council. He suggested Russia would love to provoke Ukraine, as it did Georgia in 2008, but is unlikely to succeed. And Moscow understands the human and financial cost of a full-scale conflict would be catastrophic.
• Judging from the words of a highly-placed source cited by CNN, Washington is also skeptical that a war is in the offing. The U.S. does not see the build-up of Russian forces as a prelude to military aggression, “but if anything changes, we will be ready to respond,” said the source.

Why the world should care

It’s impossible to completely rule out a resumption of full-scale fighting in Eastern Ukraine. And the downing of the Malaysian Airlines flight in the summer of 2014 highlights how much chance can play a role. The bottom line is that open warfare in Ukraine with the involvement of Russian soldiers would mean the full and final collapse of Russian relations with the West. It’s hard to even imagine the full extent of the consequences of such a development.

Biden and Ukraine tensions fuel ruble woes

Tensions with Ukraine have led to a significant drop in the value of the ruble. For the first time since last fall, the Russian currency is close to 80 rubles against the dollar. Since mid-March — when Biden said Putin was a killer — the ruble has dropped 6 percent against the greenback; and since the start of 2020, it’s down 26 percent. Devaluation is good news for exporters of raw materials, but it drives inflation and is giving the government a reason to impose food price controls for the first time in 30 years.

• Since March 17, the ruble has dropped steadily against the dollar, losing  6.1 percent of its value. Notably, the ruble has uncoupled from the price of oil, Russia’s main export. Oil prices are currently at $63 a barrel, but the ruble rate is closer to what it was last fall when oil was just $40.
• The main driver of devaluation is the risk of new Western sanctions as a result of the situation in Ukraine and the health of jailed opposition leader Alexei Navalny, currently on hunger strike. At the beginning of March, commentators believed there was almost no prospect of U.S. sanctions on Russian state debt, but now they admit it’s possible. Foreign investors are abandoning Russian government bonds: after a record low of 35 percent of non-resident investors at the start of 2020, we’re now below 20 percent.
• Analysts at Russian investment banks who spoke to The Bell estimated the ‘geopolitical premium’ on the ruble-dollar rate was about 10 rubles. This means that, without imminent sanctions, a fair price for the Russian currency would be about 67 rubles to the dollar.
• The likely relaxation of coronavirus-related travel restrictions this summer could be a further blow to the ruble. In 2020, with the borders closed, approximately 1.5 trillion rubles ($20 billion) that would normally be spent abroad remained in Russia, according to the head of Russia’s Central Bank, Elvia Nabiullina. If it hadn’t been for this enforced stay-at-home effect, the Russian currency would be about another 5 rubles cheaper against the greenback, according to Alfa Bank chief economist Natalia Orlova.
• The ruble falls have become the key driver behind rising inflation in Russia. Inflation in 2019 was about 3 percent, very low for Russia, but in 2020 it climbed to 4.9 percent. And in the first quarter of 2021, annual inflation was running at 5.8 percent. Rising food prices have forced the government to impose the first food price caps in modern Russian history.

Why the world should care

There are many arguments about the effectiveness of U.S. sanctions, but it is clear they do have an economic impact. However, for the main target of the sanctions — Russian billionaires close to the Kremlin — the effect is the opposite of what is intended. Raw material exporters (whose costs are in rubles and income in foreign currency) benefit dramatically from devaluation.

Kadyrov’s three wives and their real estate empire

Independent media outlet Proekt published an investigation Wednesday into Chechen leader Ramzan Kadyrov. Such reporting is an unusual event, given the number of murders linked to Kadyrov. But Proekt found out that the head of Chechnya has three wives, and that one of them uses a false identity through which the Kadyrov family holds a series of expensive properties.

• Independent Russian media regularly investigate Putin and his inner circle — and such articles have been known to cost journalists their jobs and force the closure of publications. But Kadyrov is a different beast: investigations about the Chechen leader are extremely rare. The reason is simple: Chechen security services have been implicated in several murders, notably journalist Anna Politkovskaya, who was investigating organized crime in Chechnya, and former deputy prime minister Boris Nemtsov, who was gunned down not far from the Kremlin in 2015. There have also been a string of murders of opposition-linked Chechen politicians abroad.
• This is Proekt’s second investigation into Kadyrov in the past six months. The first described how Kadyrov and his main consigliere, State Duma deputy Adam Delimkhanov, made money by using their henchmen to resolve corporate conflicts. But the latest installment looks even more controversial: it looks in detail at Kadyrov’s family and how he uses his wives to hide expensive assets. As Proekt explained, Kadyrov has at least two wives, a practice permitted by traditional Islamic law but forbidden under the Russian constitution.
• Kadyrov’s second wife is allegedly Fatima Khazueva, a 30-year-old model. The Chechen leader got to know her in 2006, when Khazueva came second in Chechnya’s first and only beauty pageant. She was 15 years old at the time. For the past few years, Khazueva has been listed as an employee of the Chechen government, earning less than 100,000 rubles ($1,500) a month. On this modest salary, she has acquired a palace opposite Kadyrov’s residence in Grozny. She also has three apartments in Moscow worth a total of $6.6 million. In addition, Khazuev’s mother owns a medical center, constructed using money from the Akhmat Kadyrov Charitable Foundation, set up in honor of Ramzan Kadyrov’s father. This fund is considered to be the ‘wallet’ of the current Chechen leadership and collects up to 6 billion rubles ($80 million) a year in ‘donations’ (all employees of Chechen state organizations are obliged to contribute 10 percent of their salaries).
• It is believed that Kadyrov also has a third wife — a dancer with Chechen folk ensemble Daimokhk (Fatherland) — who he married in 2010. Her name is Aminat Akhmadova.
• Kadyrov married his official wife, Medni Kadyrova, in 1996 and they have 12 children and two foster children. Even here, though, things are not what they seem. Proekt reported that Medni Kadyrova has a set of documents in her maiden name, Musaeva. Under this name, she is the registered owner of two apartments in Moscow that Kadyrov does not mention in his tax returns.

Why the world should care

When Putin talks about his strict adherence to the letter of the law, it’s worth recalling how the hypocrisy of these words is embodied by his endorsement of Kadyrov’s leadership of Chechnya.