THE BELL WEEKLY: Moscow welcomes Trump

Hello! This week our top story is how Russia and Putin are meeting the return of Donald Trump to the White House. We also cover how sanctions are pushing Russia’s coal industry to collapse and Azerbaijan puts an Armenian billionaire separatist leader — who made his fortune in 1990s Moscow and courted friends among Russia’s elite — on trial.

Putin awaits Trump meeting

Despite the signals from Trump’s team that the new US President will continue to provide military support for Ukraine, Moscow has viewed his inauguration as a cause for celebration. The Kremlin sees it as unlikely Trump can offer Russia an acceptable deal to end the war, but Trump has made clear there is one thing he can — and wants — to do for Putin: hold a face-to-face meeting, ending the Russian leader’s isolation in the West.

• Trump’s inauguration was the focus of mass attention in Moscow, with the ceremony receiving unprecedented coverage. Putin deliberately moved his regular meeting of the Security Council from Friday to Monday to coincide with events in Washington, and ordered that the proceedings were more public than usual. Typically, no details are provided about these meetings other than the topic of discussion, but this time the Kremlin released a video and transcript in which Putin congratulated Trump and praised him for withstanding the pressure he was put under in the election campaign.
• It was the first time Putin had issued a video message of congratulations to an incoming US president in his 25 years in power. For all previous election winners, the Russian president contented himself with issuing standard public telegrams. Today’s congratulations were a direct invitation to talk. “We see the statements from the newly-elected president of the USA and members of his team about their desire to resume direct relations with Russia, which the outgoing administration interrupted, through no fault of ours. I would like to emphasize that we have never refused dialogue and have always been ready to maintain equal relations in cooperation with any American administration. We proceed from the assumption that any dialogue will be built on an equal and mutually respectful basis,” Putin said.
• It’s likely that such dialogue will start imminently. On the eve of the inauguration CNN reported that Trump ordered his aides to set up a call with Putin in the next few days and a face-to-face meeting in the coming months. Putin’s message today showed the world that he welcomes the attention.
• Neither Russia nor Ukraine were mentioned at the inauguration itself and the only significant Russian in attendance was former billionaire, opposition figure and one time Putin foe, Mikhail Khodorkovsky. Allies of late opposition leader Alexei Navalny were not invited.

Why the world should care

A meeting with the US president would be a huge political success for Putin. In the past two years, he has only spoken regularly with two Western leaders — Hungarian Prime Minister Viktor Orban and Slovakia’s Prime Minister Robert Fico. A phone call with German Chancellor Olaf Scholz a week after Trump’s victory last November was seen as the first crack in the West’s decision to fully cut off high-level contact with the Kremlin. A Putin-Trump meeting would be a major geopolitical breakthrough, even if it does not lead to any meaningful progress towards a ceasefire in Ukraine. Putin is confident of eventual victory in Ukraine, where his army is advancing, and has shown no signs of being willing to make concessions through diplomacy.

Russia’s coal industry faces collapse due to sanctions

Russia is preparing for the first major wave of bankruptcies since the invasion of Ukraine, with the coal industry being the key area of concern. The situation in the sector is so desperate that the government has already tasked Vnesheconombank with stepping in to save bankrupt companies. The bank has played a similar role before, bailing out firms that faced a debt crisis in 2008.

• Russia’s coal industry is in such dire shape that the government has decided to work out the details of how to support the industry, and what to do in the event of mass bankruptcies, Kommersant reported. The economy, energy and transport ministries, along with the Federal Tax Service have been ordered to save struggling mining operations, and Vnehsekonombank, which is used to managing assets too toxic to be sold, has been appointed as the main bank for the wave of expected bankruptcies.
• Kommersant’s sources in the industry say this is long overdue. The tax service has already lodged its first bankruptcy claim (against the Inskaya mine in the Kuzbass) and there are examples of mining companies shutting down due to lack of sales. Last year, coal companies posted massive losses (a combined $850 million over the first 10 months of the year). This year every mining company that is not part of a large holding “will be unable to cope with the tax burden and social obligations” that are being placed on the industry, a source at a major coal company told the newspaper.
• Russia’s mining sector has been hit with a “perfect storm”: declining external and domestic demand and a double whammy from sanctions. Russian coal companies have to sell at a discount, to compensate for the risk of their counterparties being hit with secondary sanctions, and also suffer from ever-increasing tariffs to use the railways thanks to the overloaded rail network because of how sanctions have hit Russian supply chains. As prices have dropped — to around $60-$90 a tonne at Far East terminals — costs have risen and there is no talk of investment or expansion in the industry.
• As a result, the netback on thermal coal has been below cost for a year now — at $35/tonne. In some areas in the northwest losses can reach $45 a tonne, Kommersant reported. Most enterprises are unable to cut production and only those mining more expensive coking coal, or with effective logistics, can operate normally.
• Vnesheconombank’s involvement in potential bankruptcies has largely been welcomed by the mining industry itself. The institution has many “coal” loans and therefore has an incentive to work quickly on restoring solvency rather than liquidating troubled businesses.

Why the world should care

Trouble in Russia’s export-led coal sector shows how sanctions threaten to collapse entire industries — by increasing friction in the economy. However, despite apocalyptic forecasts and rumors other sectors of the Russian economy could too be on the brink, nowhere else is facing such a deep crisis yet.

How a billionaire Armenian separatist leader, now on trial in Azerbaijan, made his fortune in Russia

Some 18 months after regaining control over the Nagorno-Karabakh region, Azerbaijan has begun putting the former leaders of the breakaway pro-Armenian republic on trial. The most high-profile among them is Ruben Vardanyan, an investment banker who managed the finances of the Russian elite before giving it all up in an effort to try to keep Karabakh under Armenian control.

• In total, 16 former leaders of Nagorno-Karabakh face trial in Azerbaijan, including three former presidents. Former prime minister Ruben Vardanyan is by far the most significant figure in this process, and Baku is keeping his trial separate from the others. He faces 42 charges — primarily of financing terrorism and organizing unlawful armed groups — several of which carry a life sentence.
• Vardanyan is one of the most renowned financiers in Russia — one of the people who built Russia’s market economy after the collapse of the Soviet Union. He was born in the Armenian capital of Yerevan, and studied first in Moscow, then the United States. In the 1990s, Vardanyan founded the Troika-Dialog investment company, which grew into one of the most successful Russian investment banks. It survived the two big crises in 1998 and 2008 and was sold to state-owned Sberbank in 2012 for $1.4 billion. Vardanyan received $560 million for his 36% stake in the company. In 2021, Forbes Russia estimated his fortune at $1 billion.
• Troika Dialog would never have been a leading Russian investment bank without providing valued services for Russia’s elite. Vardanyan helped Russian state corporations assume control over leading auto manufacturer AvtoVAZ and Kamaz, and Dmitry Medvedev headed the board of trustees at the Skolkovo business school, co-founded by Vardanyan. In 2019 an investigation by the OCCRP consortium foundthat Troika Dialog helped various members of the Russian elite to move their money abroad, including friends of Putin.
• After selling his business, Vardanyan spent less and less time on his Russian activities and devoted ever more efforts to Armenia, where he was a leading philanthropist and political figure. In the late 2010s, Vardanyan published a book about Armenia’s future and in early 2022 he published a proposed political program for the country’s development over the next two decades. In Aug. 2022, months after the Russian invasion of Ukraine, he unexpectedly renounced his Russian citizenship and went to Nagorno-Karabakh. Within three months, he was named prime minister of the breakaway republic. The Azeri authorities, who were already preparing to retake control of the region, believed “the hand of Moscow” was behind Vardanyan’s arrival. Azeri president Ilham Aliyev described the businessman as “Vardanyan, sent by Moscow, whose pockets are lined with billions stolen from the Russian people.” Judging from what followed, Vardanyan was no Russian agent and Putin has made no apparent attempt to free him.
• Vardanyan did all he could to irritate the Azeri authorities and back in Feb. 2023, under pressure from Baku’s blockade of the republic, the Karabakh authorities were forced to dismiss him as PM after just four months in the role. But he remained in Nagorno-Karabakh until Azerbaijan launched its lightning offensive in Sep, when he was arrested by Azeri soldiers. Last summer, Vardanyan’s lawyers allegedhe had been tortured in prison, where he was being held mostly in solitary confinement, and on the eve of his trial he claimed that the Azeri authorities would present a falsified statement before the court. It’s clear that Vardanyan will be sentenced to a long prison term. After that, we will see if Putin does anything to get him out of jail.

Why the world should care

In the first days after Russia’s invasion of Ukraine, one of the key questions was how Russia’s billionaires would react. In the overwhelming majority of cases, it was as expected: the oligarchs stayed silent, accepted sanctions, rallied round Putin and kept making money in Russia. Only two openly condemned the war, with Ruben Vardanyan following a unique third path — one that cost him his freedom, potentially for the rest of his life.