A sideways glance at Ukraine war news
Iran, breast pumps and the Siege of Stalingrad. Amongst other things
Chris Johns
I write a (short) daily post for Powerscourt, a Strategic Communications company, based in London and Dublin. The idea is to summarise the news flow around the war in Ukraine - not so much the news that makes the front pages but more the stuff that we find interesting/relevant. News that may have not attracted the attention it deserves. Anyone interested in receiving the short email on a daily basis is welcome to contact Powerscourt here: insights@powerscourt-group.com
Each Friday I will post the weeks ‘diary’ here. All feedback/comments welcome.
Monday 31st October
Wheat futures prices spiked at the market opening overnight, briefly touching $884.50 a bushel, before settling back to $876.25 at the time of writing, a 5.7% rise on the previous close. For context, those same prices reached $1,294 at the start of the invasion and were $770 a year ago. Today’s rise, relatively muted (so far), has been prompted, by Russia’s withdrawal from the agreement to allow Black-Sea grain shipments of Ukrainian wheat and corn exports. That was a deal brokered by the United Nations and Turkey. Reports suggest that some ships will nevertheless sail today, testing Russia’s resolve.
Russia is upset about a drone attack on its Navy in the Bay of Sevastopol. It alleges that at least one of the drones came from a grain ship and that one of the masterminds behind the operation was the British military. Russia has demanded a meeting of the UN Security Council to discuss the strikes, on the same day that multiple cruise missiles fell on several Ukrainian towns and cities causing, again, electricity blackouts and water shortages.
Russia angrily alleges that the Sevastopol drones contained Canadian parts. Bloomberg reported over the weekend that European washing machine components are showing up in Russian tanks. Household appliance exports from the EU to Russia-friendly countries have spiked in recent months. It’s not only washing machines. Microchips and other bits of refrigerators and breast pumps have been found, in a low-tech way, in surprising places. The Armenian birth-rate has fallen by over 4% this year, yet it’s imports of breast pumps from the EU have risen nearly three-fold. Kazakhstan has seen new baby arrivals fall 8.4% in the first half of 2022 but a rise of 633% in imports of breast pumps. Exports of breast pumps from Kazakhstan to Russia have mysteriously risen. Russia has also become an export destination for Kazakhstan washing machines, from zero prior to the war. Russian imports of refrigerators from Kazakhstan have risen by a factor of ten. Your correspondent confidently predicts that Russia will soon emulate China’s approach to economic statistics and abolish them.
Tuesday 1st November
Iran’s connections to the war grow daily. Tehran’s distinctive delta-shaped single use drones dropping daily on Ukraine are a grimly familiar sight. It has now emerged that one unintended consequence of the US exit from Afghanistan was a flight to Iran of American trained Afghan special forces. Fearing the Taliban, these soldiers sought refuge across the border. Now, reports Al-Jazeera, they are threatened with deportation. Sensing an opportunity, the Russian mercenary group Wagner is trying to recruit them for the front line in Ukraine. An offer of $1,500 a month and safe harbour for families is said to be tempting some to enter the fight.
Yesterday, a note on the website of the Ukrainian Association of Football (UAF) stated that its executive is to request Iran’s exclusion from this month’s football World Cup. The request is based on Iran’s human rights record and its sanctions-busting supply of weapons to Russia. Should the appeal be granted, Ukraine would be one of the teams in the frame to replace Iran. CNN asked both FIFA and the UAF for comment but both declined.
A US diplomat speaking at a Carnegie Endowment event on Monday said that Iran’s domestic crackdown on women and involvement in Ukraine has led the American administration to lose interest in a nuclear deal with Tehran. Rob Malley, special US envoy to Iran, said ‘talks are not our focus right now’. This doesn’t seem, yet, to be the official line from the White House.
The war has had an obvious effect on global inflation via food and energy prices. One of the great oddities of the economic landscape is the stated determination by central banks to raise interest rates to a level - whatever that is - to get inflation down to target (usually 2%). The connection between interest rates and oil and gas prices is less than obvious to most economists. This week will see rate big rises in the U.K. and US at a time of slowing economic growth - even recession. The U.K. Treasury is also loudly proclaiming a big upcoming tightening of fiscal policy. It’s an interesting pro-cyclical - economically contractionary - policy mix.
Wednesday 2nd November
Serbia’s President, Aleksandar Vucic, suggests that his country has ‘become like Cassablanca’, a reference to the 1942 film that depicts a place full of spies, refugees and intrigue. According to Bloomberg, Serbian immigration lawyers say business is booming. The Belgrade property market is on the up, boosted by the arrival, since the war started, of over over 100,000 Russians and a smattering of Ukrainians. One source quoted by Bloomberg claimed rents in Belgrade have doubled. Co-working spaces are full of people mostly speaking Russian. The new immigrants have registered over 2000 businesses. In a recent speech at Serbia’s spy headquarters, Vucic lamented the presence of Russian and Western intelligence agents in his country, keeping an eye not only on the new arrivals but also on each other.
Serbia’s links to Russia are deep and go back a long way. Pro-Russian sentiment is evident. But the country is an aspiring EU member and has been quietly warned by Brussels that it needs to make its mind up: adherence to Western sanctions on Russia has been, at best, half-hearted.
Russian immigrants are creating problems in other countries. Inflation in neighbouring Kazakhstan is on the rise, with the Central Bank calling it a ‘migration shock’. Russian bank deposits in Kazakhstan have quadrupled. Interest rates have duly been rising by more than expected. Georgia has been experiencing similar inflation problems caused by the economic boost from immigrants.
Anyone driving a diesel car will have noticed the gap between the price of their fuel and ordinary petrol has been widening in recent weeks. Commercial vehicles are mostly run on diesel and industry is also a heavy consumer. Diesel traders are shouting loudly about potentially massive issues arising from the simple fact that the annual 200 million barrels of diesel imported from Russia is due to end in the New Year. Russia is a big supplier of refined products, not just crude oil and gas. To avoid a catastrophic cliff edge in February, imports of Russian diesel have to fall gradually between now and then. That’s happening, with substitution towards imports from Kuwait, Saudi Arabia and even China. It’s one of many ‘fingers crossed’ situations.
Thursday 3rd November
Elon Musk may be about to cut Twitter’s workforce in half but he has committed to keeping Starlink going, his satellite network used by Ukrainian armed forces. According to Sky News, Ukraine officials have been given personal assurances that the communication system, vital for the battlefields, will continue to be fully operational. The Ukrainians are right to be nervous about Musk’s ability to keep Starlink going. He’s paid $44 billion for a company reckoned by some analysts to be worth around $12 billion. And some of those same cynics think he will drive Twitter’s worth to zero, such has been the reception to Musk’s various plans for charging users for previously free services.
Your correspondent never tires of repeating the cliche that everything is connected to everything else. But the decline in Twitter’s value (and the price of lots of other shares, particularly of the tech variety) has, for the most part, been driven by higher bond yields - the cost of government borrowing. Those costs are up because of inflation. That prompted the US Federal Reserve to raise interest rates, again, by a lot yesterday, with more of the same today from the Bank of England. According to what the various central bank bosses are saying, there is a lot more of this to come.That rise in inflation, which is driving chaos in financial markets, is in large part caused by higher energy and food prices, courtesy of Vladimir Putin.
We may be witnessing the end of an era - the demise of the all-powerful, all-knowing central banker. They made a mistake when all this started: they waited far too long to begin hiking short term interest rates. They are about to compound the error by keeping rates too high for too long. They risk a proper but unnecessary economic slump. The right policy response - a temporary rise in their inflation targets - is deemed unconscionable. No wonder people such as the Finnish Prime Minister, Sanna Marin, are asking pointed questions about the technical abilities and democratic legitimacy of our monetary masters.
Friday 4th November
During the siege of Stalingrad, the NKVD (forerunner of the KGB) set up ‘blocking units’ just behind front lines, with the aim of intercepting any retreating Russian soldiers. Popular narratives allege that most of the deserters were shot. Some historians say that while some were executed the main objective was to get the soldiers back to the front line. The UK’s ministry of defence today stated that ‘blocking units’ have again been established, this time just behind the front lines in Ukraine, and those units once again have orders to shoot to kill any deserters. ‘Fight to the death’ orders have also been issued to those troops who stay on the front line.
“The tactic of shooting deserters likely attests to the low quality, low morale and indiscipline of Russian forces”, suggests the MoD. Tactfully perhaps, the MoD chooses not to remind us that though these tactics are barbarous, in Stalingrad they worked.
The decision by Russia to resume grain shipments through the Black Sea corridor, a few days after Putin stated he wanted a ‘thorough enquiry’ into who bombed his navy before he would think about lifting the blockade, suggests someone has leverage over the Kremlin. Clara Ferreira-Marques, a Bloomberg columnist, suggests it’s the Global South. Russia needs the few friends it has got and has responded to pressure form food importing countries and their intermediaries. Turkey has emerged as a serious player, along with India.
At Russia’s equivalent of Davos, Putin was keen last week to help praise on both Recep Erdogan and Narendra Modi. And to moan about US ‘provocations’ regarding Taiwan. Many of the countries in the Global South are not friends of the West, they believe Putin when he says it’s sanctions causing high food prices and are benefitting form steep discounts on Russian oil and gas imports.
While there has been much triumphal reporting about the lifting of the shipping blockade, less attention has been paid to the fact that it only only runs until 19 November. That leverage possessed by Turkey and others will be needed again very soon.
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So what necessary electronics are in the breast pumps that Russia are using??
Why are oil prices so slow to come down at the pump? And they don’t seem to reflect the % they fall per barrel in what comes off.