Every week, The Ukrainian Week/Tyzhden publishes an overview of the political, social and economic situation in Russia and Belarus in partnership with the Foreign Policy Council “Ukrainian Prism”. The Council’s Russian and Belarusian Studies Programme presents a new weekly #aggressoranalysis, in which Iaroslav Chornogor and Anton Oksentiuk analyse the latest news in Russian domestic and foreign policy.
This week’s highlights: BRICS meeting in St. Petersburg, nuclear blackmail threats, and Russian energy sales issues
Domestic policy takeaways:
The Russian Central Bank has raised the key policy rate again, this time to 19%. On September 13, the Central Bank of Russia announced a hike in its key interest rate to 19%, a measure aimed at curbing persistently high inflation. This move marks the second instance in two decades where such a substantial rate has been implemented, the first being at the onset of the war. Central Bank Governor Elvira Nabiullina has indicated that further increases, potentially up to 20%, may be necessary if inflationary pressures do not subside.
At this elevated rate, Russian businesses are likely to face significant impediments to growth due to the prohibitive cost of borrowing. The inflationary surge is primarily driven by substantial government expenditures on military contracts and elevated military salaries, which flood the economy with liquidity not matched by an equivalent increase in goods. The Central Bank has also acknowledged that inflation is not exhibiting a consistent downward trend, compelling it to maintain a stringent monetary policy stance.
Foreign policy takeaways:
Russia escalates its nuclear blackmail rhetoric. Last week, Russian officials indicated a potential severe response if the US and the UK permit Ukraine to deploy long-range missiles on Russian soil. President Vladimir Putin commented that such a move would signify direct NATO involvement in the war with Russia. This argument, while not new, underscores the Kremlin’s frequent assertion of Western aggression against Moscow.
The Russian Foreign Ministry warned that Moscow’s reaction to such a development would be “so powerful that no one could ignore it.” Additionally, Dmitry Medvedev, Deputy Chairman of the Russian Security Council, asserted that a Ukrainian operation in the Kursk region could trigger a formal condition for the use of nuclear weapons, although he claimed Moscow is currently “demonstrating patience.” Meanwhile, Andrei Sinitsyn, head of the Russian nuclear test site Novaya Zemlya, revealed that Russia is prepared to resume nuclear testing at any time, citing fully ready infrastructure. Notably, in November 2023, President Putin signed a law reversing Russia’s ratification of the Comprehensive Nuclear-Test-Ban Treaty.
Overall, Moscow’s rhetoric suggests an attempt to leverage nuclear threats as a deterrent against Ukraine’s potential use of long-range missiles. This strategy of nuclear intimidation has been a consistent feature of the Kremlin’s approach throughout the full-scale Russian war against Ukraine, despite a lack of substantive action to back these threats.
BRICS Security Meeting in St. Petersburg. Last week, St. Petersburg hosted a significant meeting of BRICS security representatives, a gathering underscored by its explicit focus on the Russian-Ukrainian war. This was confirmed by an interview with Sergei Shoigu, Russia’s current Secretary of the Security Council, on Russian state television. Shoigu revealed that the discussion on ending the war emerged as a primary concern among some BRICS members, notably China and Brazil. In May 2024, these two countries presented a joint stance outlining six principles for a “political settlement of the crisis,” although they stopped short of proposing a concrete plan. Shoigu further indicated that Moscow will persist with its own ultimatum, articulated by President Vladimir Putin on June 14. This demand includes Ukraine’s surrender of four regions and a renunciation of NATO membership. The steadfastness of Russia’s position reinforces the notion that Moscow remains resistant to genuine peace negotiations and compromise, reflecting a continued hardline approach to resolving the war.
Another crucial development is India’s role in resolving the war. A week prior to the BRICS meeting in St. Petersburg, India Today reported on India’s efforts to broker a peaceful settlement. According to the article, Ajit Doval, National Security Advisor to the Indian Prime Minister, was set to engage with Russian officials on possible avenues for ending the war. This information was substantiated on September 12, when Doval met with President Vladimir Putin and briefed him on the outcomes of a recent confidential meeting between Ukrainian President Volodymyr Zelenskyy and Indian Prime Minister Narendra Modi.
This indicates that certain BRICS members are advocating for potential peace. However, these diplomatic initiatives have yet to yield tangible results, as Moscow’s stance remains unchanged. Significant developments may be anticipated at the upcoming BRICS summit in October, which will be held in Kazan, Russia, where another direct meeting between Putin and Chinese leader Xi Jinping is scheduled.
Putin meets with the Chinese Foreign Minister. During his recent meeting with Chinese Foreign Minister Wang Yi in St. Petersburg, President Vladimir Putin continued to champion his initiative for a peaceful resolution. The Chinese Foreign Ministry reported that the two leaders discussed the ongoing Russian invasion of Ukraine, with Putin expressing his willingness to explore a peaceful settlement and his high regard for the peace proposals put forth by China and Brazil. Despite these assurances, Russian rhetoric has not visibly shifted.
The upcoming BRICS summit in October, where Putin is scheduled to meet with Chinese President Xi Jinping, underscores Moscow’s continued engagement with Beijing. In September alone, Putin publicly reiterated his eagerness for face-to-face discussions with Xi, a move that reflects ongoing challenges in bilateral financial transactions and the stalled Power of Siberia 2 gas pipeline project. Informal reports suggest that Beijing prefers to purchase gas through this pipeline at domestic Russian rates and is reluctant to invest in the necessary infrastructure development.
Russia is encountering significant challenges in selling its energy resources. Last week, Russia faced significant setbacks in two crucial economic sectors: gas and oil. Wien Energy GmbH, an Austrian firm and one of Gazprom’s last major European clients, revealed it would cease purchasing Russian gas starting in 2025. This company, a longstanding buyer of Russian energy, also announced it will require certificates from new suppliers to verify that their gas does not originate from Russia. Wien Energy currently supplies 12% of Austria’s gas needs, and the nation’s reliance on Russian gas has already declined from 97% to 83% as of May 2024. Notably, Austria remains a key player in Western Europe’s remaining Russian gas purchases.
Russia’s oil sector is experiencing parallel difficulties. Oil and oil product exports have plummeted to levels not seen since 2021, with August shipments dropping to 7 million barrels. The International Energy Agency highlights a sharp decline in crude oil exports, primarily due to reduced purchases by India and China. In August, oil exports to India decreased by 14.5%, while shipments to China fell by 14.1%. Although Indian imports are projected to recover by October, the Chinese market is unlikely to rebound soon, owing to domestic economic challenges, including a slowdown in growth and shifts in energy policy.
