Putin's oligarchs panic as Ruble continues wobble following Kursk and exchange sanctions | Tim Ash

the ruble dropped uh quite significantly initially there are now multiple Ruble trading rates uh which typically suggest countries that are having difficulty transacting effects you normally have multiple exchange rate that's kind of what we're seeing and I think perhaps you know now it may well be reflected in those comments by oligarchs like Derek Pasco remember for a couple of years Russia can we we had sanctions we could argue about how aggressive they were or not but Russia's you know in the end tried to get round them and has been relatively successful in doing that uh perhaps now they're beginning to bite and perhaps you know Russian Business Leaders are getting a bit worried about that it coincides obviously with the Cur offensive I think which was quite a significant moment in this war overall and it's maybe pushed Russia back on the back foot and made those around Putin you know think twice hello and welcome to Frontline for times radio I'm James Hansen and today we're talking about the latest on the war in Ukraine and also the state of the Russian economy and I'm delighted to be joined by The Economist Timothy Ash an associate fellow in the Russia and Eurasia program at chattam house and a senior Sovereign strategist at RBC BlueBay Asset Management in London uh Timothy always a pleasure welcome back to front line Thank you very good to be here now when we spoke back in April Start of April I believe it was you were a little bit pessimistic about whether the West was doing enough to support Ukraine financially you felt it could have gone further in terms of sanctions on Russia and seizing Russ Russian assets at that stage the US Congress hadn't approved the uh latest package of financial or sorry military aid to to Ukraine here we are six months on are you any more optimistic well in in the big pitch numbers uh not really as you mentioned the 61 billion was approved uh obviously that's helped in the supply of Munitions long range weapon Weaponry to the ukrainians uh the war though is still costing about aund hundred billion dollar year that's what we know uh there was um a uh a effort by the G7 countries to kind of well Trump proof funding for Ukraine uh to want a better word there was obviously concern about a a trump victory in November he's obviously uh made the point that other there's been concern certainly Vice um nominee vice president uh uh Vance has suggested that funding for Ukraine should be stopped so this effort to kind of used some of the uh interest flow on immobilized Russian assets FR on Russian assets told the ukrainians there a $50 billion program put together uh basically securitizing the long-term interest flow bringing it forward and giving the ukrainians hopefully before the US presidential elections before Trump turns up if he if he turns up and that's uh that's kind of got stalled I'm not sure if it was optimism about Harris winning that perhaps made the Americans think that they don't need need it but we haven't got very much further and that still leaves the big question you know what happens if Trump wins how's that how's that 100 billion dollar annual financing requirement for Ukraine going to be filled we've seen nothing really in terms of progress in terms of uh accessing the underlying 330 billion of immobilized off rozen Russian assets that's kind of gone nowhere been stalled by this perhaps it's 50 billion program and as I said back in April in the end the numbers are so big that there's no other alternative but to use those immobilized Russian assets it's all a bit disappointing we have seen one interesting development which has been there's been an agreement between Ukraine and private creditors to restructure around $23 billion do of Ukraine's debts there's been a write off there's been an extension of maturity there's been agreement on a reduced coupon and that brings Savings of around 12 billion dollar to Ukraine in terms of debt service but actually in terms of the biggest scheme of things as I said Ukraine has a minimum annual financing requirements of 100 billion I think it should be 150 billion to win an 11.8 billion financing contribution actually over more or less a threeyear period of the IMF program doesn't really touch the sides and and I think you know unless G7 countries uh you know grab the the problem by the Scruff of the neck and say you know what do we need what is the cost of funding Ukraine to defend itself and to win and how are we're going to fill it then I think in the end the advantages with Putin and I'm afraid you know there's there's not much joined up thinking in terms of how we fund Ukraine uh it's all peac Mill actually you could argue it's the same with the military funding of Ukraine right it's kind of last minute it's kind of you know lots of countries find reasons not to supply kits and it's the same with funding in the end needs must and eventually have after much delay the Ukraine's kind of get what they need but we we're not thinking one two three years down the road which we should be yeah definitely want to return to what more the West could be doing to help Ukraine financially in a moment I just wonder Timothy whether there is some cause for optimism in terms of whether some of the oligarchs in Russia are starting to feel a bit unsettled by the impact of these sanctions it was interesting that OLG derap Pasa who's a Russian oligarch was quite critical of Putin surprisingly critical of Putin on a recent visit to Japan talking about the effect of the sanctions and criticizing the war in Ukraine do you think that if he's saying stuff like that other oligarchs are feeling that way and do you think the sanctions are starting to be felt by the rich and Powerful in in Russian Society well there's been a couple of new developments on the sanctions front uh one late last year the G7 and the Western allies basically sent a very strong signal uh around secondary sanctions so you know you have the main sanction on Russia you know Russian uh gas or uh or or military supplies or whatever it is Banks uh are specifically sanctions but then there are uh threats of sanctions on entities that facilitate trade with Russia allow Russia to get around th those sanctions these are called secondary sanctions and there was a very strong message I think sent to third countries countries that have been helping Russia uh get around you know these restrictions and the message was you know if we see you doing that we will sanction you direct now this could include Chinese Banks Chinese companies Middle East entities operating out Dubai out of turkey out of Kazakhstan all these places a very very strong message was sent that's one thing and secondly uh a month or so ago or two months ago uh moex which is a big foreign exchange uh uh brok a brokerage entity essentially uh was was specifically sanctioned and it it trans transa a lot of the FX transactions that under underly Russia's trade with these third countries go went through that exchange and uh the fact that it was sanctions meant that a lot of those companies that are trading through Russia uh didn't really want to uh conduct the ethx transactions through that entity and now are wondering how they do it how they can trade with Russia and get paid and do the transaction with an entity that there's not going to end up with them sanctioned and I think the combination of those two things we've seen a I think a substantial drop off in trade uh by those enti by those countries and entities in China in Turkey in the Middle East with Russia and we saw an impact the ruble drops uh quite significantly initially there are now multiple Ruble trading rates uh which typically suggest countries that are having difficulty transacting effects normally have multiple exchange rate that's kind of what we're seeing and I think perhaps you know now it may well be reflected in those comments by oligarchs like dere Pasco remember for a couple of years Russia can we we had sanctions we could argue about how aggressive they were or not but Russia's you know in the end tried to get round them and has been relatively successful in doing that uh perhaps now they're beginning to bite and perhaps you know Russian Business Leaders are getting a bit worried about that it coincides obviously with the Cur offensive I think which was quite a significant moment in this war overall and it's maybe pushed Russia back on the back foot and made those around Putin you know think twice interestingly we had obviously at the weekend the CIA MI6 director had a press briefing and they made some comments suggesting that the Cur offens Cur offensive and perhaps some of these sanctions finally are making Russia's Elites think again about the longevity of this War uh we don't know I mean that's the reality we don't know particularly what these guys think or girls think inside their Administration very few have been vocal in criticizing it we know some of those people that have been vocal and criticized it have been locked up in jail or killed uh you know obviously the the Vagner Chief casing point there I want to pick up on what you said Timothy about the value of the ruble I mean obviously it did drop significantly after the K incursion in August it's recovered somewhat sin but to what extent is the value of the rubble tied to Vladimir Putin's personal strength in other words if the P if the rubble is weak does that make Putin weak well generally countries that have weak currencies uh it reveals an economic weakness and vulnerability right I mean uh you know a weak currency can help countries in terms of it improves competitiveness but it tends to be very shortterm and in the end there are implications of a weak currency which is inflation generally we know populations don't really like high inflation and actually what we are seeing in Russia is being a weaker currency and higher inflation and the Central Bank in respones had to increase interest rates policy interest rates at 18% at the moment there's a central bank policy meeting this week they're likely to increase interest rates I mean you know if a currency is weakening and the central bank has to respond by raising interest rates it it suggests vulnerability it suggests things are not going quite as as per plan uh so you know I would think that you know uh the obviously the sanctions as I mentioned earlier the kers intervention actually all prices at the moment I mean the the the impact of a weakening global economy has pushing has pushed oil prices down to $70 a barrel perhaps we're going to go lower that will have a very significant impact on Russia's ability to fund uh its War to what extent will the Drone attacks that you Ukraine have been launching on oil and gas depos inside Russia have a significant impact on the Russian economy well it's another it's another Ukraine's chipping away I mean uh you know Russia is a big country uh I think as I discussed last time I mean Putin knew he was going to invade he built up his defenses they had this huge foreign exchange buffer they W weren't particularly leveraged it gave them lots of durability now we chipped away at some of that with sanctions uh but we haven't had the killer blow uh but I think the the ukrainians are certainly take trying to take the water to Russia itself there's obviously a big discussion with G uh with G7 and NATO Partners about allowing the ukrainians to use more Western kit to hit longrange targets you know we I mean they've been incredibly successful in terms of you know uh either using uh kit that's allowed by NATO Partners or their own uh developments of of longer range uh Dr drones and missiles they've they've they've hit deep into Russia there's been some spectacular explosions in oil refineries and and U and energy uh energy um Supply areas Etc um you know again it's another complication for the Russians uh it will damage the energy supply chain I think it will make it more difficult to export volumes and ultimately again it will weigh on Russia's economy ultimately and make it more difficult for them to conduct the war and finance the war what would hurt the Russian economy the most in terms of potential sanctions I mean would it be targeting liquified natural gas exports which I know the EU have looked at doing stuff there but Germany historically has been quite reluctant to impose sanctions there because of its Reliance on on liquified natural gas would that be the thing that would hurt Putin and his economy the most well I mean energy and raw materials are the big earner for Russia I mean it earns hundreds of billions of dollars a year through commodity exports anything you can do to tighten the regime around those are obviously pretty significant I mean we had the oil price cap uh earlier that certainly helped um you know again but the difficulty with sanctions always is uh you know you don't want to hurt yourself more than the target of the sanctions right uh there's always lots of lots of partners that that um try and minimize their own their impact to their own economy is uh the West wants to maintain a united front but doesn't want individual countries to Bear a disproportionate uh burden of sanctions so it it it's it's very complicated in reality right it's very complicated to design something that we all agree to and the the we share the burden across across Western Partners in terms of imposition of those sanctions also that we want to Li limit the the disruption to the global economy as well while at the same time you know damaging Russia so they take time they're difficult uh clearly we haven't done enough we need to do more um I do think going back uh to this idea of the financing of the ukrainians you know I I think it you know it's a double whammy on Putin if we take his money we take the $330 billion of Russian taxpayer money cash in Western in the Western banking system we give it to the ukrainians um uh there's some sort of moral uh uh benefit there you know Russia is clearly the aggressor it it it has to pay for the war maybe if Russia was convinced that it was going to actually have to pay for the war it be less willing to R disruption on Ukraine right so you know giving the Ukraine 330 billion will allow them to sustain the war build B ammunitions on International markets hit Russia hard at the same time it would it would hurt Russia because they would be seeing their assets given to the ukrainians so maybe that's the the obvious and the easiest thing to do uh but there are lots of vested interests that are that are still opposing that and on oil prices is the oil price cap really the best way of dealing with things because I've heard some analysts argue that actually there are ways of getting around that and that maybe the best thing to do would be for example the US to ramp up its domestic oil and gas production and to give a lot of it away on the cheap and that would drive down the global oil price and that would really severely impact Russia well yes uh you know it's it's difficult managing Global Energy prices obviously uh Biden and well Harris is going to us election they would love lower energy prices at the uh at the gas pumps uh to help their re-election or help Harris's election chances it's not that difficult there are lots of global players obviously the Saudis are pretty instrumental to that um I mean the the interesting thing irrespective what's going on in sanctions oil prices are going lower because the global economy is slowing that will hurt Russia now if you could uh tighten up the sanctions regime around Russian oil and gas exports which the West is trying to do through these secondary sanctions and sanctioning MOX you increase the the damage to Russia right I mean so I think in the end a combination of all of these things right new additional sanctions going after the Frozen Russian assets uh secondary sanctions on countries that are helping Russia uh circumvent uh circumvent uh existing sanctions on Russia uh but also you know the fact that International oil prices are going lower itself will be damaging to Russia is there any sign Timothy that Putin is running the war in a more economically efficient way now that he was say a year ago I mean it was interesting that he appointed Andre Bellis off as defense minister I think back in May and he of course formerly was was an economic minister is that a sign that Putin is recognizing that the economic cost of this war could come back to bite him and is a sign that they're running it in a more efficient way well Russia has gone onto a war economy right that's certainly you know the guns versus butter you know uh Paradigm uh you know we are interestingly seeing you know shortages of Labor in Russia which is reflected in in high inflation so you know uh you know difficult decisions have had to be made definitely uh but going back to the fact that Putin knew he was going to invade he built buffers there's a lot of buff and durability in the Russian economy that have certainly helped them I mean Putin historically has all has always um you know tended to higher technocrats in key positions right so you have a very credible Central Bank it's very Orthodox in how it conducts monetary and economic policy same for the Ministry of Finance right I mean you have capable people in key positions you could probably dispute that when it comes to the military I mean you know the the way Russia has conducted the war right from the first Invasion has been you know pretty chaotic and and and not very uh not very credible and very good they've learned certainly but in the economic sphere you know I mean for for Putin's the duration of pu Putin's stay in office you know he has appointed capable people in key positions and and uh macro macro policy in general has been pretty prudent and Orthodox and certainly that's helped with the conduct of the war but he needs arms still I mean that's still a massive factor for Russia I mean the very fact that he's doing deals with North Korea of kind of arms for oil would yes that is a massive issue in terms of how the Russian war economy is working no absolutely um you know sanctions are making it difficult for Russia to get the key inputs to to its Munitions we need to do more there are too many gaps too many third third countries are helping Russia get around it but you know uh there's obviously been lots of concern about China and you know whether China would step up and uh you know we have this uh you know uh Alliance Without Borders or limits you know obviously that was the the agreement signed between Putin and XI in Beijing During the period of the Winter Olympics in early 22 just before the Invasion the reality is China has not particularly supplied Russia with the array of of military equipment that Putin perhaps wanted and the fact that Russia's had to go to Iran and and North Korea is testimony actually to the fact that China has not stepped up and helped uh helped Russia particularly and I think I think it's interesting here because um you know uh the the many people I I think were worried about how China would uh would play out the war um and I think it's testimony to the fact that you know despite that alliance between Russia and and China Without Limits actually for China the key relationship is not with Russia it's with the US right and the Chinese actually have more or less complied with Western sanctions on Russia which is quite extraord AR really and I think it it relates to the fact that actually the Chinese don't want to further undermine that relationship with the US by going overboard in supporting Russia so they've been really really careful and that's helped uh the West in its in its uh efforts in terms of sanctions around Russia interestingly it's also improved the remarkably improved the US China relationship sorry the U yes the US China relationship which you know uh there's been there's been obviously a lot of focus on that uh since uh well since the Trump presidency Biden taking office we had that terrible Anchorage Summit between Tony blinkin in his counterart but actually where we are because of the war in Ukraine is perhaps a better us China relationship than it would otherwise have been because the Americans are respected the fact that the Chinese have not gone all in in support Russia in this war and again that that certainly helped the ukrainians let's return to how we started this conversation Timothy and your general frustration still that the way West isn't doing as much as it could be when it comes to seizing Russian assets and going further with sanctions so if you were in charge of drawing up Western sanctions fresh Western sanctions on Russia what would be your immediate priorities well one give Ukraine full access to the $330 billion of immobilized Russian assets it that would Trump proof Ukraine's financing it would cover at least two uh at least two years of financing for the ukrainians assuming uh $150 billion doar if needed to win the war right they could buy their own Munitions globally right um so that would resolve the issue of like almost every month every two months having to sit down and talk about how we're going to cover Ukraine's financing needs secondly uh I would go for a a zero tolerance uh for the West around trade with Russia uh I would send the message out that on a on a longer term perspective Western companies should aim to go to zero in terms of trading with Russia unless they have specific uh licenses to do so so I accept that some products that we get from Russia are critical uh you can't get them elsewhere we perhaps do need to import some well okay they can go on special licenses but I think the the message to intern Western and international business should be that Putin's regime is a is a fascist regime it's conducting war crimes and genocide in Ukraine it's a threat to uh the security of Europe and the Western Alliance you should not be doing any business with Russia if if at all you can get away with it and I think that would really tighten the screw around Russia it would send a very strong signal uh to third countries like India like turkey like China like Dubai you shouldn't be or UAA UAE shouldn't be doing business with Russia and I would you know really crop the whip around secondary sanctions you know actually sanction those Third Country entities that are facilitating sanctions busting by the Russians uh make an example of some of those companies in those countries uh and be very aggressive with them so send an absolutely crystal clear signal that they should not be helping Russia in the conduct of this war just finally is the Russian economy Putin's Achilles heel if he would to be Ed from power in some kind of internal coup would it be more likely because of concerns with the state of the Russian economy as opposed to Battlefield failures in Ukraine I guess what we've seen is there is still this durability so unless we are willing to go the extra mile and be very aggressive in terms of our sanctions pursuit of Russia in terms of helping ukraines in terms of financing uh then actually there is unfortunately quite a lot of durability there right uh it's it's a slow grind you know we we continue to undermine Russia's ability to conduct the war but we don't we we're not willing to to to impart the killer blow and I think still you know the battlefield ultimately is is where it it plays out uh more most uh most evidently um but you know I think by keeping a tight new around Russia on the economics theere we do we do limit his options you know on the battlefield I mean we certainly help the battlefield effort of the ukrainians Timothy Ash always appreciate your time thank you so much for joining us today on Frontline my pleasure thank you for watching today's episode of Frontline for early access to our videos member only q&as and live streams 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