Russia - General Discussion.

[Ananda]

Given the above news, did Russia blink first?

Could be, but the date line is tommorow. Knowing Putin Russia, they can change unexpectedly. I'm bit suspicious with what they means on gradual shift. Seems they still aiming on adjustment in payment contract term.

India on other hand still saying Russia still flexible on Indian payment method. Still they're working on with Rupee-Ruble mechanism.

How rupee-ruble trade mechanism is shaping up

India is exploring a rupee-rouble trade mechanism with Russia to circumvent the sanctions on Moscow by the US and its allies. What are the options and how feasible will they be in the long run?

wap.business-standard.com

So, I'm not too sure Russia will give much ground with Euro, unless they can see how they can use the Euro they can get from their Gas. Without some back deal on Russian ability for usage on the Euro they got from the Gas payment. Then I doubt the Russian will blink.

Got a feeling some back door trade could happen. Perhaps agreement that Russia can use the Euro from Gas Payment to pay their overdue bonds payment ? Well let's see how this developing.

Germany and Austria take step towards gas rationing

Germany and Austria have both issued gas supply warnings as a payments row with Russia escalates.

www.bbc.com

If we see overall tone from Russia so far, is they are giving gradual timing, but not yet giving ground. So I do suspect Russia still buying time.

 

[Vivendi]

An update on the Russian jets that entered Swedish airspace on March 2nd:

Swedish news outlet TV4 published a story just now, claiming that two of the fighter jets were carrying nuclear weapons: Kärnvapenbestyckade ryska plan kränkte svenskt luftrum - tv4.se

This information has not been confirmed by the Swedish defense forces. They have also not denied it (i.e. given the standard "no comments" response).

I am tracking several Swedish defense analysts on Twitter. None of them has so far said that they find this information believable. This is so new that many of them have not yet made a comment, however, of those that have commented, they are very skeptical about this story (e.g., Johan Wiktorin on Twitter: "Jag är mycket skeptisk till denna uppgift om planen. /1 https://t.co/JgSVaDqh2v" / Twitter ).

Norwegian media already writes about this and I am sure other international media also will, quite soon.

 

[OPSSG]

https://twitter.com/i/web/status/1509235436878770180

Even with official confirmation that this is false, it’s a pretty hot topic on the scope of this nuclear threat.

 

[Feanor]

Probably still working on the bartering terms before any military aid might start flowing. Besides, Ukraine and China aren’t enemies. Unless there is a toilet paper shortage in China, the CCP won’t be accepting Russian currency in any significant amounts.

Why wouldn't they? They can pay for Russian oil and gas in Russian roubles.

 

[phreeky]

This trade in rouble thing seems like a bit of a joke really. Is any reasonably managed country going to agree to this? Doubtful.

They'd have to buy rouble, and then if Russia stop delivering then they are left out of pocket with a relatively junk currency.

The whole thing is just a big FU from Putin.

None of it seems to have come from a playbook which is indicative of how unexpected the current situation is.

 

[denix56]

This trade in rouble thing seems like a bit of a joke really. Is any reasonably managed country going to agree to this? Doubtful.

They'd have to buy rouble, and then if Russia stop delivering then they are left out of pocket with a relatively junk currency.

The whole thing is just a big FU from Putin.

None of it seems to have come from a playbook which is indicative of how unexpected the current situation is.

It might be just a nice-looking move for publicity. Also Putin said Sholtz that the Europeans will pay in euro to Gazprom bank and then this bank will sell euro. For Europeans nothing changes actually.

 

[Ananda]

Explained: Putin’s demand for trade in rubles, and how it could work

Why has Russian President Vladimir Putin ordered that importers of gas must pay in rubles rather than dollars or euros. What are the ramifications for Russia and the West, as well as India? How does China gain?

indianexpress.com

How this Russian demand on payment in Ruble turn out can be described by this Indian Media article. Why I put Indian sources ? Because they are one of the early countries that going to put payment mechanism between their own currency with Ruble on Russian Trade.

Simply put, instead of USD and Euro, the most probable currency that going to gain benefit most is Chinese Yuan. Why because China Financial market is the only major International Financial market where Ruble still in trade.

So everyone else that need to pay Russian with Ruble, will go to Chinese market getting Yuan to trade for Ruble. I have put before in this thread during first days of Russian Financial market exclusion from Western Financial system. Yuan will be the Big Winner on this.

Even Nations like India that practically preparing Rupee to Ruble exchange mechanism, will use Chinese Financial market as bentch mark. This will again fasten Yuan place on Global Financial market as one of standard. Something that many Western market people already warn Washington about. It will in long term going to increase Yuan place as USD alternative.

Germany says Putin agreed to keep payments for gas in euros – DW – 03/30/2022

The Russian leader said money would be paid into Gazprom Bank, which is not a subject of sanctions, and then transferred in rubles to Russia, according to a German statement.

www.dw.com

For Europeans nothing changes actually.

Depends on how you see it. Basically with exclusion of Russia from EU financial market, it make Euro that Russia hold will be worthless. Any currencies is basically legal tender notes, that subject to each issuing countries rights.

Thus by sanctioning Euro to Russia, ECB practically told any transaction using Euro by Russia, will be illegal and can be subject to ECB confiscated the transaction.

I don't know if this's Sholtz announcement means this's final deal with Putin, or temporary ones, or even already officially offer by Russia (haven't found Russian sources that collaborate). However if it is, this means for Russia that they can use their Euro payment on something. At least the Euro's payment can be used to 'legally' prop up direct Ruble transaction.

So whether this is Euro win or Russian win, or compromise on both parties. It's up to anyone perception.

On matter of breaching contract, I would try to avoid Political thinking and focus more on commercial sides.

Yes by changing payment term, Russia must get buyer approval to do that. Doing one side is breaching the contract.

However by doing sanctions, basically US and EU already told their companies to break one sided any contracts with Russian (government or companies). On any legal commercial agreement, that's already breaching the contract.

Let's get example on Aircraft Leasing. Because this is already have precedent during COVID. Commercial norm on leasing, the lessor can take away the items in leasing, if the lessee breach agreement (mostly on payment). During COVID many Airlines as lessee practically breach payment.

Even that the lessor can't repossessed the Aircraft right away, unless they already negotiate with Lessee on how to solve payment terms. That's how most of Commercial Leasing being done, and basically it is norm in leasing business.

So if the lessor that breach the contract, can the lessee hold to the lease or rent items ? Well it's back to legal dispute in the contract. My point is the Lessee also has legal rights to protect them if the Lessor that doing one side breach. One side termination that not according to contract (including sanctions) basically can be constitutes as breaching contract.

That's it is one sided by Western government, companies or Media on talking Russian doing contract breaching (on commercial bases), when they are also doing contract breaching with this sanctions. That's why I said before in this thread or other one, when Politics intervene Market practices, then everything on Commercial wise will be gone. Thus there will be consequences as market will make adjustments that will hurt both sides.

 

[ngatimozart]

To me all this speculation about a Russia/China is over played and exaggerated. Sure, both have similar concerns and views but it's unlikely that China will supply Russia with arms or provide it with other forms of assistance. China,has too much to lose and nothing to gain at this point. As pointed out in one of the talks on the Ukraine war; Russian and China still have lingering superstitions and its telling that despite years of trying to attract Chinese investment in the Russian Far East; Russia,has not been successful.

I suspect that the CCP / PLA will support Putin as far as they can without attracting any sanctions from the US or EU. There are still things that Russia has that they want and need, so they aren't going to caste Putin aside easily. Don't forget that Russia is rich in natural resources that the CCP / PRC require access to as well. From a strategic POV it would be better for them to have a friendly neighbour to their north than a angry bear, which BTW has the world's largest nuclear arsenal. Xi will be playing a very fine balancing game, but at the same time he has to keep his wolf warrior diplomats under control and that may prove to be difficult.

 

[Feanor]

This trade in rouble thing seems like a bit of a joke really. Is any reasonably managed country going to agree to this? Doubtful.

They'd have to buy rouble, and then if Russia stop delivering then they are left out of pocket with a relatively junk currency.

The whole thing is just a big FU from Putin.

None of it seems to have come from a playbook which is indicative of how unexpected the current situation is.

As long as the ruble remains an exchangeable currency and they pay at market rates, it shouldn't matter that much. Even if the ruble drops to 1:200 to the dollar, it's still an acceptable medium so long as the drops aren't too sudden, and they prices are at market value for the currency.

 

[Vivendi]

On matter of breaching contract, I would try to avoid Political thinking and focus more on commercial sides.

Yes by changing payment term, Russia must get buyer approval to do that. Doing one side is breaching the contract.

However by doing sanctions, basically US and EU already told their companies to break one sided any contracts with Russian (government or companies). On any legal commercial agreement, that's already breaching the contract.

Let's get example on Aircraft Leasing. Because this is already have precedent during COVID. Commercial norm on leasing, the lessor can take away the items in leasing, if the lessee breach agreement (mostly on payment). During COVID many Airlines as lessee practically breach payment.

Even that the lessor can't repossessed the Aircraft right away, unless they already negotiate with Lessee on how to solve payment terms. That's how most of Commercial Leasing being done, and basically it is norm in leasing business.

So if the lessor that breach the contract, can the lessee hold to the lease or rent items ? Well it's back to legal dispute in the contract. My point is the Lessee also has legal rights to protect them if the Lessor that doing one side breach. One side termination that not according to contract (including sanctions) basically can be constitutes as breaching contract.

That's it is one sided by Western government, companies or Media on talking Russian doing contract breaching (on commercial bases), when they are also doing contract breaching with this sanctions. That's why I said before in this thread or other one, when Politics intervene Market practices, then everything on Commercial wise will be gone. Thus there will be consequences as market will make adjustments that will hurt both sides.

I am not a lawyer however I have been exposed to several contracts, and normally they have a clause saying that both parties must obey all local laws and regulations. Thus, if there is a sanction imposed by the authorities which is having a direct impact on a business arrangement, then one would breach the contract by ignoring the sanctions and keep doing business. Russian Sanctions Impact on the Ability to Conduct Business (natlawreview.com)

Another clause that is commonly included in contracts is "Force Majeure", also known as "act of god" since it is often invoked when there is a natural disaster. However the impact of the Russian invasion could certainly in many instances trigger the "Force Majeure" clause in a contract, of course depending on the wording in the contract. Again, this would not be considered a contract breach, since it's actually stipulated in the contract. However this is very tricky and one often need lawyers to figure out what to do. Sanctions on Russia: what about your contracts - Lexology

 

[Ananda]

Thus, if there is a sanction imposed by the authorities which is having a direct impact on a business arrangement, then one would breach the contract by ignoring the sanctions and keep doing business

Contract is between parties in business arrangement. Political sanction hindered one parties (under jurisdiction of nations/political entity that put sanction) to continue doing business with parties on other side. However commercially they are breaching contract. That's why from begining I purposedly seperate politics and commercial issue.

However the impact of the Russian invasion could certainly in many instances trigger the "Force Majeure" clause in a contract,

That's debateable. Force Majeure usually reflect on natural disasters, health pandemic, War, or other big effents not under the control of both parties. However most of the contract that I know also put the War must happen between the locations on both parties reside. So War in Ukraine that mostly does not hindered commercial operations in Russia and Eurozone, is highly debateable can be included as Force Majeure. Unless the war involving locations on both parties.

If West breach contract due to politics, why complaining when Russia change their contractual terms due to Politics? This is consequences of Political actions (including from Western sides).

Add: This is assesment on one of UK Law Firm:

Financial sanctions and English law contracts – what’s the potential impact for business? | Cooke, Young & Keidan

Financial sanctions are legal restrictions imposed on dealings with specified individuals or entities, or on activities in certain sectors or geographical regions. They are often imposed swiftly, in response to actions by – or ostensibly attributable to – countries or governments. Mikhail...

cyklaw.com

Depending on the terms of the contract, a party may lose its entitlement to payments (or other remuneration) even if it fails to fulfil the contract in order to comply with sanctions[1].
[*]A party may commit breach of contract in seeking to comply with sanctions, or the parties may face considerable uncertainty as to the impact of financial sanctions on their contracts.

Basically under contractual agreement, business in West by following sanctions, pratically already breach the contract. Because of that they can lose their entitlement under the contract (on other hand they can face Criminal consequences if they don't follow the sanctions).

That's why by contractual agreement, Western business basically breaching the contract first due to following sanctions. This is when we see on commercial base agreement side.

Again I'm just pointing out that's bit hyprocrite on Western media, business and politicians to claim Russian breaching contract, when they already the ones breaching contract first. I'm only looking from commercial business practises, and not Politics.

 

[Vivendi]

Again I'm just pointing out that's bit hyprocrite on Western media, business and politicians to claim Russian breaching contract, when they already the ones breaching contract first. I'm only looking from commercial business practises, and not Politics.

The war in Ukraine is political not business relationship. The sanctions that you refer to as "politics" are a direct result of the war instigated by Russia (which by the way UN now says highly likely include war crimes). Thus pointing fingers at "the West" for starting with "politics" first is hypocritical when it was Russia that started this mess. "the West" merely responded, but they chose other political means than war.

Also, Russia does create their own laws that impact "Western" companies in various ways, for instance most "Western" media had to leave Russia because of a new law that made it illegal to refer to the war in Ukraine as a "war". This had a significant impact the media business in Russia. The reason why Russia has not used more laws to hit back at "the West" is because Russia is economically much weaker, not because they are not "hypocritical".

 

[Ananda]

Thus pointing fingers at "the West" for starting with "politics" first is hypocritical when it was Russia that started this mess. "the West" merely responded, but they chose other political means than war.

It is hyprocritical when West talking on commercial contract breach like this Gas Payment, when they are the ones that mixed Politics with Commercial first. It is Western media and politicians that complaint on Russian breach commercial contract, when they know their political actions made western business breach commercial contract first.

You seem still don't understand difference under Commercial business consequences and Politics. When West mix both of them, then don't complaint when Russian mix both of them on other Commercial contract.

That's why from begining I'm pointing out to seperate between commercial and politics as I'm looking more on commercial contractual consequences.

 

[Vivendi]

It is hyprocritical when West talking on commercial contract breach like this Gas Payment, when they are the ones that mixed Politics with Commercial first. It is Western media and politicians that complaint on Russian breach commercial contract, when they know their political actions made western business breach commercial contract first.

You seem still don't understand difference under Commercial business consequences and Politics. When West mix both of them, then don't complaint when Russian mix both of them on other Commercial contract.

That's why from begining I'm pointing out to seperate between commercial and politics as I'm looking more on commercial contractual consequences.

As I have pointed out Russia is also mixing commercial and politics, also long before the current invasion, and they are also being "hypocritical" about this. I will not bother to find examples on this, and will not comment more on this. Again, let's agree to disagree.

 

[Ananda]

When I discuss this two wars, the trade war in this thread and ground war in the other thread, I ussualy try to stay away talking politics. Because for me talking Politics especially why both of this war happen is bit pointless, and only going round and round.

Both wars already happen, Just like in ground war the strong ones (Russia) can get surprises by the weaker ones (Ukraine). Thus in trade war the strong ones (US, EU and allies) seems also got surprises from the weaker ones (Russia).

For guys like me that work in the market, sometimes we are 'chuckle' with development on Trade War. Especialy Western media and Politicians (as the strong ones) claiming 'unfair' practises from Russia (as the weaker ones). They seems taking by surprise that the weaker one 'dare' to fight back. Just like Putin Army taking by surprises that the 'weak' Ukraine dare to fight back.

The Trade War, is afterall still a War. So if Russia doing something to fight back, well why the West seems surprises. Just like Ukraine will used anything in their power(even unconventional tactics) to fight back in the ground war, Russia also doing the same thing on the Trade War. Russia with weaker options in the trade war, off couse will weaponised their Hydrocarbon and commodities export. Just like Ukraine will mobilise all their resources for more counter-defensive and ambush actions in ground war. Because it is their best tactics in each respective war.

Just like what happen in the Ground War, what happen in Trade War now is the consequences on the war once it is already played on. One action will create counter action. It is consequences of doing war.

One thing that some of us in the market quite sure. No matter what happen in the ground, even if Ukraine and Russia able to make compromise and cease the ground war. This Trade war will go on longer after that.

 

[ngatimozart]

Interesting video from The Atlantic Council discussing Catherine Belton's book, "Putin's People: How the KGB Took Back Russia and Then Took on the West."

 

[tonyget]

Russian semiconductor got sanctioned.

Russia’s largest chip maker, other tech firms slapped with US sanctions

Russia's microelectronics giant Mikron among 21 entities and 13 individuals listed for penalties; US aims 'to target Putin's war machine with sanctions from every angle'

www.timesofisrael.com

Russia needs to double down on technology self-reliance

 

[Ananda]

Russia to enforce ruble payments for gas starting Friday: Putin

'Unfriendly' buyers will have contracts stopped if they don't pay, president says

asia.nikkei.com

"In order to purchase Russian natural gas, they must open ruble accounts in Russian banks. It is from these accounts that payments will be made for gas delivered starting from tomorrow," Putin said in televised remarks.

Put Putin remarks to Russian officials payment method for Gas (and from Russian media, soon other Russian export) payment. This means for 'unfriendly' nations (government or business entities), any transaction for Russian export can be paid by any currencies they choose, however they have to settle them to Ruble in Russian Bank, in Russia. Thus they have to buy Ruble using exchange rate quote by Russian Market.

While 'Friendly' countries I suspect will use similar scheme of Rupee-Ruble mechanism that India and Russia preparing (posted in #841). Most likely India will take cue from Ruble exchange rate quoted in Yuan on Chinese Financial market (as it is the only Major Financial Market in term of liquidity that not sanctions Russia). If the direct trade between Russia and India increasing by time (as now India only source less than 5% of their Hydrocarbon consumption from Russia), perhaps there will be enough liquidity on Rupee-Ruble transaction to make their own exchange rate market.

So, will it matter for those existing contracts that using Euro or USD quotations ? If looking on Putin announcement and base on price it will not. As the buyers will still pay the same amount of Euro or USD. However by sending the payment directly to Russian bank and opening Ruble account there, basically Russian control all the liquidity of Forex-Ruble within their control market.

The other financial market that can influence Ruble exchange rate will only be 'Friendly' market and most likely Chinese or later on perhaps Indian. Thus in sense with other US Euro, and allies market already closing door to Russian, now Putin also closing door of Russian market to 'unfriendly' market.

What Russian do by this mechanism to 'unfriendly' countries and the transaction mechanism they are preparing with 'friendly' countries, is to make their International trade outside USD or Euro influences.

Whose going to be big winner ? Well off course Yuan, as it is most likely will be quoted as new standard, for others doing direct trading with Russia. Why ? Because it is big financial market enough to provide various liquidities support including trade financing and insurances.

US now try to stop everyone else outside their main allies to trade with Russia. However the problem is the supply in the market for resources more or less finite. Thus if Eurozone buy hydrocarbon or other resources from other suppliers, then the other market will have to buy from Russia to close the gap in the market.

It is matter of supply and demand.

 

[Big_Zucchini]

Russian semiconductor got sanctioned.

Russia’s largest chip maker, other tech firms slapped with US sanctions

Russia's microelectronics giant Mikron among 21 entities and 13 individuals listed for penalties; US aims 'to target Putin's war machine with sanctions from every angle'

www.timesofisrael.com

Russia needs to double down on technology self-reliance

It won't last. Self reliance very quickly fades away when trade resumes.

 

[Feanor]

It won't last. Self reliance very quickly fades away when trade resumes.

Far more importantly, it's not possible for Russia to be self reliant. The drastically larger COMECON didn't manage to develop the type of large-scale micro-electronics eco-system that makes those products affordable in the west today. There is 0 chance of Russia doing it individually. It's an economies of scale issue. The Russian market is just too small and the production chains in question are too large and too complex. The whole world can only really support one large eco-system for micro-electronics. If Russia had to replicate all of that domestically, the costs would be staggering. Russia could replicate pieces, at lower quality and drastically higher costs.

On the flip side, I'm not sure trade will resume in anything approaching normal scale, any time soon.