While Moscow hasn’t officially commented, Russian military bloggers acknowledged that Ukrainian forces had taken control of Storozhove in the eastern Donetsk region and Novodarivka in the Zaporizhzhia region, and said there were clashes on the outskirts of Makarivka. Bloomberg can’t independently verify the claims. 

The flooding caused by last week’s explosion at the Kakhovka dam on the Dnipro River has so far killed 10 people in the Kherson and Mykolayiv regions — and 42 people are still missing including seven children, Ukrainian Interior Minister Ihor Klymenko said on national television.

Latest developments 

• War spilling into Russian regions adds to risks haunting economy
• Mondelez faces boycott in Nordic region over Russian business
• Nato’s biggest air drill to fill German skies with fighter jets
• Ex-billionaires face Ukraine’s top bank in $4bn fraud suit
• Germany warns of industry shutdown if Russian gas stops flowing

Cuba begins Moscow tour to deepen ties amid economic sanctions

Cuba’s prime minister began an official trip to Moscow this week to discuss economic cooperation, as the two sanction-hit countries say their bilateral trade is surging. 

Prime Minister Manuel Marrero Cruz said on Twitter the trip would help strengthen long-standing ties between the two nations and he thanked Russia for its “strategic role” on the island.  

Cuba has sought to strengthen relations with traditional allies — often nations the US sees as adversaries — as it says Washington is trying to strangle its economy through a decades-old economic embargo. Russia is also facing international sanctions tied to its invasion of Ukraine. Even so, trade between the nations increased ninefold during the first four months of 2023, Russia’s Prime Minister Mikhail Mishustin said last week.  

Germany warns of industry shutdown if Russian gas stops flowing

Germany may be forced to wind down or even switch off industrial capacity if Ukraine’s gas transit agreement with Russia isn’t extended after it expires at the end of next year, according to Economy Minister Robert Habeck.

Habeck, who is also the vice-chancellor, issued the stark warning on Monday at an economic conference in eastern Germany, saying that policymakers should avoid “making the same mistake again” of assuming that the economy will be unaffected without precautions to secure energy supplies.

Rules on sharing the burden of potential gas shortages in Eastern Europe would have to be respected, meaning Germany would have to export gas there to offset the deficit and manufacturers in Europe’s biggest economy could have their supply restricted or cut, he added.

“There is no secure scenario for how things will turn out,” Habeck said at the forum in Bad Saarow. Additional capacity — including a planned LNG terminal on Germany’s north coast that has provoked opposition from locals and environmental groups — will therefore be essential to maintain supply to both Eastern Germany and Eastern Europe, he said. 

Despite the full-scale invasion of the country by Kremlin forces in February last year, Ukraine is still earning transit fees by allowing Russian gas to flow through its territory to countries like Austria, Slovakia, Italy, and Hungary. 

War spilling into Russian regions adds to risks haunting economy

President Vladimir Putin’s invasion of Ukraine has cost Russia tens of billions of dollars as sanctions squeeze its economy and government revenue slumps. Now with the conflict crossing into Russian territory, the price of war is likely to grow even further.

The damage pales in comparison to the enormous loss of life and economic devastation that Russia has inflicted upon Ukraine. Still, an outbreak of full-scale hostilities in regions bordering Ukraine may cut Russia’s already meagre growth forecast to 0.8% in 2023, according to Bloomberg Economics estimates.

The Belgorod region has repeatedly come under fire and faced incursions from Ukraine by fighters who’ve engaged in lengthy battles with Russian troops. Drone strikes have been reported in cities including Kursk, Krasnodar and Voronezh in addition to the large-scale attack that targeted Moscow last month. 

“Everyone who is close to the war zone is leaving or thinking about it,” said Evgeny Gontmakher, an economist and former government official. “These are long-term effects — even with a favorable turn of events, people are unlikely to return quickly.”

Thousands of people in Belgorod region have moved to temporary shelters to escape the mounting violence or have been transferred to other parts of the country by local officials. In the town of Shebekino, home to a well-known pasta producer in Russia, officials promised financial aid to local factories that were forced to halt work as employees fled. 

With border regions home to a 10th of the country’s 143 million population, an outbreak of full-scale hostilities would start to have an impact on Russia’s economic growth as soon as the third quarter, according to Bloomberg Economics.  

Europe’s risky plan to avert an energy crisis: stash gas in Ukraine

About 960km from Ukraine’s border with the European Union, an array of pipes and pumps hints at what stands to become an important part of the bloc’s efforts to secure energy supplies and thwart Vladimir Putin.

Tucked between farm fields and forests, the Bilche-Volytsko-Uherske storage facility can stockpile more than four times as much natural gas as the largest site in Germany and connects easily to the bloc’s grids, thanks to Ukraine’s decades-long role as a transit route for Russian energy.

Storing vital fuel in a country subjected to missile strikes and attacks on critical energy infrastructure may sound like a crazy idea. But it’s winning backers as the facilities are far enough from the front line to be deemed safe, and some traders reckon it’s worth the risk.

In a sign of the concerns, German Economy Minister Robert Habeck issued a stark warning over the possibility of halting industrial capacity in the winter without Russian gas flowing through Ukraine, saying that policymakers need to continue to take precautions to secure energy supplies.

“We’re not yet out of the woods,” he said at an economic conference in eastern Germany on Monday. “The favourable situation mustn’t lead to us making the same mistake again of forgetting what the threat is.” 

European officials are now contemplating whether to support links to Bilche-Volytsko-Uherske and other facilities scattered across Ukraine — home to the continent’s biggest network of underground caverns that can hold gas for when demand and prices spike in the winter. With EU sites already edging close to capacity — currently more than 70% full — storing the fuel in Ukraine could prevent a glut in the coming months.

“Ukrainian storage can help to balance supply and demand during the second half of the summer 2023, given their excellent connection to EU gas markets,” German utility RWE, which has used Ukraine’s storage in the past, said in a statement to Bloomberg. 

To make storing gas in Ukraine viable, prices will need to fall low enough to justify the costs. The EU will also likely need to step in to provide a backstop against potential losses related to the conflict. 

The evolving initiative is part of efforts to avoid the panic that led to record prices and state intervention last year. To shield companies and consumers, EU governments rolled out €646-billion in aid, according to think tank Bruegel, and they can ill afford a repeat. 

While European energy companies stored gas in Ukraine before Russia’s invasion in February 2022, putting supplies in a country involved in combat would normally be unheard of, and the deliberations reflect Europe’s narrow range of options and how the war has reset risks. DM