Ukrainian President Volodymyr Zelensky reinforced a warning overnight that Russia may be planning to sabotage the nuclear power plant near Zaporizhzhia in the country’s south. The Kremlin responded on Wednesday that the government in Kyiv was planning a provocation.  

As Nato leaders prepare for a summit next week in Vilnius, Polish President Andrzej Duda urged allies to let Ukraine join the alliance without an action plan to spell out its accession path. Leaders are set to agree to a package of long-term support for Ukraine, including language that provides a firmer path for Kyiv to join Nato.

Latest developments

• Ukraine nuclear tensions spike with US radiation detector ready
• Mutiny aftermath jolts rouble as $43.5bn outflow takes toll
• Russia eyes Chechens and convicts to fill gaps left by Wagner
• Ukraine inches toward lifting wartime foreign currency curbs 
• Turkey snubs US pressure on F-16s as Biden meets Swedish premier

Little-known Russia wheat exporter takes top spot in a year

A company created in the wake of Russia’s invasion of Ukraine has become its top wheat trader in the space of a year. 

Grain Gates was the biggest shipper of Russian wheat in the 2022-23 season that just ended, exporting 7.22 million tonnes, according to data from analyst ProZerno. It barely edged out TD Rif, which had been the biggest exporter since the 2014-15 season. 

Grain Gates has links to Demetra, which was the second-biggest Russian wheat exporter last season and is backed by state-owned lender VTB Bank. It’s run by Demetra’s former head of trading, Ilya Aliev, and was registered in June 2022, according to the Spark-Interfax database.  

Russian diesel rebound lifts fuel exports

A jump in diesel exports helped Russia’s shipments of refined fuels grow slightly last month as local refineries returned from maintenance.

Traders are analysing flows for signs of whether Russia is sticking fully to a pledge to cut output by 500,000 barrels a day. That’s been difficult to do as Moscow keeps production data a state secret, and so far the nation has dragged its heels on cutbacks as it faces pressure to keep funds flowing amid its war in Ukraine.

Russia’s refined fuel cargoes rose by 88,000 barrels a day in June, recovering from a seven-month low, according to data compiled by Bloomberg from analytics firm Vortexa. The rebound came as refinery units returned from spring maintenance. Separate data also show that Russia’s seaborne crude oil flows rose sharply last week.

Group of Seven sanctions mean Russian fuel exports are subject to price caps at two levels. Shipments of products capped at the higher $100-a-barrel price gained last month, with flows of diesel or gasoil up 40% from May. Exports of fuel oil edged up, while those of fuels such as naphtha — a petrochemical feedstock used in plastics and gasoline blending — saw sharp decline.

Mutiny aftermath jolts Russian rouble

The rouble has crashed through what a top government official recently called Russia’s “comfort” zone after a mutiny that briefly threatened President Vladimir Putin’s power compounded months of capital outflows.

Russia’s currency weakened on Wednesday to trade close to 91 per dollar after depreciating by almost 2% to levels last seen a month after the invasion of Ukraine in February 2022. 

It’s among the worst performers in emerging markets this year with a loss of about 18%. Last month, First Deputy Prime Minister Andrey Belousov described a range of 80-90 per dollar as “optimal” for the Russian economy.

The rouble’s descent is a stark reminder of the challenges facing Russia as it adapts to sweeping international sanctions at a time when political risks are on the rise and the government’s coffers are under stress from a decline in energy earnings.

And just as a recovery in imports drives up demand for hard currency at home, Russian households and businesses are seeking out safety by shifting money outside the country. The stock of retail deposits held abroad increased by $43.5-billion from early 2022 until May 2023, according to Bloomberg Economics.

The failed mutiny by Wagner mercenaries provided the latest spark for the rouble’s weakness. Though the uprising late last month ended quickly under a deal brokered by Belarus President Alexander Lukashenko, the episode represented the greatest threat to Putin’s almost quarter-century rule and raised questions about stability in Russia as the war against Ukraine approaches its 17th month. 

“Perhaps this became a trigger for the weakening of the rouble, in combination with growing imports, weak exports, demand for foreign currency for payments to non-residents and an extremely low level of liquidity,” said Natalia Lavrova, chief economist at BCS Financial Group.  

Russia’s oil and gas revenue fell by over a quarter in June

Russia’s oil and gas revenue shrank by over a quarter last month amid lower crude prices and capped gas flows to Europe.

Budget proceeds from oil and gas taxes dropped by 26% in June from a year ago to almost 529 billion roubles ($5.84 billion), the Finance Ministry said on Wednesday. Gas taxes fell by 54% to 125.7 billion roubles, while proceeds from crude and petroleum products — which account for over 76% of hydrocarbon revenue — declined by almost a tenth to 402.8 billion rubles, according to Bloomberg calculations.

Russia’s war in Ukraine is straining the nation’s coffers amid the rising cost of financing the Kremlin’s military aggression while the economy is under Western sanctions. Taxes from the oil and gas industry remain a key source of revenue, even though they now contribute less than a third to Russian budget proceeds. 

Ukraine inches towards lifting wartime foreign currency curbs

When Olena Polikarchyk crosses the border now, she stuffs her bags with wads of euros and dollars.

Since Russian troops invaded her home country Ukraine, it’s been her only option: The central bank slapped a lid on how much people can charge on their debit cards abroad to halt a stampede of cash that could have crushed the economy.

It’s part of a web of restrictions and other policies — including devaluing the hryvnia and pegging it against the dollar, as well as an emergency hike of the main interest rate to 25% — that the central bank imposed after Russian tanks stormed across the border in February 2022.

But in a sign of policymakers’ increasing confidence, the bank is gearing up to ease the limits. 

With Kyiv’s forces already weeks into a counteroffensive to retake occupied territory from Russian invaders, and the Kremlin scrambling to quell the fallout from Wagner mercenary leader Yevgeny Prigozhin’s short-lived mutiny, Ukraine is hoping to turn a corner this year both in the war and for its economy.

Of course, Russian missile attacks across the country are still destroying crucial infrastructure in a stark deterrent to investors and Ukrainian forces are yet to report any major breakthroughs. But growth is starting to come back all the same, and the hryvnia-dollar street price is approaching the central bank’s official fixing, which may provide room to loosen the shackles on the currency to spur business activity crucial for Ukraine to rebuild. 

That’s good news for both businesses and people, especially for the more than six million Ukrainians who’ve fled abroad and are struggling to pay bills in foreign countries with a 100,000 hryvnia ($2,700) monthly limit. 

The central bank forecasts a slight increase in economic output after the economy cratered 30% following the attack last year, while the business outlook showed positive expectations for a third month in June.

Against that backdrop, the central bank approved a strategy last week, in part to meet the demands of its main financial benefactors, the International Monetary Fund, to transition to a flexible exchange rate and return to an inflation-targeting approach to monetary policy. 

The bank didn’t provide details on the plan, which it said it will publish by July 7. DM