Russia is suffering from the U.S.-China trade war

Hello! This week we look at why Russia is hurting as a result of the escalating U.S.-China trade war, how the authorities are increasing the pressure on Moscow’s protest movement (that is showing no signs of fizzling out) and what lessons are being learnt in the Kremlin about the imprisonment of Kyrgyzstan’s former president.

Russia is suffering from the U.S.-China trade war

A new twist in the trade war between the U.S. and China caused turbulence on the stock markets this week, but it has also been felt in Moscow via falling oil prices and a weaker ruble. The situation has not been helped by Russia’s unlucky bet on the Chinese yuan, which the Central Bank has been using to replace the U.S. dollar in its foreign currency reserves.

• The Brent oil price fell substantially this week, dropping Wednesday at one point by as much as $2 in an hour to reach $56.7. Since its peak in April, crude has now fallen 20 percent. If prices go below $50, oil could again become the key factor driving the ruble price, just as it was in the worst moments for Russia’s national currency in recent years. Such a scenario cannot be ruled out, particularly if oil becomes the next focus of the tit-for-tat between Beijing and Washington.
• The ruble weakened this week, falling Wednesday to a two-month low (at one point a greenback was worth over 66 rubles), although it recovered most of its losses after China said it wanted the yuan to stabilize. The following day, the ruble was among the top five most volatile world currencies along with the South African rand and the Turkish lira.
• Russia’s strategy for its foreign currency and gold reserves is causing another problem. Since 2018, the Central Bank has been reducing reserves held in U.S. dollars and building up its stocks of yuan. In total, last year, it cut its dollar holdings in half, and yuan holdings have been increased to 14 percent of total reserves. This is very unusual for a central bank: normally yuan holdings don’t exceed more than 2% of total reserves, according to IMF data. If the Central Bank is still holding a similar amount of yuan (up-to-date data isn’t available), fluctuations in the U.S. dollar-yuan rate could have already cost Russia $1.5 billion, according to economist Kirill Tremasov, who used to be the head of forecasting at the Ministry of Economic Development.
• Other spheres of the Russian economy are also suffering. Rusal, one of the biggest aluminum producers in the world, said this week their net profit had fallen 41 percent in the first half of 2019 because of the U.S.-China trade war and economic slowdown cutting demand for aluminum.

Why the world should care

As Russia’s foreign currency and gold reserves were valued at $490 billion in March, even a loss of $1.5 billion is not going to create serious problems. But it shows that Russia’s post-2014 desire to “pivot to the east” might be complicated — ironically — by problems coming from the west.

The authorities ramp up pressure on Moscow’s protest movement

Protests over the refusal to allow independent candidates to run in elections to the Moscow city legislature show no sign of ending. Another demonstration — which, unlike the last two, has received official authorization — is scheduled for Saturday. In the meantime, pressure is building on protestors. Up to 13 participants in previous protests are now in pre-trial detention facing criminal charges. The authorities have also threatened to strip a couple who took part in a rally of their parental rights, and accused opposition leader Aleksei Navalny’s anti-corruption organization of money laundering.

• Over 1,000 people were detained last weekend at the third Moscow protest over the authorities’ decision to bar independent candidates from running for the city legislature. Most were released within a few hours, but they now face punishments from fines to community service. The police used more violence than at the protest a week earlier: more than ten people were hospitalized.
• But fines and even a broken leg are not the worst things that can happen to you at such protests: up to 13 people have been arrested and charged with organizing a riot. They are mostly young men; from an aspiring rapper to a railroad security guard, and, if found guilty, they face prison sentences of up to eight years. The charges are frighteningly familiar: in 2012, following an anti-Kremlin protest on Bolotnaya Square that turned violent, a group of protestors were each sentenced to several years in prison.
• A decision appears to have been made to try every tactic in the book to intimidate protestors. Moscow prosecutors have called for a couple to be stripped of their parental rights for bringing their child to the protest and briefly handing him to a close relative to hold. Bailiffs have turned up at the apartments of those arrested: a total of $400,000 in personal debts was found among protestors, mostly loans. At the July 27 protest, over 100 men were identified as having evaded the draft and the heads of two major Moscow universities have threatened to expel students if they attend further protests.
• Moscow City Hall has been perfecting its distraction tactics. Last weekend a hastily-arranged music festival called Shashlik Live took place on the day of the protest (even though some performers refused to participate on political grounds). When officials subsequently claimed the event had over 300,000 attendees, it led to a wave of jokes on social media: even in record years, fewer people attended Glastonbury and Coachella. This Saturday, another festival is planned, called Meat & Beat (another reason for online jokes). At the same time, three extremely popular musicians have been banned from playing at the upcoming protest, but they may perform anyway.
• Navalny’s Anti-Corruption Foundation is facing unprecedented pressure. While Navalny himself is serving a 30-day jail sentence for organizing protests, his foundation has been accused of laundering more than $1 million (a charge that carries a sentence of up to 7 years in prison), its accounts frozen, and the offices and apartments of its employees searched.
• It looks like the authorities have decided to portray the protests as the result of outside meddling. Despite a summer recess, State Duma deputies will be called in to participate in an emergency session to discuss foreign influence in Moscow elections, according to a report (Rus) in newspaper Vedomosti. Russian Foreign Ministry spokeswoman Maria Zakharova has accused the U.S. of supporting the protests (the U.S. Embassy supposedly shared details of the route of the last protest) and an official at the General Prosecutor’s office blamed U.S. research center the Atlantic Council, and Free Russia, a fund founded by Russians in the U.S., for fuelling protests.

Why the world should care

It was clear from the beginning that protests in Moscow were about more than a local election. And it is becoming clear that the consequences will be nationwide: parliament is already considering (Rus) legislation to confine all protests to specially designated areas. Many expect the state’s attempts to blame foreign intervention could lead to fresh attacks on independent media and NGOs.

Imprisonment of Kyrgyzstan’s ex-president a worrying example of unsuccessful power transfer

An epic political drama is unfolding in Kyrgyzstan after the Central Asian country’s former president, Almazbek Atambayev, was arrested on corruption charges by special forces who carried out a bloody attack of his home. For observers in the Kremlin, this is a worrying story that shows how even the most carefully-planned power transitions can go wrong.

• Kyrgyzstan experienced a peaceful transition of power in 2017 when Atambayev gave up the presidency and Sooronbay Jeenbekov became his successor. At first, the two men were very close, but when Jeenbekov began to fire Atambaev’s allies from key positions in government, they fell out. Many assumed Atambayev had planned to remain a key power broker and wield influence from the shadows. Kyrgyzstan, a predominatly Muslim country, is divided into regional clans and Atambayev is from the north, Jeenbekov from the south, according (Rus) to experts.
• The point of no return occurred June 27 when Kyrgyzstan’s parliament voted to revoke Atambayev’s immunity from prosecution, making it possible for him to face criminal charges. Now, if he is found guilty, he could be given life in prison. Atambayev said the accusations are politically motivated, and he has promised to fight back.
• The crisis began Wednesday when Kyrgyz special forces began to storm Atambayev’s home in the village of Koi-Tash. It is not quite clear what happened next, but his supporters apparently prevented the first attempt. Video published online showed Atambayev’s residence on fire. After taking a pause, special forces made a second failed attempt in which over 80 people were injured and one soldier killed. Officials then began negotiations with Atambayev and he agreed to surrender.

What does this all mean for Russia?

• Russia’s strategic goal in Kyrgyzstan is to keep the U.S. out and limit Chinese influence. The latter is particularly difficult considering China is Kyrgyzstan’s biggest investor. Last year, Chinese investments, mostly in the energy sector, amounted to $245 million (40 percent of all foreign investment). Russia exports oil to Kyrgyzstan and is eyeing its gold reserves, but total Russian investment is only half that of China’s.
• Kyrgyzstan is a key jumping-off point for military operations in Afghanistan and after the 9/11 attacks, the U.S.-led coalition was given access to an airbase. The closing of this base at Manas in 2014 was seen as Atambayev’s personal decision. Since 2003, Kyrgyzstan has also hosted a Russian military base at Kant. When president, Atambayev didn’t rule out closing this base, but Jeenbekov has been much less negative, even saying he might allow Russia to open another.
• From a purely political point of view, events in Kyrgyzstan are unlikely to affect Russia’s role as, according to experts, the Kremlin’s strategy has been to support the current president and not interfere. But if the conflict escalates, Russia may have to play the role of peacemaker. This happened once before: at the end of July, Russia tried to help reconcile Atambayev and Jeenbekov — Atambayev came to the Kremlin where President Vladimir Putin asked him to show his support for the current president.

Why the world should care

A peaceful power handover in the post-Soviet space is a relatively rare occurrence and, until this week, events in Kyrgyzstan were seen in Russia as a model that could be of use in Putin’s dilemma over what to do in 2024 when his presidential term ends and the constitution forbids him from running again. Atambayev’s arrest is a reminder that even if power transfers happen peacefully, a former leader’s immunity is never guaranteed.

Anastasia Stognei

Translation by Tanja Maier, editing by Howard Amos