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Rusal, Deripaska and the US’s latest sanctions debacle

Alexander Mercouris

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In the immediate aftermath of the US Treasury Department’s extraordinary decision to impose sanctions on the Russian businessman Oleg Deripaska and by extension his Rusal group, a very interesting article penned by the financial analyst Tim Ashe appeared in the Financial Times.

Discussing the sanctions imposed on Deripaska and Rusal, Ashe made this highly interesting comment

The sharp drop in Russian markets over the past few days and the limited contagion to global markets will have been noted by the US sanctions team. I think they have previously been very nervous over this idea of backdraught from their actions, hurting US institutional investors and causing systemic risks to other emerging markets and indeed global markets. The fact that the April 6 sanctions designations only really impacted Russian markets raises the prospect that the US can roll out asymmetric sanctions against Russia, that officials can be less worried about their actions having a more global impact. This means the Treasury is more likely to follow on from its April 6 actions, assuming no improvement in the relationship with Russia.

(bold italics added)

Rarely have comments spoken with such confidence been proved wrong so quickly.  In fact they provide a classic case study of why when analysing events it is essential to hold back and see how they will develop before rushing to give dogmatic opinions about them.

Since Ashe wrote those words on 10th April 2018 Russian markets have stabilised as has the rouble, which has proved resilient in face of the pressure which is hitting hard the currencies of other so-called ’emerging market’ economies and which is coming from the stronger dollar and from talk of more interest rate hikes in the US.

The rouble at least for the time being appears to have stabilised at a rate of 62 to 64 roubles to the dollar – an exchange rate which I consider healthy – despite the Russian Central Bank refusing to take steps to support it, and refusing to raise interest rates.

By contrast the currencies of other so-called ’emerging market’ economies have taken a hammering, with the worst performer being the Argentinian peso, which is coming under exceptionally heavy pressure, forcing the Argentinian Central Bank to raise interest rates to an eye-watering 40% to support it.

In the meantime, as Russian markets have stabilised, the world aluminium market in which Rusal – the world’s second biggest aluminium producer – is a major player, has descended into chaos.

Aluminium prices at one point surged up 30%, with the hike in aluminium prices and general shortages of aluminium caused by the sanctions impacting on industrial users of aluminium worldwide, including the US and German car industries.

It is only a matter of time before the instability in the world aluminium market also hits the other major industrial consumer of aluminium: the aircraft building industry, in which the US is a major player.

Meanwhile the sudden increase in risk for holders of Russian debt caused by the US Treasury Department’s implicit threat to impose sanctions on any and every Russian businessman (“oligarch”) perceived as too close to the Kremlin irrespective of what they do, has hurt Western institutional investors including US pension funds.

The result is that the US Treasury Department is – without of course admitting the fact – beating a retreat.

Investors have been given more time to unwind their positions in Rusal – though that does not explain how they are supposed to do that if the sanctions remain in place – US Treasury Secretary Steven Mnuchin has said that the US has no wish to destroy Rusal, and – following not so secret negotiations between the US and the Kremlin which are known to have taken place – a compromise is being sought whereby Deripaska will sell some but by no means all his stake in Rusal’s parent company in return for the sanctions on Rusal being lifted.

Meanwhile Bloomberg is calling the sanctions a mess

I remain convinced that Deripaska was chosen because his company deals in aluminum — the target of Trump’s import tariffs, which are meant to revive domestic production. The opportunity to kill two birds with one stone — punish Russia and get a major foreign player off the U.S.  aluminum market — must have looked too good to pass up.

But no one in the Treasury Department appeared to have considered the consequences for the global aluminum market, where Rusal was included in international value chains.

Aluminum prices jumped (which can only be bad for U.S. buyers), Australian-British Rio Tinto was forced to search frantically for new buyers for its alumina (a raw material for aluminum production), and a Rusal plant in Ireland was threatened with closure, creating the potential for job losses and an alumina shortage throughout Europe.

These problems, reported to Treasury, appeared to soften Mnuchin’s heart. “The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” his department quoted him as saying. The U.S. government’s problem, Mnuchin said, was limited to Deripaska himself.

The new edition of the Rusal sanctions gives the company an extra six months, until October 23, to wind down its U.S. operations, but Mnuchin has clearly indicated that if Deripaska divests Rusal shares, the company could be taken off the sanctions list.

Business partners will still be leery of dealing with Rusal, and they’ll still work on contingency plans, but at least there’ll be less urgency about it. That’s been reflected in an aluminum price drop almost as sharp as the spike after the original sanctions announcement.

The sanctions the US Treasury Department imposed on Deripaska and Rusal were the most ambitious and far reaching sanctions that the US has imposed on Russia since the sectoral sanctions which the US and the EU imposed on Russia in July 2014.

What this episode has illustrated is a point which I have repeatedly made: the 2014 sanctions were carefully calibrated to cause the maximum hurt to the Russian economy, and the minimum hurt to the US economy and to the world economy upon which the US depends.

Any sanctions that go significantly beyond the sanctions which were imposed in 2014 risk hurting the US as much or even more than Russia in that, even if their economic effect is less their political effect risks being greater.

Certainly no US President is going to risk a cost crisis in the US car and aircraft building industries simply out of some juvenile desire to spite Russia.

A US President like Donald Trump, whose electoral success depends heavily on the votes of blue collar workers with jobs in the US manufacturing industries, which he has set out to revive, is going to be even less willing to risk such a crisis.

Trump’s decision to refuse to impose the further sanctions on Russia that people like Nikki Haley and Steven Mnuchin were pressing him to impose following the Syrian missile strike illustrates the point.

The big question is whether following the Rusal debacle the US will now draw back, finally accept that the sanctions route of pressuring Russia has been exhausted and has failed, and starts looking instead for other ways of dealing with Russia.

Given the pathological hatred of Russia of so much of the US political class a further sanctions offensive against Russia is not impossible, with officials in the US Treasury Department possibly hunting around for targets against whom sanctions would cause less disruption to the US and world economies than the sanctions against Deripaska and Rusal did.

My own view is that so long as Donald Trump remains in the White House that is unlikely to happen, not because Trump is some sort of stooge of Russia but because he has now seen the hurt further sanctions on Russia can cause to the people who make up his electoral base.

If so then with the Rusal debacle ‘peak sanctions’ has passed.

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Constantinople: Ukrainian Church leader is now uncanonical

October 12 letter proclaims Metropolitan Onuphry as uncanonical and tries to strong-arm him into acquiescing through bribery and force.

Seraphim Hanisch

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The pressure in Ukraine kept ratcheting up over the last few days, with a big revelation today that Patriarch Bartholomew now considers Metropolitan Onuphy “uncanonical.” This news was published on 6 December by a hierarch of the canonical Ukrainian Orthodox Church (running under the Moscow Patriarchate).

This assessment marks a complete 180-degree turn by the leader of the Orthodox Patriarchate of Constantinople, and it further embitters the split that has developed to quite a major row between this church’s leadership and the Moscow Patriarchate.

OrthoChristian reported this today (we have added emphasis):

A letter of Patriarch Bartholomew of Constantinople to His Beatitude Metropolitan Onuphry of Kiev and All Ukraine was published yesterday by a hierarch of the canonical Ukrainian Orthodox Church, in which the Patriarch informed the Metropolitan that his title and position is, in fact, uncanonical.

This assertion represents a negation of the position held by Pat. Bartholomew himself until April of this year, when the latest stage in the Ukrainian crisis began…

The same letter was independently published by the Greek news agency Romfea today as well.

It is dated October 12, meaning it was written just one day after Constantinople made its historic decision to rehabilitate the Ukrainian schismatics and rescind the 1686 document whereby the Kiev Metropolitanate was transferred to the Russian Orthodox Church, thereby, in Constantinople’s view, taking full control of Ukraine.

In the letter, Pat. Bartholomew informs Met. Onuphry that after the council, currently scheduled for December 15, he will no longer be able to carry his current title of “Metropolitan of Kiev and All Ukraine.”

The Patriarch immediately opens his letter with Constantinople’s newly-developed historical claim about the jurisdictional alignment of Kiev: “You know from history and from indisputable archival documents that the holy Metropolitanate of Kiev has always belonged to the jurisdiction of the Mother Church of Constantinople…”

Constantinople has done an about-face on its position regarding Ukraine in recent months, given that it had previously always recognized the Metropolitan of Kiev and All Ukraine of the Ukrainian Orthodox Church-Moscow Patriarchate as the sole canonical primate in Ukraine.

…The bulk of the Patriarch’s letter is a rehash of Constantinople’s historical and canonical arguments, which have already been laid out and discussed elsewhere. (See also here and here). Pat. Bartholomew also writes that Constantinople stepped into the Ukrainian ecclesiastical sphere as the Russian Church had not managed to overcome the schisms that have persisted for 30 years.

It should be noted that the schisms began and have persisted precisely as anti-Russian movements and thus the relevant groups refused to accept union with the Russian Church.

Continuing, Pat. Bartholomew informs Met. Onuphry that his position and title are uncanonical:

Addressing you as ‘Your Eminence the Metropolitan of Kiev’ as a form of economia [indulgence/condescension—OC] and mercy, we inform you that after the elections for the primate of the Ukrainian Church by a body that will consist of clergy and laity, you will not be able ecclesiologically and canonically to bear the title of Metropolitan of Kiev, which, in any case, you now bear in violation of the described conditions of the official documents of 1686.

He also entreats Met. Onuphry to “promptly and in a spirit of harmony and unity” participate, with the other hierarchs of the Ukrainian Orthodox Church, in the founding council of the new Ukrainian church that Constantinople is planning to create, and in the election of its primate.

The Constantinople head also writes that he “allows” Met. Onuphry to be a candidate for the position of primate.

He further implores Met. Onuphry and the UOC hierarchy to communicate with Philaret Denisenko, the former Metropolitan of Kiev, and Makary Maletich, the heads of the schismatic “Kiev Patriarchate” and the schismatic “Ukrainian Autocephalous Orthodox Church” respectively—both of which have been subsumed into Constantinople—but whose canonical condemnations remain in force for the canonical Ukrainian Orthodox Church.

The hierarchs of the Serbian and Polish Churches have also officially rejected the rehabilitation of the Ukrainian schismatics.

Pat. Bartholomew concludes expressing his confidence that Met. Onuphry will decide to heal the schism through the creation of a new church in Ukraine.

The Ukrainian Orthodox Church under Metropolitan Onuphry’s leadership is recognized as the sole canonical Orthodox jurisdiction in Ukraine by just about every other canonical Orthodox Jurisdiction besides Constantinople. Even NATO member Albania, whose expressed reaction was “both sides are wrong for recent actions” still does not accept the canonicity of the “restored hierarchs.”

In fact, about the only people in this dispute that seem to be in support of the “restored” hierarchs, Filaret and Makary, are President Poroshenko, Patriarch Bartholomew, Filaret and Makary… and NATO.

While this letter was released to the public eye yesterday, the nearly two months that Metropolitan Onuphry has had to comply with it have not been helped in any way by the actions of both the Ecumenical Patriarchate and the Ukrainian government.

Priests of the Canonical Church in Ukraine awaiting interrogation by the State authorities

For example, in parallel reports released on December 6th, the government is reportedly accusing canonical priests in Ukraine of treason because they are carrying and distributing a brochure entitled (in English): The Ukrainian Orthodox Church: Relations with the State. The Attitude Towards the Conflict in Donbass and to the Church Schism. Questions and Answers.

In a manner that would do any American liberal proud, these priests are being accused of inciting religious hatred, though really all they are doing is offering an explanation for the situation in Ukraine as it exists.

A further piece also released yesterday notes that the Ukrainian government rehabilitated an old Soviet-style technique of performing “inspections of church artifacts” at the Pochaev Lavra. This move appears to be both intended to intimidate the monastics who are living there now, who are members of the canonical Church, as well as preparation for an expected forcible takeover by the new “united Church” that is under creation. The brotherhood characterized the inspections in this way:

The brotherhood of the Pochaev Lavra previously characterized the state’s actions as communist methods of putting pressure on the monastery and aimed at destroying monasticism.

Commenting on the situation with the Pochaev Lavra, His Eminence Archbishop Clement of Nizhyn and Prilusk, the head of the Ukrainian Church’s Information-Education Department, noted:

This is a formal raiding, because no reserve ever built the Pochaev Lavra, and no Ministry of Culture ever invested a single penny to restoring the Lavra, and the state has done nothing to preserve the Lavra in its modern form. The state destroyed the Lavra, turned it into a psychiatric hospital, a hospital for infectious diseases, and so on—the state has done nothing more. And now it just declares that it all belongs to the state. No one asked the Church, the people that built it. When did the Lavra and the land become state property? They belonged to the Church from time immemorial.

With the massive pressure both geopolitically and ecclesiastically building in Ukraine almost by the day, it is anyone’s guess what will happen next.

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Ukrainian leadership is a party of war, and it will continue as long as they’re in power – Putin

“We care about Ukraine because Ukraine is our neighbor,” Putin said.

RT

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Via RT…


Russia’s President Vladimir Putin has branded the Ukrainian leadership a “party of war” which would continue fueling conflicts while they stay in power, giving the recent Kerch Strait incident as an example.

“When I look at this latest incident in the Black Sea, all what’s happening in Donbass – everything indicates that the current Ukrainian leadership is not interested in resolving this situation at all, especially in a peaceful way,” Putin told reporters during a media conference in the aftermath of the G20 summit in Buenos Aires, Argentina.

This is a party of war and as long as they stay in power, all such tragedies, all this war will go on.

The Kiev authorities are craving war primarily for two reasons – to rip profits from it, and to blame all their own domestic failures on it and actions of some sort of “aggressors.”

“As they say, for one it’s war, for other – it’s mother. That’s reason number one why the Ukrainian government is not interested in a peaceful resolution of the conflict,” Putin stated.

Second, you can always use war to justify your failures in economy, social policy. You can always blame things on an aggressor.

This approach to statecraft by the Ukrainian authorities deeply concerns Russia’s President. “We care about Ukraine because Ukraine is our neighbor,” Putin said.

Tensions between Russia and Ukraine have been soaring after the incident in the Kerch Strait. Last weekend three Ukrainian Navy ships tried to break through the strait without seeking the proper permission from Russia. Following a tense stand-off and altercation with Russia’s border guard, the vessels were seized and their crews detained over their violation of the country’s border.

While Kiev branded the incident an act of “aggression” on Moscow’s part, Russia believes the whole Kerch affair to be a deliberate “provocation” which allowed Kiev to declare a so-called “partial” martial law ahead of Ukraine’s presidential election.

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When Putin Met Bin Sally

Another G20 handshake for the history books.

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Via Zerohedge


In the annals of handshake photo-ops, we just may have a new winner (much to the delight of oil bulls who are looking at oil treading $50 and contemplating jumping out of the window).

Nothing but sheer joy, delight and friendship…

…but something is missing…

Meanwhile, earlier…

Zoomed in…

And again.

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