Policy Backgrounders

The Weekly Round-Up: Developments on Ukraine 7

June 03, 2022

Developments on Ukraine

As the war in Ukraine reached 100 days on Friday, fierce fighting and bombing continued in eastern Ukraine, notably around Severodonetsk, where a chemical plant was hit and Russia now controls around 70 percent of the city. President Zelensky estimated that Russia controls 20% of Ukraine and noted that “[t]he situation is very difficult,” with losses of 60-100 soldiers per day killed and 500 wounded, even as Ukraine is “holding our defensive perimeters.” A Western defense official stated that Severodonetsk “is unlikely to be the crux” of the Donbas campaign, predicting that the war could last “to the end of the year” based on Russian forces’ average movement of 500-1,000 meters per day and the “further challenging operational objectives” it faces elsewhere in Donbas, in particular any attempt to take the city of Kramatorsk. Russian cruise missiles launched from the Black Sea also attacked infrastructure near the western city of Lviv.

President Biden announced that the US will send HIMARS (High Mobility Artillery Rocket Systems) to Ukraine. But the systems will not arrive for several weeks, and the President said that the systems will not be used to attack targets inside Russia (the systems will not include longer-range munitions), a condition to which Ukraine has agreed The Kremlin reacted angrily, saying that the US “is deliberately and diligently ‘pouring fuel on the fire’”; Ukraine’s defense minister Oleksii Reznikov said that the aid was “the six letters for which the whole country has been waiting: HIMARS.” Dismissing concerns about the HIMARS going to Ukraine, Secretary of State Anthony Blinken said the US had told Russia before the war that it would provide advanced weaponry to Ukraine if the country were invaded. Other countries announced new military aid packages, including eight Zuzana 2 howitzers from Slovakia and an IRIS-T air defense system and tracking radar from Germany.

After meeting with President Biden on Thursday, NATO Secretary General Jens Stoltenberg commented that “[w]ars are by nature unpredictable, and, therefore, we just have to be prepared for the long haul, because what you see is that this war has now become a war of attrition where the Ukrainians are paying a high price for defending their own country on the battlefield. But also we see that Russia is taking high casualties. Our responsibility is to provide support to Ukraine.” Stoltenberg said NATO military support was designed to help “achieve the best possible outcome of this conflict . . . .  to ensure that Ukraine remains an independent, sovereign democratic nation in Europe and that President Putin is not rewarded for his aggressive actions.” Stoltenberg also noted NATO’s strong “responsibility to prevent this war from escalating to become a full-fledged war between Russia and NATO that will cause even more death, even more destruction and more damage. . .  . We provide support to Ukraine, but we’re not part of the conflict.” New US Ambassador to Ukraine Bridget A. Brink arrived in Kyiv.

Nearly 67 percent of Danish voters approved the country joining the EU’s Common Security and Defence Policy, from which it had received an opt-out in 1992. Most Danish political leaders supported the move, with Prime Minister Mette Frederiksen saying that when “it’s war again on our continent, you cannot be neutral.” The change will permit Denmark, already a NATO member, to participate in EU military missions and discussions of defense and security policy at EU meetings. Denmark had already approved an extra $1 billion in defense spending over the next two years.

The EU reached agreement on a new sanctions package that will cut off Russian oil from the EU, with the exception of oil arriving by the southern section of the Druzhba pipeline, a concession to Hungary. The Slovak and Czech Republics also receive Russian oil via that section of the pipeline (which runs through Ukraine), while the ban will apply to its northern branch which serves Poland and Germany. The sanctions are expected to reduce imports of Russian oil to the EU by 90 percent by the end of the year.  Additional sanctions include banning the largest Russian bank, Sberbank, from access to the SWIFT system and sanctions against state-owned broadcasters and individuals responsible for war crimes in Ukraine, according to European Council President Charles Michel. But Hungarian opposition also meant that proposed sanctions against Patriarch Kirill, head of the Russian Orthodox Church, were dropped.

In the continuing dispute over paying for gas in rubles, Russia has now cut off gas supplies to trading companies in the Netherlands (GasTerra), Denmark (Ørsted, and Germany (Shell Energy). This follows earlier cutoffs to Finland, Poland, and Bulgaria. Russia has supplied about 15% of the Netherlands’ gas; the country had already planned to end use of Russian fossil fuels by the end of 2022.

Russia is apparently proposing to pay foreign Eurobond holders using a similar double payments scheme that the EU has approved for payments to Gazprom for Russian gas. Finance Minister Anton Siluanov stated that “As happens with paying for gas in rubles: we are credited with foreign currency, here it is exchanged for rubles on behalf of [the gas buyer], and this is how the payment takes place. The Eurobond settlement mechanism will operate in the same manner, only in the other direction.”  The money would be paid not to the Russian Central Bank but to its National Settlement Depository, not currently under sanctions. It is unclear whether this mechanism will be acceptable to Western bondholders or governments. Russia missed a $1,900,000 bond payment due this week but has a grace period.

The US announced new sanctions on Thursday against Russian officials and elites, focusing on efforts to evade sanctions and “complex support networks to hide, move, and maintain their wealth and luxury assets,” according to Brian Nelson, Undersecretary of the Treasury for Terrorism and Financial Intelligence. Sanctioned individuals include “God Nisanov, a close associate of Russian officials; Maria Zakharova, spokesperson for the Russian Foreign Ministry; and Alexey Mordashov, one of Russia’s wealthiest billionaires, in addition to his family members and companies, including one of Russia’s leading domestic steel producers.”  

The President also suspended, for one year, tariffs on Ukrainian steel imports that were originally imposed in 2018, noting that the United States and Ukraine “have developed a close security relationship” and that “Ukraine’s steel industry has been significantly disrupted” by the Russian invasion while the US and Ukraine “have an interest in maintaining [the steel] industry as an economic lifeline while the country recovers.” Ukraine accounted for less than one percent of all steel imported into the US in 2021 but has been a globally important exporter, with $13.14 billion of iron and steel exports last year. Separately, on Tuesday Canada sanctioned four Russian financial institutions and Alina Kabaeva, reported to be close to President Putin.

Intense diplomatic efforts continued to arrange for export of Ukrainian grain to avoid worsening the global food crisis. Senegalese President Macky Sall, who holds the current presidency of the African Union, stated that the Russian blockade of Ukrainian exports could lead to “a catastrophic scenario” of food shortages in Africa. President Putin spoke with Turkish President Recep Tayyip Erdo?an and claimed that Russia was ready to cooperate in the export of grain from Ukrainian and Russian Black Sea ports “in coordination with Turkish partners.” Putin also called for sanctions to be lifted so that Russia could “export significant volumes of fertilizers and agricultural products.” (Fertilizer and agricultural exports from Russia are generally not subject to the current sanctions.) About 20 million metric tonnes of grains await export from Ukraine. Ukraine has proposed the UN lead an international naval operation to ensure safe food exports by sea.

In response, US Ambassador to the United Nations Linda Thomas-Greenfield proposed giving “comfort letters” to shipping and insurance companies to promote exports of Russian grain and fertilizer, noting that even though those goods are not covered by sanctions, “companies are a little nervous and we’re prepared to give them comfort letters if that will help to encourage them.” NEED Exports of Russian fertilizer may be key to a deal that the UN is hoping to broker with the Russian government. The UN described its latest talks in Moscow as “constructive.”

OPEC Increasing Production

The Organization of Petroleum Exporting Countries and other countries in the OPEC+ grouping have agreed to increase oil production by 648,000 barrels per day during July and August, a major step towards reversing the cuts made as the pandemic was beginning in 2020, though still less than the 1 million barrels per day lost to global markets with sanctions against Russian oil. The White House responded that “[w]e recognize the role of Saudi Arabia as the chair of OPEC+ and its largest producer in achieving this consensus amongst the group members. We also recognize efforts and positive contributions of UAE, Kuwait, and Iraq. The United States will continue to use all tools at [its] disposal to address energy prices pressures.” During his trip to Europe and Israel later this month, the President is now also expected to visit Saudi Arabia, where he is likely to meet Crown Prince Mohammed bin Salman among other officials.