Russia Policy Monitor No. 2641

CRACKS IN RUSSIA'S FISCAL FACADE
In the latest sign that ongoing Western sanctions, levied against Moscow as a result of its war on Ukraine, are having an impact on the Russian economy, the country's Central Bank has hiked interest rates to 18%. "Inflation has accelerated and is developing significantly above the Bank of Russia's April forecast," the Bank announced in an official press release. "Growth in domestic demand is still outstripping the capabilities to expand the supply of goods and services." As a result, "monetary policy needs to be tightened further" in order to keep the national inflation rate under control, it said. (The Moscow Times, July 26, 2024)

RUSSIAN SOLDIERS EYE THE EXITS
According to Ukrainian officials, Russia's armed forces are hemorrhaging manpower as soldiers increasingly pay massive bribes to avoid service. Ukraine's Main Directorate for Intelligence (HUR) has argued that the trendline can be tracked by the sharp rise in criminal prosecutions for bribery in the Russian armed forces – and by the soaring rate of irregular exemptions from service that have been awarded to Russian troops. From January to May, the HUR notes, "the number of criminal cases for illegal discharge from service due to supposed health reasons and the granting of illegal leave has tripled in the Southern Military District of the Russian Armed Forces." The service has argued that such incidents "may indicate an increasing level of demoralization" on the part of the Russian military. (Kyiv Post, August 1, 2024)

UKRAINE'S NEW OFFENSIVE...
For the past two and a half years, Russia's conflict with Ukraine has played out overwhelmingly on Ukrainian soil, with Kyiv attempting to defend its territorial sovereignty and repulse successive waves of Russian invaders. But in recent days, the Ukrainian military has turned the tables. On August 6th, it launched a surprise incursion into Russia's southwestern Kursk region, with Ukrainian forces remaining on Russian soil despite the Kremlin's deployment of troops in response. Russia's failure to dislodge Ukraine, in turn, led the Kremlin to declare a "federal-level" emergency, and to dispatch "multiple rocket launchers, towed artillery guns, tanks transported on trailers and heavy tracked vehicles" to counter the Ukrainian raid, Russian news sources have reported. (ABC News, August 9, 2024)

...AND ITS IMMEDIATE IMPACT
The economic impact of Ukraine's counterattack was felt immediately. Natural gas prices in Europe shot up amid the fighting, during which Ukrainian forces managed to seize a critical natural gas metering station in the town of Sudzha, which serves as a critical hub for Russian energy flowing to Europe. Russia's official GAZPROM energy firm sought to reassure European consumers that supplies will continue uninterrupted, but the Ukrainian incursion caused significant jitters among European officials. (The Moscow Times, August 9, 2024)

NO ROOM FOR NON-RUSSIANS
Back in March, a terrorist assault on the Crocus City Hall, a prominent music venue in Moscow, killed nearly 150 civilians and injured some 550 more. The Islamic State's South and Central Asian franchise, known as ISIS-K, claimed responsibility for the attack, the main perpetrators of which were Tajik nationals. In the wake of that incident, Russia's government has begun tightening already-restrictive rules for foreign nationals in the country. 

To that end, Russia's Interior Ministry has introduced – and the lower house of parliament, the State Duma, has supported – a new bill adding 20 additional articles to the country's Code of Administrative Offenses. The new measures expand the number and types of violations that could lead to expulsion from Russia. They include infractions like "disobedience to a lawful order of a police officer or other law enforcement agency," "providing false information when registering for migration purposes," "petty hooliganism," and "propaganda or public display of Nazi paraphernalia or symbols or paraphernalia or symbols of extremist organizations" – violation of which could lead to one's expulsion from Russia without a court decision. (Kyiv Post, July 10, 2024)

RUSSIAN PROFITS, KYIV'S GAIN
Since the start of the Ukraine war in February 2022, Western nations have worked diligently to expand pressure on the Kremlin, in hopes that political, economic and technological restrictions would eventually lead the Kremlin to reverse course. Among the most innovative – and controversial – measures in this regard has been the idea of using Russian assets (or at least the revenue generated by them) to provide an economic stimulus for Ukraine. That has now begun to happen; in late June, the European Union announced that 1.5 billion Euros ($1.6 billion) derived from profits generated by escrowed Russian funds has been made available to Kyiv. 

The move is both practical and symbolic. It provides a near-term infusion of additional funds for Ukrainian reconstruction and defense purposes. But it also is a concrete sign of Europe's ongoing commitment to Ukraine's struggle to preserve its independence. "There is no better symbol or use for the Kremlin's money than to make Ukraine and all of Europe a safer place to live," European Commission president Ursula Von Der Leyen has argued. (Agence France Presse, July 26, 2024)