Russia Reform Monitor No. 2293

A GOLDEN SANCTIONS SHIELD
Russia's largest gold producer has confirmed a massive untapped deposit in southeastern Siberia – a find with major geopolitical implications for Moscow. Polyus, PJSC announced that a prospective mine at Sukhoi Log contains 63 million ounces of gold, according to testing and scoping results from the last year. The company now plans to invest $2-2.5 billion in the site, bringing production online in the mid-2020s. With output likely to reach 1.6 million ounces of gold per year for at least 35 years, the company's Chief Financial Officer is calling Sukhoi Log "the Holy Grail of gold mining."

The benefits of the discovery range far beyond Polyus's bottom line. Since 2014, when U.S.-Russian relations began to deteriorate in earnest, the Russian Central Bank has sought to limit its exposure to U.S. currency by increasing the share of gold in its reserves and dumping U.S. treasuries. Traditionally, gold bullion sold on global markets is traded in dollars; Polyus, however, does business exclusively in rubles. According to the Russian Central Bank, its share of gold reserves stood at 14% of the world total last year, or $76.7 billion (a 50% increase since 2014). Mining the Sukhoi Log could further give the ruble a "huge and nearly sanction-proof backstop." (Wall Street Journal, February 7, 2019)

THE LIMITS OF RUSSO-ISRAELI COOPERATION
A recent series of Israeli airstrikes on Iranian targets in Syria has provoked a formal rebuke from Moscow. Russian Deputy Foreign Minister Sergei Vershinin has publicly called on the Israeli military to cease its "arbitrary attacks on sovereign Syrian territory" and chastised Israel's government for destabilizing the situation on the ground. For its part, the government of Israeli Prime Minister Benjamin Netanyahu defended the strikes as retaliation for an alleged Iranian rocket attack on the Golan Heights, and reasserted its intention to further increase the tempo of such operations in order to counter Iran's consolidation of power in Syria - teeing up a potential conflict of interest between Moscow and Jerusalem. (Sputnik, February 8, 2019)

ROSNEFT CHAFES AT KREMLIN CONSTRAINTS
The head of Russia's largest oil producer has formally opposed one of the country's major international energy policies. In a December letter to Vladimir Putin, Rosneft CEO Igor Sechin - a long-time ally of the president - protested the "OPEC+" deal between Moscow and OPEC that has cut output by 1.2 million barrels per day since 2017 in order to keep energy prices high. Sechin's letter asserted that the cuts in fact pose a strategic threat to Russia's oil industry by voluntarily relinquishing market share to American oil firms, who are eager to capture the shortfall and are not bound by the agreement. Sechin has made no secret of his opposition to the agreement – he has opposed it conceptually since 2014 – but Putin sees the pact as reinforcing Russian-Saudi ties in support of broader geopolitical objectives. Ultimately, Putin will have to decide whether to heed Sechin's advice and end the deal at OPEC's next summit this April in Vienna. (Reuters, February 8, 2019)

GOOGLE CAPITULATES TO KREMLIN DEMANDS
Russia has been harassing the world's tech giants to comply with its increasingly restrictive data and Internet access laws, but Google appears to be the first to succumb to the pressure. After the Duma passed legislation in 2017 requiring search engines to block websites banned by the government, Google faced a $7,500 fine for failing to comply in 2018. Now, regulatory agency ROSKOMNADZOR will reportedly "work in close proximity" with Google to enforce the ban in what the agency's head Alexander Zharov has called a "constructive dialogue." So far, Google has downplayed the policy change, especially since 75% of its global case-by-case requests for deletion already come from Russia, according to a transparency report issued by the company. Nonetheless, Russian paper Vedomosti has reported that mass deletion is already in progress, with 70% of the Kremlin's requested sites removed from search results for Russian Internet users. (London Daily Mail, February 8, 2019)

RUSSIA'S PROSPERITY GAP
Russian President Vladimir Putin and his followers have played heavily on the idea that his rule has helped spread prosperity to ordinary Russians, giving him a mandate for continued rule. But new official figures just released by ROSSTAT, the country's state statistics agency, highlight the true depth and breadth of poverty in the Russian Federation. As Paul Goble notes in his Window on Eurasia blog, some 37 percent of all Russians subsist on 19,000 or fewer rubles a month, "a figure that works out to a subsistence of ten US dollars or a less a day." Another 23 percent "live on less than 15,000 rubles a month (under seven dollars a day); and 12 percent have incomes under 10,000 rubles a month (five dollars a day)." Only 11 percent of Russians, Goble continues, "have incomes of 60,000 rubles or more a month (30 dollars plus a day)." These figures, in turn, "cannot be interpreted as other than a clear indication that a very large swath of the population lives in abject poverty." (Window on Eurasia, February 10, 2019)