Russia in details: events and trends in Russia over the last week (01.10.-07.10)

Russia in details: events and trends in Russia over the last week (01.10-07.10)

Conclusions

1. Recently, OPEC+ countries decided to cut oil production by 2 million barrels per day (mbd), but this does not necessarily mean a similar reduction in the availability of oil on the market. All participants in the process, namely the OPEC countries, the United States, and Russia (as important member of OPEC+), had their interests and motives for their behavior concerning this decision. 

2. Criticism of Russia’s military leadership is not a manifestation of the crisis in Putin’s circle but rather an echo of the internal struggle between the clans and attempts to find a convenient excuse for the war failures. At the same time, the disruption of the stability of the balance of influence between different clans creates conditions for the strengthening of “non-systemic” players and their attempts to “saddle” the right political flank.

3. Foreign companies continue to leave Russia but more slowly than expected. They do not want to sell their assets for anything. Hovewer, in the current situation, it is difficult to get favorable conditions, or it is simply impossible to find a buyer.

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OPEC+ decision to reduce oil production quotas: why was it made and what to expect?

On October 5, OPEC+ decided cutting oil production by 2 million barrels per day (mbd). This decision was preceded by the US efforts to keep the level of production quotas unchanged. That’s why the OPEC+ move caused discontent and disappointment in the White House.

All process participants, namely the OPEC countries, the United States, and Russia (as an important member of OPEC+), had their interests and rationale for their behavior concerning this decision. The decline in production quotas should be viewed through the prism of recent events in the global oil market and expected trends and changes.

1. “Conventional reduction”: why the decision to reduce quotas will not mean a mandatory reduction in supply on the oil market

The decision to cut oil production concerns existing production quotas, not actual production volumes. In recent months, countries participating in the cartel have not used their entire production quotas. For example, in August, the actual production lagged behind the established quotas by 3.58 mbd: the Russian Federation lagged behind the established quotas by 1.28 mbd, and Nigeria by 0.7 mbd.

Therefore, the real reduction in production will be significantly less than the nominal reduction in the total quota. If the cartel members adhere to the established production quotas the real drop in supply will amount to 800,000 barrels per day.

However, other factors may affect the balance of oil supply and demand in the coming months, which are difficult to predict. First, the prospects for economic growth or at least economy stability in many world regions remain vague, and it will shape up the demand for oil and its balance.

An increase in the US production could be a mitigating factor for the oil balance in 2023. According to some forecasts, growth may reach up to 900,000 barrels per day (in August, the United States broke its oil export record for 30 years). In other words, if demand remains unchanged, a potential increase in production in the United States can compensate for the OPEC+ reduction. However, other factors will have a significant impact on the market over the next six months.

For instance, Russia’s move in the event of a price oil cap introduction remains unclear. Russia threatens to cut supplies or not supply oil at all to countries applying such restrictions. In addition, the European Union’s embargo on offshore oil supplies from Russia comes into force in December.

In reality, Russia’s behavior will depend on which countries agree on the price cap. If it will be introduced not only by the United States and the European Union but also by India and China, it is extremely doubtful that Russia will refuse to supply its oil to these countries.

However, in 1-2 months perspective Russia will still be able to resort to manipulations with supplies, which, of course, will extremely negativly impact prices. The embargo on Russian oil comes into force in December, and these price restrictions may cause a certain surge in prices for oil of non-Russian origin within several months. If Russia does reduce production and exports, then the pressure on non-Russian oil prices will only increase.

However, the US and the European Union are getting closer to deciding on a price cap. The EU has already developed a relevant framework document. US officials have said they started talks with China and India, and preliminary results are optimistic. China and India have pragmatic motives for introducing price caps on Russian oil. Indeed, China and India bought Russian oil at a discount. However, if they continue this policy by refusing to use the price cap instrument they risk facing secondary sanctions from the US and the European Union. Therefore, by economic logic, China and India, the 2nd and 3rd largest global oil consumers that import about 20 percent of world consumption, will benefit from marginal prices — which means cheaper oil and no secondary sanctions. It is useful to remember that the US and the European Union are key markets for Chinese exports.

2. Interests and motives of key OPEC participants

An ambition to get back to higher prices. OPEC countries are trying to keep the oil prices. In the last three months, a downward price trend has been noticeable: after a peak level of $120 reached at the end of July, the price dropped to $80 in September. Oil exporters are willing price to be not less than $90, according to recent reports. According to Bloomberg’s estimates, the OPEC+ decision will help keep the oil price at $100. At the same time, in September, OPEC production was the highest since 2020.

2. Interests and motives of key OPEC participants

An ambition to get back to higher prices. OPEC countries are trying to keep the oil prices. In the last three months, a downward price trend has been noticeable: after a peak level of $120 reached at the end of July, the price dropped to $80 in September. Oil exporters are willing price to be not less than $90, according to recent reports. According to Bloomberg’s estimates, the OPEC+ decision will help keep the oil price at $100. At the same time, in September, OPEC production was the highest since 2020.

Response to the expected drop in oil demand. The reduction in oil production quotas by OPEC+ member countries is also a response to the expected demand lowering. In particular, Chinese demand is constrained by the lack of significant economic growth due to COVID restrictions, although there are expectations that they may be eased in the current quarter of the year. In addition, the economic crisis in many countries, caused by high energy prices, does not contribute to positive forecasts for economic growth, and a recession may be accompanied by a fall or containment of demand for oil in the world.

An attempt to proactively neutralize the expected high inflation. High inflation in many countries means lower real oil prices for exporters. The inflation in the European Union, for example, has already broken records; and the seasonal increase in winter energy demand could accelerate the overall inflation rate. Accordingly, attempts by exporting countries to increase the price of oil are an attempt to neutralize the inflation of the winter period and at least keep the real price of oil unchanged.

Defend their sovereignty in the eyes of the United States. The OPEC+ decision has quite a strong political component. In fact, Saudi Arabia, the UAE, and their partners sent a signal to Washington showing their dissatisfaction with the US actions. Since March 2022, relations between Riyadh and Washington have deteriorated against the background of the war in Ukraine. The Saudi authorities demanded the US stop dumping oil from its reserves on the world market and opposed US pressure on Middle Eastern countries to increase oil production. Consequently, the OPEC decision not only exacerbates the already existing contradictions between the US and Saudi Arabia/the UAE but also demonstrates the transformation of the world system, in which the US no longer has unconditional global initiative and unlimited influence. This is what Riyadh wanted to demonstrate by adopting such a decision.

3. U.S. interests and rationale

The desire to reduce the price of petroleum products in the domestic market as a factor of inflation and limitation of economic growth

The US authorities might have considered the option of restricting the export of oil and petroleum products to contain prices in the domestic market as key producers and exporters turned to the White House with a request not to consider options for restricting exports. Over the past year, prices for petroleum products in the United States have risen by 45 percent, which naturally puts pressure on economic growth and causes dissatisfaction among the population.

Domestic political and electoral factors: an attempt to get dividends before the 

United States Congress elections.

It is also obvious that the decision of OPEC+ a month before the midterm elections to the US Congress to some extent worsens the position of the Democratic Party. Since March of this year, the US has allocated an additional 1 million barrels of oil from its National Strategic Reserve each month to bring down oil prices. This held back the sharp rise in prices for petroleum products in the United States, which caused discontent among voters. The Biden administration needs to hold back prices before the elections to prevent further social tension before the important vote for the US president in both houses of parliament.

Concern about the reduction in supply amid attempts to limit the role of the Russian Federation in the oil market.

The United States views the role of OPEC+, among others, through the prism of confrontation with the Russian Federation and its containment in the framework of the war in Ukraine. Consequently, the US authorities see the OPEC+ decision as a game in favor of Moscow, since the position of key oil exporting countries politically looks like their unwillingness to cooperate with the West against Russia. For the OPEC countries themselves, this situation is rather not a game in favor of the Russian Federation, but a way to confirm their sovereignty in decision-making based on pragmatic national interests.

The US oil reserve problem. In recent months, the US authorities have used oil from the state reserve to control prices. Today, US oil reserves are the lowest in almost 40 years. Accordingly, the scope of this tool is reduced and the authorities are looking for other options to control prices. Maintaining production volumes by OPEC+ countries could be just such an option, which explains Washington’s efforts in this direction, as well as the depth of dissatisfaction expressed by the White House with the OPEC decision.

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Radicals in Russia attempt to become a force within a state system

A wave of criticism of the military leadership has risen in Russia, with key speakers Ramzan Kadyrov and Yevgeny Prigozhin criticizing Alexander Lapin, who received Hero of Russia award for his war effort. The core message was to take the war to a new level, up to the use of nuclear weapons. These narratives were picked up by several Russian “military correspondents” and speakers of radical groups (for example, Igor Strelkov). And a little later, criticism of “some military leaders” moved to the national channels: NTV, Russia 24, Tsargrad, Zvezda, and others.

The existing disagreements in the Russian elite and the obvious manifestation of dissatisfaction with the policy of some media people should hardly be regarded as a manifestation of the systemic problems within the Russian leadership, at least at this stage. This development has several components:

1. An attempt to find excuses for the failure of the Russian army in the Liman area.

2. Putin’s try to play on the radical moods of citizens and thereby neutralize the potential discontent of these groups.

3. An attempt by “non-systemic” players in Putin’s entourage (Kadyrov, Prigozhin) to raise their status and form and lead a full-fledged group of influence in the Russian elites.

Developments and analysis

Faced with a defeat in the Kharkiv region and rising discontent among radical groups (ranging from small marginal groups to groups in his own circle), Putin upped the stakes by organizing the annexation of the occupied territories and announcing mobilization.

However, the next day after the “signing of agreements” on the inclusion of the occupied territories into the Russian Federation, the Kremlin was forced to admit the loss of Liman. Moreover, Russia was unable to stabilize the frontline in the Slobozhanshchyna Region over the next few days, which resulted in the retreat of the Russian army in a fairly vast area. At the same time, an effective offensive of the Armed Forces of Ukraine began in the Kherson direction, where the Armed Forces of the Russian Federation also retreated.

The annexation of the territories, which, among other things, was supposed to neutralize the negativism from the defeat near Kharkiv, did not have the desired effect. On top of that, Russia has lost territories that had declared “their own” just a day before.

Putin received negative vibes both from mobilization (the departure of population, discontent in the regions which already had a large proportion of soldiers killed in the war) and from military defeats. Against this background, the Kremlin needed to decide how to react and explain what happened to people. In their messages, propaganda kept strengthening the shift from “special operation in Ukraine” to “war with the collective West”. However, this did not explain the reason for the defeat. Moreover, active criticism of the adopted military decisions by several “military correspondents” and leaders of radical groups was already beginning to be aimed at Putin.

Developments (messages from Kadyrov and Prigozhin, media reaction, strengthening of rhetoric), from the point of view of the goals and motivation of the participants, fully corresponded to the three components:

Storyline 1: “Tsar is good”

Against this background, Kadyrov’s public message criticizing Colonel-General Lapin was beneficial to the Kremlin. On the one hand, it was a recognition of the very fact of poor management of the troops on the ground (which radicals had spoken about). On the other, it was a shift of responsibility from Putin (and partially Shoigu) to lower-level performers. It is a classic Russian narrative “tsar is good; these are boyars who are bad.” 

Prigozhin’s statement posted on Concorde’s page on the Russian social media VKontakte, in which he confirms and supports Kadyrov’s accusations, increased the overall effect and made changes in the Russian General Staff and the Ministry of Defense almost inevitable. It has also strengthened the trend to remove responsibility for failures from Putin personally.

Key propagandists (Soloviev, Skabeeva, Simonyan, and others) have picked up this thesis on blaming bad generals, but in a slightly modified form. They made a problem look a little different, more complex:

• Special military operation in Ukraine is not successful for the Russian Federation because it is a confrontation with the collective West.

• Some of the country’s generals and political leadership (of course, not Putin himself) did not follow the trends on time (such as military assistance to Ukraine) and did not design effective countermeasures.

• Finally, there were “mistakes” in military leadership. In addition, these “mistakes” have surnames.

As for the “appointment of the guilty ones”, it is worth noting that propagandists on federal channels say the names carefully, leaving the possibility of changing the rhetoric depending on decisions made. At the same time, the “bad boyars” narrative is visible: propagandists say the state administration system (and especially the top leadership) can figure everything out and take action. Solovyov, Simonyan, and some others have used this message for several weeks, also utilizying the topic of mobilization. They talk about “occasional local overzealousness”, claim they collect information about violations, and make a PR picture of the “triumph of justice” from episodic, ostentatious reactions.

It is noteworthy that the key criticism focuses primarily on the military leadership and the Defense Ministry. These actors were also blamed for covering reality. Solovyov and Simonyan suddenly started talking about the need to “stop lying”, meaning, first of all, the General Staff, but not their TV shows. It is rather a game for influence in the media field and an attempt to expand the “bad boyars” narrative in a way to present themselves as the ones who restore order in the information field.

Starting October 3-4, most of the informational resources (Telegram channels, social media groups) covering the war from a Russian point of view also began to adhere to a line described above. Currently, we can still see criticism, plus they started to send messages about possible stabilization thanks to competent decisions made in Kremlin.

Thus, the activity of Kadyrov and Prigozhin, some propagandists, and speakers of radical groups deflects a blow from Putin and launches a “tsar is good; these are boyars who are bad” narrative. It presupposes the appointment of a “guilty one” (or guilty ones) who is going to be blamed for all recent failures.

Storyline 2: playing with a radical audience

In terms of growing dissatisfaction with Russian policy, Putin had two social groups that could pose at least some danger:

1. Co-called liberals — residents of big cities, part of the middle class, and young people. With subsequent military and political defeats, this group could become the core of street protests.

2. The fringe group of Russian society. A heterogeneous group with many subgroups, ranging from supporters of the monarchy and ideological imperialists to “hawks” in Putin’s circle.

These groups, under the same extrinsic stimulus, could take opposite positions. One could call for ending the war, the other for taking it to a new level. At the same time, the most dangerous, from the point of view of set-off, is the radical part of Russian society:

• Firstly, because it plays on “a great state and a great place for the Russian Federation in the world” propaganda cliché created in recent years. In addition, in Russian history, it was the dissatisfaction of the radicals that most often caused the monarch (secretary general, president) to lose power.

• Secondly, during wartime, supporters of radical views strengthen their positions in Putin’s circle.

• Thirdly, during wartime, this group grows in numbers due to citizens returning from the frontline, and these citizens have real combat experience. 

Thus, Putin’s earlier decisions regarding the mobilization and annexation of the occupied territories were already an attempt to play on the moods of the radicals. The mass migration of conscripts, on the other hand, weakened the protest potential of the liberal part of society.

Kadyrov’s statements about the reasons for the Liman failure and later calls to use nuclear weapons against Ukraine aligned with a “flirting” with radicals trend. Taking the war to a new level is exactly what this part of society demanded. Therefore, it is quite logical that, for example, the thesis of a nuclear strike was picked up by the media and discussed, in particular, on federal TV channels.

Together with the “appointment of the guilty ones”, staff changes, and increased radical rhetoric returned the support of radical groups and politicians to Putin. At the same time, it postponed the emergence of an independent political movement (movements) on a specified social basis.

Storyline 3: an attempt to create a new “Kremlin tower”

Kadyrov’s and Prigozhin’s activity has one more storyline to it connected with the ambitions. In Vladimir Putin’s circle, processes of changing the influence of different groups are taking place. In particular:

• People from Yeltsin’s “family” have been completely removed from the decision-making system.

• A group of so-called “technocrats” is growing stronger in terms of staffing policy, control over the regions, and partly the economy. The most important people within this group are Kiriyenko and Gref. Today, they control most of the regions, oversee staffing policy everywhere it is important — from local governments to Federal ministries.

• Influence of the Kovalchuk group (primarily Yuri Kovalchuk), which closely cooperates with the technocrats, is getting stronger. 

• A group of “security chiefs” is losing some influence. Its leader, Nikolai Patrushev, stays in Putin’s inner circle, but the role of the Ministry of Defense as the core of the “security chiefs” bloc is decreasing. Some special services and intelligence (FSB, SVR, 12th Main Directorate of the Ministry of Defense) is discredited by failing to collect accurate information on Ukraine and the inability to organize effective external work.

• Sechin group is losing influence significantly, as it lost power in many regions and security bodies.

People like Kadyrov and Prigozhin existed outside the Kremlin clan system for a long time. They have been guarantors in risky areas with their positions depending on the Kremlin interests and the demand for their services. Neither of them have a “base” that guarantees the preservation of influence. A somewhat similar situation has developed around some of the main propagandists (Soloviev, Skabeeva, Simonyan): they are needed as communicators, but they have no guarantees of maintaining their position when the balance of power in Putin’s entourage changes.

War in Ukraine, the Defense Ministry and intelligence failures significantly increased the role of Kadyrov, Prigozhin and state propagandists. Against the background of the slight instability of “Kremlin towers,” mentioned people try to determine their place and form a certain image of their clan (group). All the more so, as there is an increase in radical sentiments in society and the potential for radical groups to broaden their influence. But the Kremlin does not have a manageable political project for the “radicals”.

Over the past month, Kadyrov has offered several options for his future roles. First, he used mobilization topic with the thesis of “self-mobilization of the regions”, then offered the Kremlin the services of Chechen formations to maintain order in sub-federal entities. However, Putin’s entourage most likely abandoned the idea of making the Chechnya “leader” the person who oversees stability in regions. This idea went against the interests of Kovalchuk, technocrats, and Patrushev.

As a result, Kadyrov is trying to secure himself the biggest possible support of the radical-minded part of Russian society to maintain his role as one of the radical leaders. He acts in the most bold manner, expressing new ideas (a nuclear strike on Ukraine) and exploits the message of “children of officials do not fight”, declaring that his sons have been sent to the frontline. Even if they are not, this was a strong message aimed at Moscow generals and some of the State Duma deputies. The second person trying to act in a similar vein is Yevgeny Prigozhin. I am not putting his activity on a separate track, because for now, he is trying to act as a “number second” in the same direction as Kadyrov.

However, both Prigozhin and Kadyrov are foreign figures to the Moscow establishment. Against this background, Solovyov, Simonyan, and other propagandists sharply change their rhetoric, and thus can claim the so-called role of “leaders of the new right.” They are joined by some active members of the United Russia party, for example, the head of the State Duma Defense Committee Andrei Kartapolov. Undoubtfuly, the owner of PKK Wagner and the ruler of Chechnya have a security asset. Hovewer, propagandists (and politicians from the right wing of United Russia) have media asset, which is more important in political projects.

Apparently, the Kremlin has not yet decided on a new political force. But, given the overall radicals strengthening, they play along with both Kadyrov (who was awarded the rank of general) and propagandists (publicly responding to some of their “criticism”). The final configuration of the “right flank” of Russian policy will affect the later war stages, depending on the situation on the fronts and changes in foreign policy.

In parallel with the above, one more person should be mentioned, and he is Viktor Zolotov. The head of the Russian national guard disappeared from the public space, trying to distance himself both from the actions within the group of security officials and extra-systemic ones. At the same time, pro-Russian military TG channels covering the war in Ukraine actively (at least once a day) write about the heroism of the National Guard or SOBR. If not for the media coverage of the heroism of his units, such a reaction could look defensive. But, together with the information campaign, this can be a preparation for his political endeavor or strengthening the influence of a group of security forces or an attempt to create his influence group (in alliance with existing ones).

The continuation of all this turbulence in power may lead to a crisis of power in the future, with all the ensuing consequences.