Ukraine Updates and More Discussion of the Russia “Gas for Roubles” Countersanction

Given that the war in Ukraine is the focus of a massive propaganda operation in the West, it’s telling that it’s fading a bit from attention, either by design or a need to regroup. While the business press still gives the war top billing due to the fact that energy supplies and pricing around the globe are very much in play, the level of discussion on Twitter in the last couple of days has dropped dramatically. Similarly, I don’t check into Daily Mail religiously, but not all that long ago, Russia’s campaign crowded out celebrity coverage. By contrast, the last two days, the first conflict-related story, this on a TV host in Russia calling for regime change in the US, was well below the fold.

Not that there aren’t new developments, mind you. Russia and Ukraine concluded two days of talks in Istanbul. Progress was made and the two sides will meet again. As I understand it (and readers are welcome to correct me) Ukraine presented a proposal. It appears Russia didn’t, due to some combination of having already set forth its red lines and not wanting to negotiate against itself.

The two sides appear to have closed the gap on some issues. Russia said it will provide more in the way of a response in the next round. So press reports that Russia is saying there was no breakthrough and a lot of work remains to be done should come as no surprise.

Specifically, Ukraine says it will not join NATO. How Zelensky can commit to that when it’s been put in the Ukraine constitution is beyond me. Russia agreed that Ukraine can join the EU. The latter sounds like a non-concession. Most of the EU has cooled considerably on further expansion to the East now that Poland has turned out to be a monster headache. On top of that, having Ukraine join would have all of those supposedly temporary refugees from Ukraine have the right to live and work in their new home countries. Bloomberg reports tonight that 4 million have fled.

Another Russian non-concession was offering that Russia would considerably reduce the size of its forces near Kiev. Interestingly the Western press and officials did not depict this as an admission of Russian weakness or reduction of aims, but instead first tried to portray Russia as dishonest and doing no such thing. The reality is more along the lines that reducing troop levels in Ukraine would be a big deal, but in the Kiev environs serves mainly to give civilians some sense of relief.

For instance, an early evening take from the Financial Times:

Russia has decided to “dramatically” scale back its military activities in the Kyiv area, a top Moscow defence ministry official said following a fresh round of peace talks with Ukrainian counterparts in Istanbul.

Alexander Fomin, Russia’s deputy defence minister, said the move was intended to “increase mutual trust” as he announced it in Turkey after face-to-face talks concluded on Tuesday.

But western officials cautioned against taking Moscow’s pledge at face value. “Nothing we have seen so far suggests that Putin and his colleagues are particularly serious about the talks. They are likely just playing for time,” said one.

Recall the US wouldn’t deign to negotiate with Russia before the war, refusing repeated entreaties from Russia to provide written responses to its proposals, and then accused Russia of not being willing to negotiate! So the US is hardly one to judge what good faith amounts to in this arena.

But it should be obvious that loosening the noose on Kiev isn’t as big a deal as it might sound, particularly since Russian officials have said they’ve finished the first phase of their operation. That presumably means now that they have effectively taken Mariupol, they can reduce headcount there, to recover, assist forces elsewhere in Donbass to capture the >60,000 Ukrainian soldiers cauldroned there, or occupy the rear between that grouping and Kiev so the “pinning” operation is less necessary. This important tweetstorm by Scott Ritter explains how the Russian operations employed some classic military devices practiced by the US in Desert Storm. From the opening of his discussion:

Accordingly, the Western press has now shifted tone toward more sensible arguments, that any reduction is short-term and tactical (Bloomberg) or Reuters taking up Zelensky messaging, that Russia is pulling back near Kiev simply to “refit after heavy losses.” Erm, the troops around Kiev were not doing all that much save pin down Ukrainian forces in the west so they could not assist the ones Russia was attempting to and eventually did encircle in the east).

A Russian perspective on the state of play, from Vedomosti, translation courtesy TASS:

In Istanbul, Russia heard Ukraine’s “clearly formulated” stance…Ukraine’s proposals include the country’s neutral and non-nuclear status, ensured by international guarantees and the non-use of force against Crimea and “certain areas of the Donetsk and Lugansk Regions.”…. the sides have diverging positions on Donbass’ borders. That said, Russia does not oppose Ukraine’s aspiration to join the EU.

Judging by the latest talks, the rhetoric of both sides has toned down, Russian International Affairs Council (RIAC) Director General Andrey Kortunov said. According to him, Russia is ready to work with Ukraine’s leadership and does not seek regime change. That said, it is obvious that so far there is no clear rapprochement on the territorial issue, he added.

The special military operation will continue at least in Donbass, and Russia will aspire for the Donbass republics to receive control within the spring 2014 borders of the Donetsk and Lugansk Regions, Deputy Director of the Center for Comprehensive European and International Studies at the Higher School of Economics Dmitry Suslov said. Therefore, Ukraine’s armed forces there will be either pushed back or encircled. He noted that the proposals do not provide answers to Russia’s two key goals of the special operation – demilitarization and denazification.

The expert thinks that it is possible to divide the agenda into several components while postponing the final settlement, particularly with regards to the status of Crimea and the Donbass republics. In his opinion, Ukraine’s temporary rejection of a military resolution to the territorial issues for 15 years does not suit Russia at all. He envisions two possible scenarios: Russia will either try to resolve all the issues comprehensively in one agreement which means that the special operation will continue, including in the south of Ukraine since there Russia hasn’t assumed any obligations, or will agree to Ukraine’s proposals on its neutral and non-nuclear status and postpone the resolution of the territorial issues. In this case, it is likely that Russia will keep its military presence in the areas where its units are already located or will be located in the near future. The complete pullout will happen after a comprehensive agreement with Kiev is reached.

Now to the Russia “unfriendlies can only buy gas using roubles” countersanction. This standoff is coming to a head. Recall that Russia set a deadline of the 31st when Gazprom is announcing the mechanism(s) at the earliest today. This is already peculiar unless Russia would accept buyers simply making a statement that the new scheme was acceptable, since it’s extremely unlikely that many would have the right banking/payment system mechanics in place already.

Alternatively, Russia could have heard the nearly-united “Nyets” and decided that there was no point except for the observers in the nosebleed seats to give buyers much time to react, since they’d already made up their minds. Note that South Korea last week stated it would pay in roubles. Plus the G7 saying no is not tantamount to all of the EU saying no. For instance, Hungary has been sitting out this spat. They seem likely to accept the Russian requirements.

As I was drafting this post, a new story from Reuters shows that Russia recognized the Putin-imposed deadline of March 31 was unrealistic overly ambitious even for those that did want to play along. But Russia is showing a new stick as well as offering a sort of carrot:

Russia will not immediately demand that buyers pay for its gas exports in roubles, the Kremlin said on Wednesday, promising a gradual shift and saying Russia should work on an idea to widen the list of its exports requiring rouble payment….

Earlier on Wednesday, Russia’s top lawmaker Vyacheslav Volodin said the European Union would have to pay in roubles if it wanted Russian gas and said oil, grain, metals, fertiliser, coal and timber exports could be priced the same way.

The government, the central bank and Gazprom are due to present proposals for the switch by Thursday.

And Russia made clear that buyers that do not comply will not get gas. From Anadolu Agency earlier in the week:

Russia will not deliver gas to Europe for free, Kremlin spokesman Dmitry Peskov said on Monday.

Asked at a daily briefing in Moscow what Russia will do if Europe refuses to pay for gas deliveries in rubles, Peskov urged to “to solve issues as they come.”

“The delivery process is very, very complicated, it’s not buying some product in a store — you buy and pay at the checkout. These are deliveries, payments, and balance sheets, these are time-stretched processes. Now all the modalities are being worked out between the departments, with Gazprom.

“But the fact that we will not supply gas for free is unequivocal. This can be said with absolute certainty. In our situation, it is hardly possible and hardly advisable to engage in pan-European charity,” he said.

Let’s stop here to make a key point I may not have flagged as strongly as I should have earlier. Because Russia has been running trade surpluses in recent years, and even Russians haven’t regarded the rouble as a great store of value, there aren’t a lot of roubles floating around outside Russia. And gas buys are in very big volumes.

So any workable “pay in roubles” scheme will have gas buyers going to Russian banks to execute the foreign exchange transactions, as in sell dollars or euros or sterling to the bank and have it buy roubles to tender to Gazprom. Or in the old world, before the Russian Central Bank was on the top of the sanctioned banks list, the Russian Central Bank could have extended currency swap lines to some large Western banks as another way to allow for banks to obtain roubles.

Now it may be that Russia really wants to stick it to the West and demand an above-market foreign exchange rate for the rouble. But the rouble has already gone up markedly from its start of sanctions low. From TradingView:

Bear in mind that the rouble traded in a fairly narrow and higher range in 2021, from a high of roughly 69.4 to a low of roughly 77.5.

Again, and I may be proven wrong, but the body language from Russia so far is that this change is not about propping up the rouble with an artificial FX rate, but to reduce its exposure to further financial sanctions by making Russian institutions the locus of payment operations. That also means the West could not afford to sanction them if it wants to buy Russian goodies.

Consistent with that reading, one Russian economist opined that a light touch approach, of having buyers transaction with Russian banks, should suffice. From Nezavisimaya Gazeta, translation via TASS:

Leading expert at the Financial University and the National Energy Security Fund Stanislav Mitrakhovich believes that in reality “finding rubles” is very easy. “It is enough to come to the Moscow stock exchange or simply open an account in a Russian bank and make a conversion,” the expert said.

An additional consideration is that Germany, despite taking a very hard line stance, is not making it a legal requirement of public utilities. Note German Energy Minister Robert Habeck’s words, as reported by Associated Press:

Habeck said that “payment in ruble is not acceptable and we will urge the companies affected not to follow (Russian President Vladimir) Putin’s demand.”

I have no idea how much of Russia’s gas to Germany is sold to private entities versus government buyers. However, despite the apparent lack of compulsion to follow the government’s strong desire, I doubt that many will break ranks. First, they could expect to be savaged in the press. Second, they could be subject to secondary US sanctions, depending on what the Russian mechanisms are.

Finally, Russia is already cutting some energy flows due to lack of buying. This OilPrice story is about oil pipelines, but it illustrates how Russia is willing to halt supply:

Transneft, the Russian oil pipeline operator, has informed local oil companies that it would be capping the intake of yet-to-be-sold crude because of full storage as buyers in the West shun Russian oil, Reuters reported on Tuesday, quoting sources with knowledge of the plan.

Note that another OilPrice story makes clear a lot of Russia oil is still making its way to users:

Despite the U.S.-led ban on importing Russian oil that some of Washington’s allies will also implement, Russian oil in significant volumes will continue to flow into various leading oil-importing countries, so adding to the overall global supply and affecting oil prices. In oil trading terms, then, it is erroneous to assume that all circa-11 million barrels per day (bpd) of Russian oil supply has somehow been removed from the global supply/demand matrix and that this will tighten that oil pricing matrix in favor of further gains….

Three other factors are also apposite to note in terms of explaining Novak’s upbeat take on the prospects for Russia’s oil sector, each of them analyzed in full in my new book on the global oil markets. First, Russia has long been able to make very good profits on all of its oil at US$40 per barrel of Brent…

The second reason is that despite the US dollar-centric sanctions on Russia, the country pays all of its domestic expenses in roubles, so the availability of US dollars or the US dollar-Russia rouble exchange rate is of no consequence in this regard. That said, it is a very clever move to make importers of Russian gas from ‘unfriendly countries’ pay for Russian gas in roubles, as it does lend support to the Russian currency, which has a positive psychological effect on those receiving money in that currency. And third, Russia will not be devoid of US dollars anyhow, or other hard currencies, given that it can certainly count on continued massive oil and gas and other trade with China and India.

So as this oil detour makes clear, Russia does not need more Western currencies while it is under sanctions. Ivestia explained why the rouble has rallied:

The Russian currency rose sharply on March 28 as a result of exporters selling foreign exchange earnings and a drop in demand for dollars from resident enterprises and residents….

Meanwhile, a sharp decline in international tourism from Russia has also led to the strengthening of the ruble, and as a result the demand for foreign currency has naturally fallen, investment strategist at BCS World of Investments Alexander Bakhtin said. He noted that commodity prices remain high, which is also a positive sign for the Russian currency.

And Russian purchases of Western consumer and industrial goods are also down, again reducing demand for foreign currencies.

Russia is also starting to reduce gas shipments. From Reuters in a story on the 29th:

Physical gas flows through the Yamal-Europe pipeline at Germany’s Mallnow point fell to zero on Tuesday afternoon, data from operator Gascade showed, while Russian gas deliveries to Europe on the other two key pipeline routes were broadly steady…

Russian gas giant Gazprom has booked some westbound gas transit capacity via the Yamal-Europe pipeline for Tuesday night and for Wednesday, Interfax news agency reported, citing auction results.

The actual flows are not guaranteed because Gazprom does not always use booked capacity.

The picture for Europe, particularly Germany, is more painful. A politically-connected contact was gobsmacked by German Chancellor Olaf Scholz having a major attack of cognitive dissonance in the same interview, that Germany would not buy Russian gas in roubles, yet saying that Germany needed Russian gas. Due to the hour and this post getting overlong, just a quick item on this front from the Financial Times, Germany takes step towards gas rationing over payment stand-off with Russia:

The German government has taken the first formal step towards gas rationing as it braces itself for a potential halt in deliveries from Russia because of a dispute over payments…

During the early warning phase — the first of three stages in Germany’s emergency response — a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

If supplies fall short, and less draconian attempts to lower consumption do not work, the government would cut off certain parts of German industry from the grid and give preferential treatment to households.

I am sure we’ll have more to say soon about the details of the Russian plan and whether it looks like it will deliver on its threat to extend its “rouble pay” scheme to other commodities, and how Europe is battening down. Stay tuned.

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  1. Alex

    I hope the negotiations would yield results but I’m not holding my breath. For Russia anything less than the recognition of Crimea and Donbass as part of Russia or independent would be perceived as a loss and not worth the very considerable difficulties everyone is experiencing.

    For Ukraine, I’m not sure that Zelensky is even to able to make such concessions, considering the opposition and far right who already branded him as traitor for considering the 15-year transition period for Crimea.

    So I don’t expect the negotiations to succeed unless one of the two sides collapses. Of course I would be happy to be proved wrong.

    1. The Rev Kev

      Maybe Russia is messing with them. If they had actually gone through with demanding payment in Rubles with only a three-day window, it would be causing absolute chaos and not only on the markets but in government circles as well. But doing this, it has served as a warning as to what is to come and the EU has no way to stop it or avoid doing Ruble trade for months if not years. Shock doctrine maybe. So now all those countries that would be effected have just had their minds wonderfully concentrated and you can bet that the business community is in discussions with their governments, most likely with some heavy blunt objects to convince them of the folly of what they are doing. And probably some countries are wondering if they may be the one to end up with regime change instead of Russia, courtesy of a crashed economy and hundreds of thousands of suddenly unemployed citizens.

      1. Lex

        We’re pretty constantly told that “the Russians” are untrustworthy, power mad barbarians. Yet their behavior rarely matches that. I think you’ve got a point. Not that the demand of ruble payment isn’t real. It is, but turning off the gas without enough time for everyone to make adjustments to the new process is counter-productive to the Russian position of being rational actors and “agreement capable”. If that’s how they were going to play it, they would have shut off the gas as an immediate response to the sanctions, right?

        I’ve said before that the military strategy Russia is using classic Deep Operations (which is the same as what Ritter’s saying) on an impressive scale. The primary and initial engagement is to cause confusion with reconnaissance in force, force the opposition into situations that are difficult, and use the first reconnaissance to determine where the main force gets put. I’ve been coming around to the idea that Russia is also applying Deep Operations concepts at the geo-political/grand strategy scale within the context of its realist foreign policy.

        Rubles for gas with a tight deadline is reconnaissance in force, causing confusion but more importantly useful as a gauge for the reactions of “unfriendly” nations. Russia can afford to pull back tactically and allow a longer timeline for adoption without changing its suite of options. It also forces the west to concentrate on that issue – much like Russian forces outside Kiev – and gives Russia time/space to focus on other aspects of its plan.

        1. timbers

          Sounds good, but I am having problems understanding why Russia – as a rational actor – would at this point sell anything in a currency the US has stolen and can again confiscate.

          Isn’t any trade Russia does in EUR or USD subject to confiscation and thus charity as Russia says?

          1. Polar Socialist

            Maybe they plan to keep on selling energy in the future even to “unfriendly” countries, but with rubles, and they just need to figure out themselves how to make that happen in a way they can sustain.

            It’s a big change among others, and it wouldn’t surprise me they want to get it right from the start.

            1. Dftbs

              Or perhaps they see the energy-ruble mechanism as the first step in turning “unfriendly” nations into “friendly” ones. The current crop of EU leaders are happy to suffocate in the cold American bosom. Subsequent European regimes may not be so inclined. Russia is seeking to rearrange the European security apparatus, accentuating the natural cleavages within the West is another step towards that goal.

              1. Brian (another one they call)

                Russia is again, acting like the game is chess. The nato heads making orders to anyone that listens are telling the EU that they are going to cause them great pain and suffering. Thus nato is playing a game more akin to “chutes and ladders”. Where everyone fails until one party wins.

                European buyers already owe for a month of gas. Russia likely has seen the difficulty of dealing with the nato aligned and realizes it is unable to negotiate anything. They have to turn off the spigot of gas moving west. Nato demanded their vassals institute sanctions. Some have, others not so fast. The world is going to find out what being a friendly or unfriendly buyer of commodities from Russia means.
                Then we get to the economic problems as a result of impoverishing nato states now taking refugees en masse. Have the leaders of Eu nations not considered these things and how it is likely to affect their countries? They sure won’t be getting any extra wheat or grains to feed their own citizens this year.

                Russia has allowed the west to select the means of their destruction. You know, the Stay Puffed Marshmallow man visiting New York.

            2. Harry

              A good point. By selling in roubles they force engagement with the Russian banking system, withdraw their direct engagement with the Western banking systems, and can decide what to do with the FX generated by their banks. They can take their time to put the cash into Gold, Yuan, BRL, or INR. I really like their move.

              You think you can get seignorage and generate flows for your banking system and trash their currency, and get gas. Think again.

          2. nippersdad

            Perhaps that is what they want? It might be a chess move. The idea that one could not trust the west even during a grace/transitional period would limit the amount of dollars that could be stolen and prove once again to the domestic audience that the west is agreement incapable. When the gas is ultimately shut off it would provide a rationale for breaking the long term contracts that they have carefully observed throughout the past month.

            They are nicer (and smarter) than I am. I would still be demanding my three hundred billion dollars back, in gold, before they got a single “freedom molecule” from me. Germany could just reroute the gold reserves it is taking out of New York straight to Moscow. If you are going to do the time anyway you should at least take the opportunity to really stick it to them.

            When Europe runs out of gold they could then start emptying their museums….They could literally have Versailles shipped to the Crimea, replete with the guys who turn the fountains on….and the painting of Napoleon being crowned emperor of the French to be put in that blank spot in the boiler room at the Hermitage. Were I Vladimir Putin I would be all, like, which museum should we loot today, guys? “The Third Rome is on the phone, Mr. Draghi, and they want those bronze horses at St. Marks…..Yes, sir, the real ones.” “A Monet in every dacha” would be the platform I ran on. You know, really show your Viking roots.

            I don’t think that is an opportunity I could have passed up.

          3. Objective Ace

            There is a big-time cost to the US if they did confiscated like that at scale. Perhaps the loss in reputation and trustworthiness of the dollar is worth more to Russia than their current dollar denominated accounts?

            If you flip the question around: why hasnt the US already confiscated all USD denominated trades in Russia if its such an easy cost/benefit decision to make?

            1. Harry

              Forgive, but didn’t that already happen by freezing reserves? Is there a real difference to confiscation vs freezing? I just dont see it.

          4. jsn

            They are playing to the audience, which is outside the “Western Alliance”.

            Everyone sitting out the sanctions is worried about who its safe to trade with having watched the US confiscate Cuban, Iranian, Venezuelan and now Russian reserves.

            What charity Russia is providing now is toward the aim of giving everyone time to think about the down stream consequences of continuing fealty to an increasingly extortionate “Western Alliance”.

          5. Kolyn

            This is something I don’t understand either. I get the selling in Roubles, it supports the currency, moves transactions to Russian jurisdiction & establishes a sanction free bridgehead for some banks BUT they’re still going to be left with massive piles of Euros.

            Could they still use these trading with other countries in Africa, Latin America & Asia or do they get ‘frozen’ too?

            I suppose this scenario is so unprecedented it’s tricky to know how it unfolds. Presumably the Russians would insist on ‘new Euros’ being sanction immune otherwise they’d still be giving their exports for free.

            1. dftbs

              BUT they’re still going to be left with massive piles of Euros

              I take it you mean Russian banks will be left with piles of Euros as a result of fx transactions to get European consumers Rubles. The difference here is that these Euros will be in Russian banks, along with the Rubles now held by European consumers in Russian bank accounts to pay for Russian goods. They may not be sanctions proof, although sanctions would now hurt European depositors. But they would be seizure proof.

              1. jsn

                So long as most of the world is sitting out sanctions Euros can be recycled through trade with third party nations like China, India, Brazil, Mexico etc., so long as the exchange avoids SWIFT.

                This will require leg work, but everyone’s been incentivized to avoid making their funds available to seizure by the US, so I expect minds are focused.

              2. The Rev Kev

                Those Euros could be used to pay Russian bonds as they come due to avoid default which is in nobody’s interest, particularly western banks.

            2. Paul Damascene

              One temporary arrangement reported today was that in the short term, India may buy Russian energy with Euros–so would possibly buy the Euros for Rupees from Russian banks, and the rupees are then available for purchases of Indian products.

              What’s gone missing is the rubles for gold play–wherein the Russian Central Bank offers to buy gold in exchange for rubles. There, the Europeans would bring gold to an unsanctioned bank under Russian physical control & jurisdiction, and get rubles, with which to buy Russian gas.

        2. RobertC

          Lex — “I’ve been coming around to the idea that Russia is also applying Deep Operations concepts at the geo-political/grand strategy scale within the context of its realist foreign policy.”

          I concur. As I asserted here RobertC March 25, 2022 at 12:23 pm we’re in the Next Generation of warfare.

      2. atharvaveda

        It makes no sense to set a firm deadline, declare that “without payment, there will be no gas” as both Abramov (a lawmaker) and the Kremlin spokesman did, only to then cave at the last minute after the EU unanimously said they will continue paying in dollars and euros. Saying that there will instead be a “gradual shift” to ruble payments is utter nonsense. There can of course be no “gradual” shift with a counterparty that is not cooperative, and one which says, in a way correctly, that payment in anything but dollars or euros (which can then be frozen) would be a circumvention of the sanctions that they put in place. Politically, the EU leaders are after this further emboldened to not ever pay in rubles. Russia will at some point have to return to a threat of switching off the gas if ruble payment isn’t forthcoming, but the next time with even less credibility than before.

        Edit: I should add that what Lex wrote in response is interesting. The confusion and fear (facilitated by German politicians saying that 15 degrees Celsius at home is perfectly fine, “just wear a sweater”, or BASF saying their massive plant in Ludwigshafen would need to be completely shut down) caused by this could very well be more valuable to Russia than I recognize.

        1. Yves Smith Post author

          No, there are some countries that will pay in roubles like South Korea, so it is not in Russia’s interest to jerk them around. And as I indicated, potentially others. Lithuania gets all of its energy from Russia per IEA. 100%. They will have to capitulate, even if not immediately. I haven’t gone looking, but I am just about 100% sure that not all EU nations ex the G7 members have taken a stand. Not only has Hungary not, but where, for instance, is Spain?

          1. nippersdad

            I saw an interesting map yesterday on Richard Medhurst’s podcast about European LNG terminals that you may be interested in. In addition to being on the Belt and Road Initiative (or was that Portugal?) and being first in line for Algerian gas, they look to be better set up for LNG than anyone else in Europe.


            I have heard nothing about their stance as to the Ruble, but if anyone is best prepared to sit on a fence it would be Spain.

          2. Polar Socialist

            The Russian media is reporting that today Putin in phone explained to Scholz that Russia has to demand rubles from Germany because EU illegally froze Russian accounts. Experts of both countries are said to be discussing the matter.

          3. Paul Damascene

            A technical / operational question:

            How much control does Russia have over who gets fed from a pipeline? If some agree and some don’t on a particular line, is it all or nothing?

            1. KerSer

              Physically, they can’t choose the final destination of the gas the send. The European gas network is pretty well interconnected, and once Russian gas changes hands at one of the several interconnection points, they lose control over it. There’s no direct pipeline from Russia to Italy, for example. There are pipelines entering Slovakia through Ukraine, or Poland through Belarus (or rather Germany through Belarus and Poland, because if I am not mistaken Russia sells its gas to Germany through that pipeline and Germany can then sell it back to Poland), or through NS1 directly to Germany. I think those are the main routes to Western Europe, in any case. The Balkans are fed via Turkey, but that part of Europe is slightly less well connected to Western Europe. As for the Iberian peninsula, it’s somewhat of an energy island, with few connections to the rest of Europe.

  2. Louis Fyne

    —-Russia has decided to “dramatically” scale back its military activities in the Kyiv area, —

    The circumstantial evidence implies that Ukraine put the bulk of its military and ultranationalist paramility units in the southeast around the border w/the Donbas.

    This could be easily refuted/verified by commercial satellite photos or unbiased analysis but there pretty much doesn’t exist unless someone wants to gift The War Nerd some commercial photos of Donbas.

    Essentially Kyiv was lightly defended and the Russians seem to have all their objectives around Kyiv—particularly the airport at Gostomel and blocking any potential counterattck from western Ukraine.

    And given the missile strikes that destroyed military and logistics infrastructure in western Ukraine, it appears no organized Ukrainian military effort is possible.

  3. LorenzoStDuBois

    Military things I don’t understand:

    1) The UKR army is (was?) 300k strong, not including as many reserves. Why is neutralizing only 60k of them in the east so central to the Russian operation?

    2) It has been said that RUS invaded with 200k vs. UKR total of 600k, a 1/3 disadvantage. If this was such a disadvantage, why did RUS do it?

    1. Louis Fyne

      1) The UKR regular army and ultranationalist paramility units in the southeast were the most experienced, best trained, best equipped, presumably trained at NATO facilities over the course of the past 15+ years.

      Images of lots of NATO weapons consficated by Donbas fighters floating around social media.

      2) why did RUS do it? This is their red line. To them it was worth rolling the dice. And Russian air power narrowed the odds by a lot.

      1. Yves Smith Post author

        60,000 is the dead lowest estimate of the # in the cauldron. It could be as high as 140,000.

        I am fairly sure the Ukraine troops in Mariupol, more of their best fighters, are not part of that total. Other readers may have better guesstimates, but the ones I’ve heard are in the 14,000 to 30,000 range.

        1. Harry

          Quite so! Not to mention they were dug in with 6 years worth of concrete. So rolling directly over them would have been costly. The other observation to add to your answer is that in any military force there are a certain number of front line troops, and then there are the military facilitators. I read that the ratio of shock troops (trigger fingers) to logistics and everything else might end up being something like 1:6. So if the solders in the Donbas were actually say 80k front line troops, it would constitute the bulk of the Ukraine’s military. Most of the rest might be low quality or various forms of logistics, intel etc.

      2. dftbs

        1) Ru intelligence that’s been made available indicated that the forces now in cauldron were positioned for an imminent offensive against the LDNR. These forces be them 60,000 or 140,000 or 30,000 survivors constituted the best prepared and most effective fighting contingent of the VSU. Making them inoperable is a more significant strategic victory than beating up the reservists out west.

        2)if if were in Arlington the answer to this question would keep me up at night. I don’t think the Russians “rolled the dice”. I do think they judged their forces to be more than adequate to defeat the second largest military in Europe. One that has 8 years of combat experience and has been trained to NATO standards and interoperability and is a beneficiary to significant Western largesse. What this says about NATO/US capabilities is not good. It seems all those dollars spent on defense were spent on home remodelings in northern Virginia.

        1. digi_owl

          I guess the one tripping point is that Ukraine is still using largely soviet era kit. They even pulled some old recon “drones” out of storage and seemingly repurposed them into cruise missiles.

          It may well be that Russia saw it fit to strike before Ukraine started receiving larger items like tanks or jets (supposedly the groundwork for a US patrol boat base was being laid at Odessa).

          All in all this is looking like year another Cuban Crisis. And yet again DC failed to reflect on their own actions.

          Honestly i keep thinking about Reagan’s epiphany after the USSR massively mobilized in response to Able Archer 83. Only then did he seem to realize just how hair trigger the USSR was, and perhaps why he was willing to sign the treaty with Gorbachev (a treaty that has now been rescinded by both parties).

        2. Harry

          Seems that way to me too. I was amused to see the javelin program has been cancelled. Chalk that one down to experience! Turns out that AWACs/satellite data plus soviet era artillery is far more effective in dealing with Russian armor. Who knew? Plus its hard to tell how scared US military was in seeing how the Kinzhal in action. I guess we still dont know if it can hit moving ships. But it can sure make a mess of land targets.

          1. The Rev Kev

            The Saker was saying this about the Javelin-

            ‘It is now clear that the Pentagon leadership has seen the utterly dismal performance of the Javelin and now wants to phase it out from U.S. forces. Remember, out of thousands of Javelins supplied, thousands of videos published by Ukraine, not a single successful usage of the system has ever been recorded. In fact the vast majority of successful Ukrainian defeats of Russian armor happens at the ends of legacy Soviet/Russian systems and mostly artillery. Russian forces continue to find Javelin units completely unused because Ukr troops have found them to be unwieldy and impractical in combat – too long to set up and use, too heavy to carry around, and not effective even when used. For urban combat where troops have to be as light, mobile, and agile as possible, the Javelin is absolutely worthless with its large CLU interface and overly-bulky design. The Pentagon has clearly seen the failure of the over-hyped system.’

            1. tegnost

              “The Pentagon has clearly seen the failure of the over-hyped system”

              The Pentagon has clearly seen the failure of yet another over-hyped system.’.’

              THere, fixed it…

            2. fajensen

              The Pentagon has clearly seen the failure of the over-hyped system.

              If it made profits for the manufacturers while leaving enough ‘bezzle’ on the table for passing the qualification phase then it was an outstanding success, not a failure.

              And there is are bright side to this: These bullshit military unicorn systems, with their huge cost overruns and abysmal performance, they are good omens.

              Their very existence signals that nobody “in charge” expects us to fight a real war any day soon. Besides, it is the established way that “we” can do “Socialism” and “Picking Winners” here in “Liberal Democracy LaLa-Land”, where Markets rule supreme and unregulated – for as long as the right kind of people are winning.

              If we had weaponry that worked and could be mass produced and distributed at scale – then we would already be fighting the 3’rd Reich and doing quite badly!

    2. JohnA

      Read the Scott Ritter twitter postings referenced above. He explains exactly how they did it.

      1. doug

        Everyone should read that. Totally different story than is being told by USofA MSM. The narrative control is amazing. Thanks to this place for posting it.

      2. digi_owl

        So to sum up, Kiev was used by Russia as a distraction because they knew Ukraine could not let it fall. Thus Russia committed just enough forces there to get Ukraine to not send forces south.

        Again and again people treat Putin et al as liars, yet when he said he was sending “peacekeepers” (in much the same way as NATO et al has been sending “peacekeepers” all over the world for decades) to Donbass he meant it.

        Yet the preveiling media story has been that Putin was hell bent on doing what Stalin didn’t, and take over Europe. If that was the case, why would he start of with a slow crawling land war in the ass end of Ukraine?!

        1. The Rev Kev

          ‘Thus Russia committed just enough forces there to get Ukraine to not send forces south.’

          And now they can’t. Most of their tanks are gone, their fuel & repair depots have been destroyed and probably their munition storage depots are gone as well. Even if they still had all that stuff, it is such a long distance that the Russians would wipe them out as soon as they were in open country. So for Zelensky to keep on demanding tanks from NATO is being disingenuous at best.

          1. digi_owl

            Brings me to my puzzlement of how western media kept pushing articles asking where the Russian air force was, at the same time as Zelensky kept begging for a no-fly zone.

            If the air force was a no show, closing the air above Ukraine would be of little consequence.

            Thus the air force must indeed have been active, but going after military targets like supply convoys deeper in Ukraine rather than targeting urban areas where western media had their contacts located.

            But reporting on that would give the impression that Ukraine was getting pummeled, rather than fighting back.

            1. Harry

              So I got the impression (comments on a “war porn” site) that AWAC data was being fed to the few Buks still operational. Maybe about 30-40 apparently according to RF MoD out of 188(?). Those Buks get sent the data of all incoming flights, and switch on their radar briefly to get a shot off, and then scoot. This tactic resulted in losses so the Russians switch to low level flight or just missiles in the West of the country. Suffice to say their missiles have turned out to be excellent.

              In the East they are free to fly as much as they like as far as I can tell

        2. russell1200

          Scott Ritter ignores all the granular information out there that contradicts his rather windy high-level view. He is absolutely not the pro-Russian interpretation I would reference. A very compromised individual.

          If you filter through all the weapons-geek postings, you can see that the Russians have had issues. One weird thread is that it is not clear that the Russian military is always being honest to its reports. A telling example is when they talk about the use of hypersonic missiles against the Western Ukraine. Well weapons geeks are into that sort of thing. And know all sorts of weapons parameters that aren’t general knowledge. Long story, they find the location of the hit and it’s in Eastern Ukraine and there is no reason for it to be a hypersonic missile. It’s just a shot of them hitting a large farm complex with a missile. So why the big story? The Ukrainians know that there was no hit in Western Ukraine – and didn’t pay much attention to it. But if you are Russian Brass and want to keep your boss happy, and give him some good news about stopping weapons shipments, it works pretty well. It’s just that those annoying weapons geeks just have to keep digging.

          So Putin gets painted a pretty picture and invades. The number of troops involved is usually sited at ~150,000. It isn’t pretty. They overreach, and get stopped cold in some places.

          The fact that the Russians are outnumbered is meaningless. The often sited 3:1 ratio for offensive success has no bearing on reality. You can find lots of battles where the attacking side is outnumbered and wins. Size of economy is important in a long war. But you have to survive the near term for the long term effects of economy to matter.

          1. The Rev Kev

            Since the Ukrainians have lost their Navy, the bulk of their Air Force, their armour their fuel depots, their repair depots, have their best troops locked up in a cauldron, etc, etc, etc. I am going with the idea that Russia has basically won this war. It will take some time to wind down but what Ritter says matches the reports that I have read elsewhere. And what economy does the Ukrainians have left? Their workers are all serving as militia or in the army. The country was a basket case before the war and now it will be the EU left holding the bag of what is left.

            1. Bob

              Sorry Rev –

              The presumption is that this is a conventional war.

              It is an unconventional war and the war unfortunately (especially for civilians) is far from over.

              A few cheap drones can destroy a weapons depot, adroitly managed antiaircraft systems can defeat air superiority, inexpensive man portable AT weapons can destroy an armored column.

              An interesting fact is that the destroyed armor vehicles seem to have their reactive armor intact. So one has to ask why are the Ukrainians not stripping the reactive armor for their own use ? Is it because they don’t need it ? Is it because it is just for show ? Note that in Vietnam UXOs were commonly repurposed for command detonated mines.

          2. Darthbobber

            Our own Air Force seems to agree that a number of strikes were indeed by hypersonic missiles. Granted, that’s not as uber-cool as unnamed weapons geeks, but still….

          3. Yves Smith Post author

            The claim that the hypersonic missile was used on a farm complex was debunked as Ukraine disinformation. But an otherwise well regarded US site, I think The Drive, ran a long story on the misattributed videos.

            One thing the Russians did hit with the hypersonic missiles was a bunker 60 feet underground, supposedly able to withstand a nuclear strike. Full of Ukrainian munitions. The reports were that the missile was not believed capable of taking out the bunker but would render it inoperable/inaccessible by destroying its doors, ventilation, and other vulnerable bits.

            I have not gone looking on the WayBack Machine to see if these articles got enough views to live there, but reports from ‘Western sources that suggested that the Kinzal did its job have been removed. You can still see the summaries on Brave, but when you click on the links, they take you to the site, not articles. And when I put in “hypersonic” in the search field, the listed article does not come up.

            I’m not clever enough to be able to insert a screenshot, but here is the text from the first article summary that came up in Brave:

            ?Russian Hypersonic Missile Incapacitated Underground….
            › news › 31641 › Russian_Hypersonic_Missile_Incapacitated_Underground_Bunker_Designed_to_Store_Nuclear_Weapons
            Former Nuclear Weapons Storage Facility, Delyatyn, Ivano-Frankivsk region, Western Ukraine: GoogleMaps · Russia’s first ever use in battle of its hypersonic missile called ‘Kinzal’ (Dagger in Russian) on March 19 was intended to incapacitate a Soviet era bunker located several meters underground …

          4. Andrew Watts

            Ritter might be pro-Russian, but that doesn’t necessarily mean he’s wrong. The Ukrainians have only seemed to have maintained their freedom to maneuver outside Kharkiv since the outbreak of war. I don’t think the Russians have come close to completely surrounding it in spite of it’s closeness to the border.

            It’s a different story elsewhere in the country. The Ukrainian retreat into the cities means that they’ve lost the ability to do that. They also have a lot of their forces tied down guarding territory that the Russians might not even attack like Odessa… yet.

            1. Yves Smith Post author

              Gonzalo Lira, who was in Kharkov, was reporting he heard missile strikes daily but could guesstimate they were X kilometers away and so not an immediate threat.

          5. Harry

            I did notice that there were people arguing that they had geolocated one of the strikes to the East of the country and not the Carpathian deep bunker the Russians had claimed.

            I can’t work out who to believe in this. However I do know that the US military has agreed that the Russians had used hypersonics in Ukraine. Doing so might have been military necessity, (deep bunkers) or credible signalling (look at our toys!). However it’s not difficult to see that Ukraine appears to have been very sparing in its use of long distance missile weapons. Which might be taken as meaning that it didn’t have access to them.

        1. OnceWereVirologist

          Well in fairness, when he says that it’ll be over in a week, he obviously means that the Ukrainians will surrender on seeing that their position is already hopeless. Instead it seems that something around 100,000 soldiers could end up fighting to almost the last man in Mariupol and the Donbass. That kind of slaughter is no quick thing even with modern weaponry, especially when the opponent has been long dug-in.

    3. Jack

      This is my understanding from all the reading absorbed over the past 3 weeks. 1. The Ukraine army group that was in or next to the Donbass was the cream of their army. Apparently, this army was poised to invade the Donbass in March. Putin preemptively attacked the end of February beating them to the punch. Russia also needed to establish a land bridge to the Crimea and the defeat of Mariupol gains that for them. So the only soldiers they really needed to fight were in the east. 2. Russia invaded with the forces it already had positioned around the Ukraine. Putin had certain objectives he wanted to achieve and the forces that were used were what was thought to be necessary. Apparently, Russia was somewhat surprised at the success of the Ukraine defensive response.

      1. digi_owl

        Probably also taken aback with how quick and unified the western sanction response was. I suspect Putin hoped for a bit of self reflection, but failed to account for how different the media coverage of Ukraine has been between the west and Russia. To western media Ukraine is a recovering European nation, not a cesspit of corruption and neo-nazis. Just yesterday the national broadcaster around here posted a massive article trying to downplay the whole Azov angle as a figment of Putin’s imagination. I was appalled by how blatant it was, as i had thought the channel to be better.

          1. digi_owl

            For a bit of “local” history: The very same Germans that was building defenses up north to stall the red army advancing into Norway, was after the war brought back north to help Norway build its defenses against a potential invasion.

            The biggest irony is that USSR withdrew from Norway after the war, and even allowed the Norwegian crown prince to travel via Russia in order to assume control up north before the German surrender, in stark contrast to their behavior down south.

            Yet for some reason DC managed to convince Oslo to be a party to the creation of NATO.

            The one thing to keep in mind though is that from the outset Norway refused any permanent bases for foreign forces on Norwegian soil (in more recent years the spirit of that refusal has been violated, sadly).

          2. Oh

            US Foreign policy in war always seem to have us teaming up with the worst elements, Nazis, Al Queda, ISIS, et al. Most of these elements are usually declared as enemies but that doesn’t stop us from doing so. The more I think about the more believable that the CIA and the Defese Military Complex don’t care who we fight as long as we keep increasing the production of weapons and their supply around the world. The reports that circulate the Russian use of hypersonic weapons inure to the benefit of the MIC. “Let’s invent faster and deadlier weapons” is the war cry. Unless we can take back the PTB that run each administration, we have no hope.

            1. Harry

              It’s cos its hard to find people who are sufficiently committed to a cause to risk death and torture just for the chance to commit terrorist acts. Who would you choose to be your stay behind network?

    4. timbers

      This may help you regarding maneuver warfare….

      Regarding Scott Ritter and maneuver warfare, it’s possible his pen name is Nightvision, as there is a larger post at The Saker – Sitrep: Operation Z – that contains the 11 points that include the ones above.

      1. The Rev Kev

        That Scott Ritter Twitterstorm is actually linked in that article about six paragraphs down and it was extracted into that article. Always good to see the big picture and you can bet that West Point cadets will be studying this campaign for decades. Well, I hope it is. I am not even sure if they study Sun Tzu anymore.

        1. albrt

          What country do you expect West Point to be sponsored by several decades from now?

          My guess would be the Mid-Atlantic Republic, which will have an army of around 30,000, mostly local militias.

    5. Henry Moon Pie

      It seems to me that the Russians are confronted with two types of military opponents in Ukraine:

      1) The regular Ukraine army, its neo-Nazi components and the Ukrainian reserves; and

      2) irregular, 4th generation warfare units, probably led by U.S./CIA/mercs and guided by intelligence from U. S. satellites and AWACs that are flying over the Romanian, Polish and Baltics borders.

      The regular Ukraine army and most of the Nazi components were trapped early on and remain largely immobile, but they are using an urban defense with civilian shields to maximize Russian losses and create delay. The reserves and teenagers with Molotovs are not much of a factor.

      The irregular units are the ones doing some damage. Who knows if this was an American strategy (because that’s who the Russians are really fighting here) before the RF entered Ukraine or whether it was improvised after the fact. The Russian missile strike on the training base in western Ukraine may have set this effort back.

      1. digi_owl

        Those irregulars brings to mind claims during the Libyan “civil” war (or first civil war according to wikipedia), involving plain clothed westerners fighting against Gaddafi’s forces even though UN has only approved bombing.

        Ukraine calling for foreign volunteers would be a nifty cover for the spooks to get their people in indeed, even though it would risk a escalation unless they were thoroughly deniable.

        All in all, it really does seem like Langley et all wants to turn this into another 80s Afghanistan. Do wonder what the blowback will be this time.

    6. David

      The Russians are primarily interested in controlling the East, therefore the operation was designed to surround and defeat Ukrainian forces there (including most of their best troops) and prevent troops from the West coming to intervene.

      On the second point, I think Ritter is overdoing it a bit. The 600K figure is the absolute maximum the Ukrainians could field, including all recalled reservists and territorial units. Recalling, integrating and deploying reservists takes time: most nations would require several weeks of training before they deployed reservist units in combat. Remember also that many reservists will be typically employed in static guarding duties, administration, traffic control, communications, logistics and so forth. It’s also not clear whether there was equipment for all of them anyway. In practice, most of the trained, usable manpower was deployed in the Donbass, and reservists would only have made much difference if the Russians had tried to take and hold the cities, which they were clearly not interested in doing. In reality, I suspect that the Russians had at least as much trained and available combat power as the Ukrainians and they used it better.

      But we shouldn’t be dazzled by simple numbers: history is full of armies scoring decisive victories without an advantage of size or even equipment quality – France 1940 is a classic example. In addition, the Russians used missiles and airpower to great advantage, and in particular they cut the enemy communication system, so the individual units couldn’t act together in a common plan. To get an idea of what this means, think of a football (soccer) match where one side has eleven players, but they are playing in a fog and can’t see more than their immediate area, and can’t see their teammates. A team of three players, but with goggles that enabled them to see clearly, would beat them easily.

      1. Yves Smith Post author

        The figure I have seen from others, and was more or less included in other Ritter discussions of total active forces, was about 260,000 of regular forces, another various other types of active units with special skills (not special forces level) IIRC 20,000ish, and something like 310,000 of reservists. You’d think Zelensky would have fielded all of his reservists since the government was conscripting all adult males under 60. Gonzalo Lira said that among Ukrainians he knew, the men were fleeing to escape conscription.

        With the rule of thumb for a traditional conquest (the territory-holding sort which Russia was not pursuing) of at least a 3:1 manpower advantage, Russia went in light if it had been pursuing the sort of war the West assumed Russia was waging.

        This is cribbed from another comment and I have not verified it, but I understand the Germans took 54,000 and seven weeks to take Kiev in WWII.

        1. The Rev Kev

          I think that Scott Ritter said in one of his videos about a week ago that if the Russians tried to take a city the size of Kiev which has millions of people in it, that they would need the manpower of their entire armed forces – so they won’t even try.

        2. David

          Yes, bear in mind that, as I think I said in comments last week, the famous “three to one” rule was actually a rule of thumb developed by the Prussian Military Academy in the nineteenth century for the umpired wargames that the cadets played. If one side could assemble a local superiority of three to one against an enemy position, the umpires deemed that the position would probably be taken in real life. But this was essentially a tactical issue (ie the right number of troops concentrated in the right place) and assumed that the two sides were equal as regards equipment and training. It’s not a rule that ever really applied in campaign terms. By contrast, there’s no substitute for numbers if you want to occupy territory, as the Germans found in Russia.

          1. The Rev Kev

            That Prussian rule may have been based on the reports from their observers during the US Civil War. It has been a while since I have watched it but in the 1993 film “Gettysburg”, I am sure there was a part where Confederate General James Longstreet was kidded by his fellow officers about his idea of this 3 to 1 rule. If I remembered correctly, then this may have been based on something that the real James Longstreet observed back then. And if so, I am sure then that this idea may have made its way back to Prussia with those military observers. Here is one such officer-


          2. Greg

            I recall reading a ~100yr old military historian maths nerds book that assessed the ratios needed to secure victory based on different conditions, defenses, etc. Wish i could remember who it was by, as I’d love to read it again.

            The three to one rule is not a bad rule of thumb, it does apply in most historic battles across a range of different army types, once you adjust for weather and terrain. Perhaps industrial warfare has changed things, given the age of that book.

    7. NotTimothyGeithner

      1. These were the best troops, likely meeting the standards of NATO which should be somewhat reasonable give recent decades. Armies are always reforming. It’s likely the NATO trainers wrote reports detailing what companies are good and which ones aren’t. The Russians are reforming their training too, not at this exact moment, but the publicized Russian tactical mistakes were likely the result of the NCO and lieutenant issues the Russian military command has discussed publicly over the last few years.

      2: 3 to 1 and even 5 to 1 are the usual ratios deemed necessary to attack a position. Air power and range of artillery are what really matter. The satellites, the ones us plebes have seen, won’t get fooled about troop movements in that part of the world. It’s open. Then the obvious but overlooked issue is armies march on their stomachs. Air power is denying resupply. Tanks don’t run on freedom, and they aren’t meant to travel off road. They are meant to fight off road but otherwise be flatbedded or use roads.

    8. nippersdad

      In addition to other comments here, there is the point that the Russians have been running cover for the Donbass militias who are doing most of the heavy lifting in places like Marieupol. In running cover for the militias they are probably trying to show that they are doing no more than the locals; that they are there for cover, not conquest. It is only relatively recently that we have heard reports of Russian flags going up and adoption of the Ruble in the areas now controlled by Russian, Donbass militia and Chechen forces.

      Also, too, they did not want to get too many people out in front of their supply lines. IIRC, they only committed about ten percent of their forces to the conflict so they still have back-ups if things go south, and with a conscripted army it is prolly a good idea to limit your losses as much as possible with an eye to public opinion.

  4. Mike

    Since the truth about negotiations will never be published in Western media, it would behoove us to prise the results of the Donbas maneuver from neutral sources and see if those areas are truly cleaned out, i.e., given independent status as political states. I’m sure negotiations will also include guaranteees of no military buildup by Ukrainian forces near Donetsk and Lugansk once the war is halted.

    To me, the puzzle lies in Zelensky’s ability to sell such to his populace AND to the remains of the right-wing sectors within the government. Will they go rogue and regroup around Dmitri and friends to get rid of Zelensky, and what will the citizenry say about it?

  5. Sardonia

    ‘the level of discussion on Twitter in the last couple of days has dropped dramatically. Similarly, I don’t check into Daily Mail religiously, but not all that long ago, it crowded out celebrity coverage”

    Dat Will Smith dun slapped the Ukraine Conflict right off the front pages.

    I wonder if he’ll get a footnote in the history books.

    1. digi_owl

      Shows you have much the chattering classes think this is all some grand show.

      Ukraine is old hat, slap fights at the Oscars is the new hotness.

  6. Thuto

    If this objective coverage of the war appears on the radar of the msm, NC will soon be accused of “having links to the Kremlin and its commentariat a troll farm for Russia”.

    Re: peace talks. Anthony Blinken already poured cold water over any hope of progress, accusing Russia of not being serious. Even though the broad contours of a deal seem to be clealy laid out, one can reasonably assume that the US has de facto veto power over what the Ukrainian side can agree to, and Zelensky is still on a relentless Zoom roadshow to gaslight every sitting politician in the west and EU into prolonging the war, I for one am not holding my breath that the negotiations will produce anything that can materially impact the war on the ground in a reasonable timeframe. Russia turning off the gas and the resulting economic fallout may drag EU politicians from planet delusion and back into the real world, maybe then we may see new resolve to actually negotiate in good faith and create a roadmap to a ceasefire.

    1. David

      I think the US is now relegated to a minor role in this crisis, though they will probably be the last to realise it. They have nothing to offer Zelensky: they are not going to intervene militarily, and any equipment they send will probably be destroyed before it can be used. They can’t offer NATO membership, they can’t send trainers into Ukraine, and there’s not much of the Ukrainian forces left to train anyway. It’s the Russians who will dictate the outcome, and the Turks, and possibly the Chinese, who will facilitate.

      1. The Rev Kev

        I wonder how many hundreds of NATO advisors/special forces there are in the Ukraine right now that are trapped in cauldrons and cannot get out. I read earlier today that a Ukrainian military helicopter was shot out of the sky as it tried to get into Mariupol to evacuate Azov top officers but maybe they were sent to get a different group instead.

        1. David

          I’d be surprised if there are any now, and any who were there at the start would have been told to run like hell. It’s extremely bad publicity to have any of your people killed in such a situation. Advisors wouldn’t normally be on the ground in such operations: the Ukrainians actually seem to have been quite well trained, and in this type of organised, relatively high-intensity warfare, foreigners would just get in the way. The only real SF role I can think of would be intelligence-gathering, and that would be done much better by technical means. We need to bear in mind that this is a fundamentally different kind of conflict from, say, Afghanistan.

          1. The Rev Kev

            Maybe, but there is a history of how such officers accompanied the Ukrainians from as far back as 2015 where some were killed. I would not be surprised to see NATO liaison officers in that cauldron that were to help coordinate the invasion of the Donbass before they could get out. And I think that we will learn that special forces from such countries as the US, the UK, Poland, France are right now doing missions in the Ukraine. It fits their history.

            The Russians fought against some of these guys back in the 2008 Georgian war and even captured one of them. Western special forces were with the Jihadists in Syria helping with training, intelligence coordination and even fighting. There was even a coordination center outside Aleppo during the fighting that had officers from the UK, UK, Israel, Saudi Arabia, etc. That is until the Russians lobbed two missiles into it because of what happened at Deir ez-Zor. Yes my sources of information were mostly Russian so you take it for what it is worth but you will never see any of this in the main stream media.

        2. JoeC100

          I saw a report earlier today that the two helicopters were intended to evacuate key AZOV leaders and several “high value foreign mercenaries”…

      2. Thuto

        If the US doesn’t have a seat at the negotiating table and is labouring under the false belief that it has an influence on proceedings as you state, who then might be Zelensky’s “handler” because I very much doubt he acts with complete autonomy? And also, don’t you see the possibility that once they realize belatedly that their influence has waned to the point of atrophy they’ll switch to being a saboteur, making things even more complicated?

          1. Thuto

            This will massively complicate a peace deal because the purging of right sector players is one of Putin’s stated goals (assuming there’s no daylight between nazis and the right sector). They will reject any deal that places them in Russia’s crosshairs.

        1. David

          I’m sure he doesn’t act with complete autonomy, but I’m equally sure that, like many politicians we think of as “weak,” he is quite adept at playing different sides against each other, without them realising. It depends on the context and the issues involved, but it wouldn’t surprise me if he and his government are already starting to broaden their portfolios, and mark some countries up and others down. For form’s sake, he’ll certainly continue to be nice to the US in public, but I suspect they’ll have less and less practical influence. After all, it’s hard to see what they can offer him, or threaten him with, that compares with what the Russians can do. Likewise, the Chinese can offer infrastructure projects that the US could never match.

          If anything like this happens, and if Russian objectives are anything like fulfilled, this is going to cause brains to melt down in Washington. That said, it’s not clear what they can do in practice, and what levers they would have after a Russian-Ukrainian settlement along the lines being discussed.

          1. Thuto

            Makes sense, Russia is firmly in the driver’s seat here, though one has to keep watch on what the right sector might do to drag this out to save its own skin.

            1. HotFlash

              That said, it’s not clear what they can do in practice

              Well, IIRC ‘Merika tends to go for assassination in cases like that.

  7. S

    I tried Googling for the South Korean statement on paying in roubles but could not find it – the joys of Google. Does anyone have a link?

    1. Ernie

      From a March 24 article in the Globe and Mail, “Asian gas buyers puzzle over Putin’s demand for payment in rubles“:

      South Korea, Asia’s third-largest importer of Russian LNG, expected to be able to continue imports, with the country’s Financial Services Commission saying it would do whatever was necessary to facilitate trade.

      Essentially the same report is found in a March 27 article in RT, “Japan baffled by demand to pay for Russian gas in rubles

      Found using DDG.

      1. The Rev Kev

        I think that Plutoniumkun said a coupla days ago that this was just a way for the Japanese to temporize while they worked out what to do in a new situation – but he may correct me.

        1. Acacia

          That sounds right. Japan has a bit of leeway because most of its LNG comes from Australia and Malaysia, with only ~9% coming from Russia (about the same as from the US, actually).

          Interestingly, JPYRUB is nearly back to pre-invasion prices:

          PM Kishida has already called on citizens to conserve energy, and Japanese are used to living in cold quarters. Also, the latest budget apparently includes money to try and cushion shocks on some businesses. Lots of small business owners in Japan and the govt is probably well aware they will take a hit at the polls if people have to pay much more for energy and food.

  8. JoeC100

    I noticed this morning a further significant part of this story – that Russia is linking Rubles to gold. If this report is correct, does this further disrupt the historic USD/EURO position in global economics and finance?

      1. José Freitas

        But as the ruble appreciates, it will approach and reach market value, and may possibly become a better deal…

      2. Wukchumni

        “Additionally, the latest reports informed that the Russian central bank is planning to pay a fixed rate of 5,000 roubles ($52) for 1 gram of gold, between March 28 and June 30. It will be below the present market value which is around $68.”

        Russia’s move is right out of the FDR playbook, when he took the USA off the monetary gold standard in 1933, he raised the value by 75% to $35 per oz and that was the price the US government paid to mining interests, the new normal unchanging spot spot for nearly 40 years after, worldwide.

  9. Lex

    As someone who’s been following this situation with an unhealthy compulsion and is well over 100K pages deep in regional history, you’ve put together one of the best and most balanced summaries I’ve read yet.

  10. Jung

    It looks like Russia is playing their long-game in its ruble for gas requirement, pushing against western finance. It doesn’t do much now, so far as I can tell, but it might accelerate the decline in influence of the Euro and Dollar.

    I wouldn’t be surprised if Russia would be willing to compromise on territory, demilitarization, and denazification if Ukraine became federal and consensus based, increased rights for minorities, and became official neutral.

  11. Susan the other

    The Germans probably thought they’d never need Deutsche Bank’s expert laundry services in the normal course of business. But how things change. DB was once a mega conduit for lotsa roubles, iirc. Let them take care of it. Just shift into reverse or something.

    1. Oh

      DB will facilitate by procuring roubles from the drug mafia in RU in exchange for euros. They have the connections :)

  12. harrybothered

    According to a quote from Pepe Escobar I saw this morning on the Saker, some are scrambling to get their gas in rubles:

    There is of course another piece of news widely reported, and I quote from Pepe Escobar (in true Escobar style) Telegram channel:


    The Vatican Bank used 10 million euros to BUY RUBLES from the Russian Central Bank so they could pay for their gas.

    They followed the instructions by the Russian Federation government to the letter.

    If this multinational organization In Nome del Padre, Figlio & Spirito Santo can do it, why not some bloody Germans?

    1. Safety First

      ………..maybe because they are Lutherans?

      Ok, technically Bavaria is Catholic, but the rest of Germany is firmly in the Reformationist camp.

      Really, though, it is likely that the Vatican did it because it can get away with it. It is small (economically as well as geographically), it is not the target for US LNG exports (unlike Germany), and sanctioning the Pope is a bad look given that 20% of the US is still Catholic (per the census).

      For the Germans to do this would be a direct challenge to Washington, something they have been incapable of mounting for a long time, politically. Bluntly put, Germany in particular and EU in general had long ago ceded their sovereignty to the US, becoming America’s de-facto “periphery” (i.e. entering into a sort of a colonial relationship). Merkel usually tried to at least hem and haw, playing to both the Americans and German businesses (heavily invested in exports to Russia and China), with mixed results. The current government is a lot more atlanticist in nature and outlook, i.e. bending the knee to whatever the Americans seem to want. Which presents an interesting quandary as to whether the German economic elite will just sit there and take its lumps, or throw its support behind CDS/CSU and try to get a new Merkel into power as soon as it becomes practicable.

  13. Charlie Sheldon

    Yves if you see this, do you think the overall play here is actually for Russia and China and a few other nations to force the dropping of the dollar in favor of a new financial system? I mean, on one level it seems Putin is doing (maybe more slowly and nastily than hoped) exactly what he said he was going to do, step by step. But, on another level, the use of the gas spigot and counter sanctions seem very likely maybe the first move in forcing Europe off the dollar and into the Eurasian blocs. If the overall strategy here is to destroy the dollar as the reserve currency, what steps are and would they take?

  14. Mikel

    “Russia agreed that Ukraine can join the EU. ”
    Ukraine may want to talk to Yanis Varoufakis before they do….

  15. Brian Beijer

    Don’t know if either of these new pieces have already been linked because I’m short on time today.

    Sputnik just announced that EU officials have just raided the offices of Gazprom in Germany.

    And Gonzala Lira just dis an interview with Scott Ritter that’s available through Lira’s twitter.

  16. Dave in Austin

    Just a few data-points to consider:

    1) Irpin is a modern high-rise garden suburb of Kiev on the west side of the Irpin river and outside the city- think Bethesda, MD. It was captured early-on by the Russians. The broken bridge pictures with civilians gingerly crossing the stream is from the Irpin front. Some Ukrainian units without much thought took up positions on the east side of the river and fired at the Russians and the Russians fired back- who went first is unclear. Shoot from buildings and you get damaged buildings. But things quieted down after both sides realized neither one was going away. Adult supervision arrived. During the last few days the Russians, without a fight or further damage, have withdrawn from Irpin and the U’s have moved in and begun to evacuate the 5,000 stubborn old people who refused to leave during the fighting. There are now pictures of big yellow cranes helping people move furniture from damaged upper floors. Both sides seem to have agreed “No reason for further war here.”

    If I hear the word “Cauldron” one more time I’ll scream. During WWII in Russia there were moments when advancing units broke up the defenders who still fought and suddenly there would be a zone 50 miles deep and 100 wide with both sides intermingled, convoys being overrun, untended wounded and mud… lots of mud. There was no true front; a nightmare. That was a Cauldron. There is no Cauldron in the east, no attempt to block the retreat of Ukrainian units and create another Mariupol. There is a slow, methodical, low casualty advance by the Russian side through a zone of small Ukrainian fortified villages facing the breakaway regions. Interestingly, there are no reports from either side about the fighting.

    Wars turn into frozen conflicts not by freezing everything in place but by freezing the visible things that the press sees and using creative ways to hide the real changes. Think Yugoslavia in the 90s and Berlin from 1948 to 1991. The Russians will not let the Donbas fall and they faces the French “But Algeria is a Department of France” issue in the Crimea. The issues will be finessed. On payments for gas; luckily the plumbing of the financial system is deeply buried out of sight where only a few highly paid technicians can see the details. Some wonderful solutions will magically appear; Hungary will get gas from the Yamal pipeline fork via the Ukraine; Germany will keep the “national” sanctions but German utilities will still get deliveries and bank accounts will still be debited. The model here is the “divided” island of Cyprus, the Moldovan “breakaway” regions and the Civil War front-line trade of Southern tobacco for northern newspapers. Trade is forbidden but smuggling is rampant; the bankers happily swap piles of $100 bills for bags of Euros; the locals get rich and the international press gets no photos to run on page 2.

    Yesterday the Russians said “No gas without payment” and then for the first time in weeks reserved some space in the Yamal pipeline to ship Poland gas it is forbidden to pay for. The waltz of cognitive dissonance continues. With I hope fewer dead bodies

    1. Yves Smith Post author

      Sources where the authors are or read Russian call it a cauldron, so I assume that is how the Russians like to describe it.

      I also heard reports but not confirmed that Russians were not allowing Ukraine forces engaged in the east to retreat. It’s pretty much open fields and secondary roads. The Russians allegedly control that area enough to prevent resupply, which should also imply they can prevent retreat.

      They may be able to strike any retreating units. By contrast, Russians would be delighted to have individual soldiers desert.

  17. Steve B

    So many moving parts in the crisis. Just wondering about the US-funded biolabs in Ukraine. Where are they located exactly? Russian propagandists say in Kiev, Odessa, Lvov and Kharkov:

    Surely, Russian war aims of denazification/demilitarization should include gaining control of biolabs. Which might well depend upon occupying the cities in which the labs are located. That means taking the capital Kiev. It also means taking Lviv, which is close to Polish border. That’s a long, long slog. Even so, regime change could still be the preferred outcome in any Russia war gaming.

    1. ewmayer

      If some of the biolabs really were doing bioweapons work, or shall we call it “dual use” work – the preferred option for the Russians would clearly be to capture it. But failing that, if one know where it is, one can likely neutralize a biolab in relatively safe fashion (in the “kill all the nasties” sense, not any staff remaining there, who would of coures also be toast) without capturing the surrounding territory – perhaps our weapons-geeks/ex-military readers can comment as to whether an incendiary or thermobaric bomb might serve. I notice the locations of major Russian air strikes early in the “special military operation” include many containing alleged biolabs.

      1. Steve B

        Yeah, but ‘denazification’ implies Nuremberg-style show trials, complete with unshredded US Department of Defense documents as prosecution exhibits and still-alive scientists in dock. Implies lab capture, not destruction.

        1. scarnoc

          Would fees typically be added to the exchange? Thank you, Yves. This post is the only place on the internet that I can find that is correlating good data and correct information. Well done.

  18. kemerd

    I don’t quite understand how Ruble payments would work unless the payment is made in physical gold or barter. The point I cannot see is how could Russian banks hold euros without actually having a corresponding account in an European bank unless they demand transport of banknotes before opening a Ruble account for them?

    I believe there must be a third country which both sides trust to facilitate the trade but then with open theft by the west, imagining of seizing also of assets of the broker country is not that difficult

      1. djrichard

        Paywalled, but looks like it should hit the ProQuest international feed in a day or two. For those of you that have access to a library that subscribes to that database

  19. Brunches with Cats

    > Specifically, Ukraine says it will not join NATO. How Zelensky can commit to that when it’s been put in the Ukraine constitution is beyond me.

    At the meeting with Zelensky on March 15 in Kiev (Poland/the big movie studio in Prague/an undersea Holodeck off the coast of Slovenia/it never happened), the three Eastern European leaders handed Zelensky some proposals for ending the war, including military aid, billions in reconstruction funds, aid for countries hosting refugees, and Ukraine abandoning its NATO aspirations and settling for EU membership. Slovenian Prime Minister Janez Janša covered several of these points during a BBC interview the day after the meeting (I posted the link on Lambert’s oil industry/climate change repost of March 27, but it was so late in the cycle that it likely was missed.)

    Janša mentions in passing an OECD draft plan for Ukraine reconstruction around 8:19. Changing the Ukraine constitution to forget about NATO is at 9:52. If Ukraine agrees to this, he said, the ball will be in the EU’s court to stop [family blog]ing around and make it happen. IMO that was behind the timing of the trip — i.e., to put some pressure on Zelensky ahead of the big NATO/EU meetings March 24-25.

    I’ve searched every few days for the OECD plan and haven’t seen anything yet. However, there was that joint announcement on March 17 by the various European money bags about how much they were dangling in front of Ukraine as an incentive to accept their marching orders. It’s all over my head, but here’s the link for anyone who massed it:

    It’s getting late, but one last comment before I pack in … Conspicuously absent in all of this are the multinationals who have been operating in Ukraine, many of them also in Russia. How likely is it that the execs haven’t been lobbying like mad behind the scenes to ensure that their investments are protected and their grift mills keep running — heavy hitters such as BP, Shell, Exxon/Mobil, Chevron, Total, Cargill, Bayer-Monsanto, ADM. At least three of those have known ties to the U.S. State Dept. Moreover, as I mentioned in a recent comment, Ukraine is about to open up the real estate market for its vast prime farmland, with the richest soil in the world. Sales of farmland were banned for years, until Zelensky signed legislation in April 2020. Contained in the same bill was a ban on returning PrivatBank to its former owners, Kolomoisky. I may be wrong on this, but I believe both provisions of the bill were required by the IMF as conditions for billions of dollars in loans.

  20. Brunches with Cats

    > Specifically, Ukraine says it will not join NATO. How Zelensky can commit to that when it’s been put in the Ukraine constitution is beyond me.

    At the meeting with Zelensky on March 15 in Kiev (Poland/the big movie studio in Prague/an undersea Holodeck off the coast of Slovenia/it never happened), the three Eastern European leaders handed Zelensky some proposals for ending the war, including military aid, billions in reconstruction funds, aid for countries hosting refugees, and Ukraine abandoning its NATO aspirations and settling for EU membership. Slovenian Prime Minister Janez Janša covered several of these points during a BBC interview the day after the meeting (I posted the link on Lambert’s oil industry/climate change repost of March 27, but it was so late in the cycle that it likely was missed.)

    Janša mentions in passing an OECD draft plan for Ukraine reconstruction around 8:19. Changing the Ukraine constitution to forget about NATO is at 9:52. If Ukraine agrees to this, he said, the ball will be in the EU’s court to stop [family blog]ing around and make it happen. IMO that was behind the timing of the trip — i.e., to put some pressure on Zelensky ahead of the big NATO/EU meetings March 24-25.

    I’ve searched every few days for the OECD plan and haven’t seen anything yet. However, there was that joint announcement on March 17 by the various European money bags about how much they were dangling in front of Ukraine as an incentive to accept their marching orders. It’s all over my head, but here’s the link for anyone who massed it:

    1. Ignacio

      Your last link is PR stuff of the kind “how empatic and helpful we are with Ukrainians” and “our money saves it all, no strings attached”. I am so fed up with this kind of announcements meaning really nothing except that the money bags are so cool.

      1. Brunches with Cats

        You are absolutely right, Ignacio. However, 1) I wasn’t able to find a comprehensive non-PR source in the limited amount of time I have, would be thrilled if someone else can find one; and 2) I knew that NC readers would be able to read between the BS lines to what’s really going on here.

    2. Skippy

      Remind me how much they defaulted to Russia on whilst stealing gas at the same time.

      Boggles the mind.

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