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International Last Updated: Apr 16, 2018 - 2:06:28 PM


Fears in Moscow About Possible Escalation of Syrian Conflict Into War With US
By Pavel Felgenhauer, EDM 13/4/18
Apr 14, 2018 - 10:29:34 AM

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A near-perfect storm has rocked Moscow, starting at the end of last week. On April 6, the United States Department of the Treasury published an additional blacklist of wealthy Russian government officials, oligarchs and business entities that would be sanctioned for differing misdeeds connected to alleged meddling in the 2016 election, corruption, Russian involvement in Ukraine and so on (see EDM, April 9). This was not the first such blacklist of powerful and wealthy Russians to have had their US assets frozen and companies they control barred from doing business in the United States or with US-connected entities. Previously, the oligarchs publicly mocked such blacklisting, implying they did not have any assets or business interests in the US and were being singled out for being loyal Russian patriots. Apparently, in previous instances, President Vladimir Putin’s rich friends received prior warnings about the impending sanctions and a good head start to move their wealth out of harm’s way. The latest sanctions, however, seem to be different. Billionaires Oleg Deripaska, his business partner Viktor Vekselberg, and Suleiman Kerimov, who is under investigation in France on corruption, tax evasion and money laundering charges, do have assets in the West that may be frozen. They also own companies publicly listed on foreign stock exchanges. Additionally, they sell their products in the West and run businesses using credit issued by international banks. Anti-corruption campaigner Alexei Navalny promptly commended the new US sanctions list as something that will really hurt the corrupt oligarchs and predicted that the hardest hit will be Deripaska (Navalny.com, April 6).

The new US sanctions were announced on a Friday, apparently too late for markets to react properly. But on Monday, April 9, Russian stocks began to fall, led by Deripaska’s (and Vekselberg’s) flagship aluminum-producing conglomerate Rusal, which may now lose its aluminum export market share in North America and the European Union. The Russian government promised it will help Deripaska and other badly hit oligarchs to prevent the closure of factories and mass workforce redundancies. Eventually, the Russian stock exchange somewhat stabilized, though Deripaska-connected entities lost at least half of their market value and continued to be depressed with rumors of being forced to delist from Western bourses (Interfax, April 12).

The selloff of Russian stocks was followed by a fall of the ruble against major Western currencies. And the shock of new sanctions was followed by news of an alleged chemical weapons attack in the Syrian town of Douma, besieged by forces loyal to President Bashar al-Assad, in the Ghouta suburb east of Damascus. Foreign “currency carry trade” investors panicked and began moving money out of Russia: selling assets, converting rubles into dollars and euros, and repatriating their capital. The rise of aluminum prices caused by sanctions against Rusal and the further increase in the price of oil on world markets did not help, as the ruble dipped some 5–10 percent (Interfax, April 11).

The steady rising US interest rates and equally steadily depressing rates in Russia were already eating into the profitability of short-term Western investments in Russian assets, which had offered much bigger yields while the ruble/US dollar rate was stable. But this past week’s serious political/military destabilization sent the ruble reeling, sparking the selloff. The Russian Central Bank did not intervene to help the ruble by selling some of its formidable dollar and euro reserves. The Russian government considers an overvalued ruble to be a vulnerability that amplifies the budget deficit. Russia fills its coffers by selling to foreign buyers oil and other commodities priced in US dollars. If the ruble depreciates, state revenues denominated in the domestic currency grow, while expenditures stay the same, effectively closing the federal budget deficit. Meanwhile, for the Russian masses, the dollar and euro exchange rates are much more important than the stock exchange: Not many in Russia own stock, but dollars and euros are a common vehicle of household savings in the hectic world of Russia’s boom-bust economic cycles. When Russian citizens see the ruble going down again, unpleasant memories of previous busts tend to arise. Russia’s commodity-exporting economy is not presently on the verge of a sudden collapse since world commodity prices are still stable or growing. But a sudden depreciation of the ruble would mean rising inflation while the domestic economy continues to stagnate—reigniting worries among the population (Interfax, April 11).

US President Donald Trump, supported by other Western leaders and the United Nation’s World Health Organization (WHO), has accused the al-Assad regime of mounting a gas attack in Douma and Russia of supporting the Syrian regime and its crimes. A coalition of France, the United Kingdom, some Arab Gulf states and possibly Australia—led by the United States—is apparently working out plans on how to punish al-Assad. According to the WHO, some 500 Syrians were the victims of the attack in Douma by possibly chlorine gas, and 46 have reportedly perished. Damascus and Moscow have angrily rejected any involvement. The Russian military has insisted there was no chlorine gas or any other chemical agent attack in Douma and that the incident is another “provocation” by the Syrian opposition sponsored by the West, which has equally falsely accused Russia of using chemical weapons to poison double agent Sergei Skripal and his daughter Yulia in Salisbury, England, on March 4, by a nerve agent known as “Novichok” (RBC, April 12).

The Russian military has promised to fight back “adequately” if the US-led coalition attacks al-Assad’s forces and Russian soldiers, advisors or specialists are hit. Meanwhile, the state TV propaganda has been trumpeting the possibility of a coming US attack in Syria, of a possible US-Russian military confrontation happening, and a potential uncontrolled escalation bringing both countries to war that could go nuclear (Moskovsky Komsomolets, April 11). The authorities announced that Russian naval ships had been ordered to leave their Syrian naval base at Tartus and spread out at sea so not to be sitting ducks that could be “taken out by one missile” (Militarynews.ru, April 12). For now, the US-led strike on Syria has not yet happened, and there is some hope it may be postponed indefinitely. But the tension and fear of war with the West continues to be high in Moscow.


Source:Ocnus.net 2018

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