Ukraine Update 6 July, 2022

-The city of Sloviansk in the Donetsk region will be the next objective for Russian forces operating in the Donbas region of eastern Ukraine. Russian forces are closing on the city with units from the Western and Eastern Groups of Forces now just 10 miles from there. Ukrainian forces in and around Sloviansk are digging in and preparing for the enemy assault, which is expected to begin within two days. The city’s mayor has ordered an evacuation of all remaining residents. The effort to clear out Sloviansk began rather later than expected, partly owing to the widening gap between events on the ground and how they are being reported by the Ukrainian and Western medias. The articles and reports coming from a number of media groups and journalists are borderline pro-Ukrainian propaganda, based on reports from Ukrainian government officials and the military instead of facts.

-Revised forecasts by economists indicate Russia is heading towards a less severe recession than forecasters had originally expected. Rising oil production in Russia has done much to offset the economic sanctions put in place by the United States and Europe as well as by other nations around the world. It also speaks volumes for the degree of preparedness Russia had gone to in order to make its economy as sanction-hardened as possible.  In the months leading up to war there was a considerable amount of speculation that Russia’s economic security had been fortified to an extent. A fair number of US and European economists and analysts rejected the notion and continued forward with their belief that the weight of global sanctions would do severe damage to the Russian economy and deter Moscow from embarking upon a course of belligerence for very long.

It would appear they were wrong.

Turkey Discovers Large natural Gas Field In The Black Sea

Turkish President Recep Tayyip Erdogan announced his nation’s largest ever natural gas discovery today. It is a 328 billion cubic meter field in the Black Sea that could be part of a bigger reserve. Erdogan has hinted that the gas could start being extracted by 2023. The field, if as large as Turkey claims, will also give Ankara the advantage when the time comes to renegotiate its existing natural gas import agreements. Turkey presently relies on imports to cover almost all of its energy needs. Energy import bills have been a consistent drag on its currency for years. In 2019 Turkey paid out $41 Billion on energy imports, these payments putting a large dent in the nation’s currency reserves.

 Most importantly, the find will have a positive effect on the Turkish economy down the line. The Turkish Lira is responding positively to the news, a marked contrast from the unprecedented slide it has endured lately. It won’t last, however. Turkey’s economic troubles are too broad to be solved by a major natural gas find. Rising inflation, and interest rates, record unemployment, and a recession are some of the obstacles the Turkish economy is trying to overcome right now.

Erdogan also said today that Turkey will increase exploratory operations in the Mediterranean. There are presently ongoing territorial disputes with Greece and Cyprus concerning Turkish operations in contested waters. Last week’s collision between Turkish, and Greek warships seems to have cooled tensions for the time being, and forced all of the involved parties to take a deep breath.

New Eurozone Concerns Arise

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A German economist is warning that another European financial crisis could be on the horizon. Dr Lars Feld, who sits on the German Council of Economic Experts, believes Italy could be ground zero for a new crisis at a time when the Eurozone is particularly vulnerable. Italy’s economy is shrinking at the same time it is dealing with government debt, and a banking crisis. A recession is all but guaranteed at this point, and the nation’s financial credibility is in question right now. In an interview with the British Broadcasting Company, Feld said “The banking system in Italy is not as safe as we might hope for. There is the potential for contagion, in particular, from the Italian banking system to other banking systems.”

Feld’s warnings are certainly not falling on deaf ears. Italy has been a concern for years, going back to the days following the 2008 global financial crisis. Unfortunately for Rome, and Brussels, no solution was ever put forward which effectively dealt with the Italian problem. As a result, Italian debt has skyrocketed while economic growth has been minimal at best.

EU intervention is not probable at this time. Brussels feels such a move could bring on a major financial meltdown across Europe. Italy is in the unique position of being too big to fail, yet simultaneously too big to save. To make matters more complicated, Rome and Brussels have been at a political standoff over Italy’s economic mess. The present Italian government is resisting EU oversight and this does not appear likely to change at any point soon.

Italy is not the only worry for the Eurozone. Germany’s economic expansion is slowing down immeasurably. The German government’s forecast for economic growth has been revised. Berlin now expects a grown of 0.5 percent, down from the 1.5 percent forecast earlier this year. Global competition has intensified, and Germany is responding slowly to the new challenges.

With EU parliamentary elections coming later this week, the economic concerns are sure to be on the minds of at least some voters when they go to the polls.

A Cornered Bear? Increasing Russian Economic Woes

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Faster than you can say ‘Yeb vas’ the Russian ruble has gone from being in an exceptionally negative position to the verge of total collapse. A combination of Western sanctions and plummeting oil prices has inflation skyrocketing. The Russian government has thrown in the towel and all but admitted that the country is heading into a recession. The government expects the economy to shrink by 0.8% in 2015 and that estimate is not even a worst-case scenario. If oil prices keep dropping, the contraction could be as great as 5%.

Here’s the problem in a nutshell: Falling oil income is taking a large chunk of revenue away from the Russian government. Federal departments have been ordered to trim their budgets by 5%. So far, the massive military modernization the Russian military is undergoing hasn’t been affected. But if the current trend continues or even worsens, that could change. The pinch is going to be felt by the average Russian citizen too. Consumer price inflation is going to reach 10-11% by the end of the year. The reasons for this are the falling ruble and Russia’s ban on food products from the West. The ban was put in place as retaliation for Western sanctions imposed on Russia over its actions in the Ukraine.

How Russia responds to the economic downturn could have ramifications far beyond its borders and financial markets. It does not bode well for Vladimir Putin’s political future. At a time when world opinion is firmly against him, the last thing he needs is to lose favor with the Russian people. However, if we’ve learned anything about Putin, we know that he will not stay complacent while the economy sinks. There are plenty of culprits Putin can lay the blame on justly or not. The United States, the European Union and Ukraine top the list. Do not expect to see Moscow withdraw its support for the separatists in the Ukraine or hand Crimea back to Kiev. If the situation continues to worsen, expect Putin to begin playing the blame game and riling the Russian people up into an anti-West fervor.

What happens from there is anyone’s guess. Needless to say, the end result may not be good.