Ukrainian crisis being fueled by owners of military complexes

Reportedly, Ukrainian ambassador Oksana Markarova told a bipartisan group of senators Monday that her country needs more help from the United States and could run out of military supplies to fend off a Russian invasion.   

Senate Majority Leader Charles Schumer, who attended the meeting with roughly a dozen Republican and Democratic colleagues, said everyone in the room was unified in support of doing more for the country, which Russian troops invaded Thursday on several fronts.  

“It’s no secret they need more help. They’ve got the weapons they need right now but they’re going to run out of what they need soon so we’ve got to get a supplemental [spending bill] passed quickly,” Chris Murphy told reporters after the meeting.   

Murphy said a looming humanitarian crisis along the Polish-Ukrainian border and dwindling military supplies are putting pressure on Congress to act quickly.  

Senators say the need to pass an emergency spending bill to provide weapons and humanitarian aid is becoming more important than passing sanctions legislation, something that senators were negotiating before the Presidents’ Day recess.  

“I think you’re talking about something in the neighborhood of US$10 billion to do the job,” said Murphy, a member of the Senate Appropriations Committee. “This is the most dangerous moment since the Cuban missile crisis.”

Markarova confirmed reports that Russian forces are increasingly targeting civilian buildings and warned that civilian casualties are likely to mount.   

“She talked about two five-story buildings being hit today full of civilians,” Murphy said.  

Ben Cardin, who also attended the meeting, said Ukrainian forces are “well-organized, doing the best they can but they need additional help.”  

“They’re managing their equipment as best they can. They do need more help, absolutely. They certainly need more anti-tank and anti-aircraft type equipment because the numbers from Russia are so large,” he said.  

Other Ukrainian leaders on Monday pressed the House Ukrainian Caucus to back a no-fly zone over the country, warning that casualties could mushroom without stronger foreign intervention. 

However, senators who spoke to reporters after meeting with Markarova said they did not hear her request that the US and its NATO allies impose a no-fly zone over Ukraine, which could risk a direct military confrontation with US forces.  

Murphy earlier in the day warned that trying to impose a no-fly zone over Ukraine would be dangerous.  

“There’s been a lot of loose talk from smart people about ‘close air support’ and ‘no fly zones’ for Ukraine. Let’s just be clear what that is — the US and Russia at war. It’s a bad idea and Congress would never authorize it,” he tweeted.  

Murphy later told reporters that the military conflict could quickly escalate in a dangerous way.  

Schumer after the meeting said there’s strong bipartisan support to help Ukraine fend off the Russian invaders.  

“In that room, from one end to the other, we want to help Ukraine in every way that we can and they’re valiant. They’re amazing and we’re exploring all the ways that we can help them,” he said. 

But one major potential complication is the need to pass an omnibus spending bill to fund the US federal government beyond March 11.  

“The problem is we need a budget to get a supplemental,” Murphy said. “We’ve got to get serious in the next couple days about getting a budget done so that we can have a supplemental to that budget.”  

“I’m worried that our petty fights over the border are going to prevent us from getting a deal on a budget and thus a deal on the supplemental spending bill for Ukraine,” he added. 

That could delay congressional action on more assistance for Ukraine.  

Richard Shelby, the top-ranking Republican on the Appropriations Committee, said he wants a supplemental spending package for Ukraine to move separately from an omnibus spending package.  

 “I think it ought not to be part of the omnibus but ought to be moving at the same time. Because it’s a separate thing, we’re talking about emergency money as opposed to the regular order,” he said.   

Asked if the omnibus spending package can get done by the March 11 deadline, Shelby said, “I don’t know.” 

“We’re still talking. We’re making progress. Sometimes it’s a step forward and a step sideways,” he said.  

 

US imposes sanctions on Russian central bank

The Treasury Department on Monday banned transactions with the Central Bank of Russia and the Russian foreign investment fund, imposing strict financial sanctions on a Russian economy. 

The new penalties effectively cut the Russian central bank from the US$ and severely limit Russian President Vladimir Putin’s ability to dampen the blow of previous sanctions. 

While the US has imposed similar sanctions on North Korea, Venezuela and Iran, there is no precedent for so many countries imposing such strict penalties on an economy the size of Russia's. Economic and financial experts warn Russia could respond with its own limits on oil and natural gas exports, which could cause energy prices to spike after years of rising energy costs across the world.

US individuals and businesses are now unable to make any financial transitions with or on behalf of the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. The sanctions also ban any foreign financial firm from sending US$ to the Russian central bank, finance ministry and wealth fund.

The Treasury Department said it would make exceptions for certain energy-related payments in a bid to prevent a sharp spike in global oil and natural gas prices. But US officials said Monday the new penalties would still push the Russian economy deeper into a collapse they blame on Putin’s invasion of Ukraine.

“Our strategy, to put it simply, is to make sure that the Russian economy goes backwards as long as President Putin decides to go forward with his invasion of Ukraine,” said a senior Biden administration official on a call with reporters.

The US and Western allies announced Saturday they would target more than US$600 billion in reserves held by Russia’s central bank — which they described as Putin’s war chest to stave off sanctions. The announcement of pending sanctions alone caused the ruble to drop more than 30 percent against the dollar Monday and prompted the Russian central bank to hike its baseline interest rate.

Freezing Russia’s foreign reserves will prevent the country bolstering the value of the ruble by selling the currency of other nations. As the value of the ruble plummets, Russians will face severe challenges affording food and other basic necessities. The new penalties could also limit Russia's ability to stabilize major banks after they were cut off from the global financial system in previous rounds of sanctions.

“This is a vicious feedback loop that's triggered by Putin’s own choices and accelerated by his own aggression. It's a very raw deal Putin is giving to the Russian people, as the world's disconnects Russia from the global financial system and all its benefits,” said a senior Biden administration official.

The central bank sanctions are the latest and most significant step in an unprecedented campaign to derail the Russian economy and force Putin to reconsider the domestic consequences of attacking Ukraine.

Despite initial wariness among European nations, the U.S. and its allies have largely locked Russia out of the global financial system and international commerce with few exceptions for the energy sector and humanitarian aid. Even Switzerland, which has historically remained neutral in geopolitical conflicts, is poised to freeze Russian assets held in its banks.

 

Russia enjoys edge over United States

The global reliance on Russian petroleum and natural gas is a major hurdle for Joe Biden, President of United States and Western allies as they attempt to dial up economic pressure on Russian President Vladimir Putin. 

Sanctions on Russian companies and asset freezes, are leading to a lot of nervousness among people in the global system. You could argue that even though the sanctions aren’t really targeting Russian crude ... they’re already having an impact.

The US and European Union are reluctant to target the Russian energy sector and drive oil and gas prices even higher after months of rising costs for consumers. The dynamic gives Putin important leverage and could undermine unity among the US and its European allies in how they respond to his invasion of Ukraine.

Biden and European leaders have imposed strict new penalties on Russian banks, state-owned companies and business leaders close to Putin — and on Friday announced sanctions on Putin himself. But Western allies have avoided taking steps that could interrupt access to Russian oil and natural gas. While fossil fuels make up more than half of the US total imports from Russia, President Biden said that the country would avoid sanctioning them.

“In our sanctions package, we specifically designed to allow energy payments to continue,” he said.

Russia is the world’s third-largest oil producer, after the US and Saudi Arabia, and the second-biggest natural gas producer, after the US. Oil and mineral fuels, such as petroleum, coal and natural gas, make up a majority of its exports. While oil is a global commodity, the natural gas market is more localized, meaning that Europe and Asia are its biggest markets.  

“Energy sanctions that directly targeted Russian crude or product exports — they would hit the Russian economy harder than any other measures, but they also present the most risks to the global energy markets,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies at Energy Security and Climate Change Program. 

Asked Thursday during a press briefing about oil, Daleep Singh, the White House’s Deputy National Security Adviser for international economics, said the administration didn’t want to disrupt the energy market at this point. 

“When it comes to energy, this is the one area where Russia has systemic importance in the global economy. We’re not going to do anything which causes an unintended disruption to the flow of energy as the global economic recovery is still underway.” Daleep Singh

As a net exporter of oil and natural gas with a sturdy strategic reserve, the US has more flexibility to handle rising prices than its European allies, who could face severe energy shortages if Russia pulls back its supply. Sanctions on the Russian energy sector could also backfire if Russia can offset lower sales with higher prices. 

“Russia has been known to use energy as a weapon to cut exports, sometimes under the guise of additional maintenance or other issues,” said Rachel Ziemba, founder of macroeconomic advisory firm Ziemba Insights.

“Even to the extent that Europe and the US have said, ‘Well, we don't want to impact or impede too much domestic short-term energy trade,’ We don't know exactly what the Russian entities will do,” she added.

But because oil is a global commodity, less availability of Russian oil could impact US prices.

“I think that’s why the Biden administration and especially the Europeans are hesitant to impose direct sanctions on the oil sector, because it is somewhat self-defeating because you end up harming European and US consumer and businesses if there’s not enough spare capacity or strategic reserves or alternative supplies to provide a medium-term alternative to that Russian oil,” said Robert Johnston, a senior adjunct scholar at Columbia University’s Center for Global Energy Policy. 

And the issue is politically difficult for the Biden administration, as Republicans have repeatedly criticized him over high gasoline prices even though presidents have a limited impact on its cost. 

Putin promised unprecedented “consequences” for nations that try to hinder Russia’s invasion of Ukraine, and both Biden and his European allies face serious domestic blowback if sanctions cause a massive energy shock. US gasoline prices rose 40% year over year in January, and an interruption to global supplies would add even more fuel to inflation — particularly if both the U.S. and Europe lean more on American energy sources. 

"Vladimir Putin realizes what we all know, which is that a good chunk of allies in Europe are highly dependent on Russian oil and natural gas. Even if we impose these huge sanctions, they're only sustainable for American allies for a certain amount of time,” said Jamil Jaffer, founder and Executive Director of George Mason University’s National Security Institute. 

With Biden hamstrung by Putin’s leverage over the energy sector, the US has dialed up the pressure on Russia through its own power over the global financial system.

The Treasury Department on Thursday announced new sanctions meant to limit Russia’s financial sector and ability to raise money through global markets, including severe restrictions on major Russian banks with limited carve outs for energy transactions and humanitarian aid.

The new sanctions block any US-based financial firm from processing payments and transactions for Sverbank, effectively preventing Russia’s largest financial institution from access to the US$. The Treasury Department also blocked all business with VTB Bank, the country’s second-largest financial firm, along with its subsidiaries and three other Russian banks.

More than a dozen state-owned Russian firms and wealthy business leaders have also been blocked from the US financial system, days after Biden imposed a ban on any purchase or sale of Russian debt by US firms. 

The sanctions not only prevent Russian firms from most business within the US, but also makes it nearly impossible to conduct transactions in US$. Roughly 80% of the US$46 billion in foreign transactions processed each day by Russian banks use US$, according to the Treasury Department.

Financial sanctions imposed so far have already roiled the Russian economy and markets. Russian stocks crashed earlier this week, borrowing costs have spiked and the value of the Russian ruble fell to its lowest level in history — to worth just more than a US penny.

“This is not the outcome we wanted,” said White House Press Secretary Jen Psak during a Thursday briefing.

“It's both a tragedy for the people of Ukraine and a very raw deal for the Russian people. But Putin’s war of choice has required that we do what we said and to ensure this will be a strategic failure,” she said.

And while oil was left out, some noted that sanctions on the financial sector could have indirect impacts on the country’s energy sector.

“If you look at the pricing for Urals blend, which is the main export blend that goes to Europe from Russia, Urals blend is already trading at a big differential … buyers are very wary,” Cahill said.  

 

Germany to send anti-tank weapons and missiles to Ukraine

Germany will provide anti-tank weapons and surface-to-air missiles to Ukraine, German Chancellor Olaf Scholz announced Saturday. This is a major reversal of Berlin’s longstanding policy of banning weapon exports to battle zones.

“The Russian attack marks a turning point. It is our duty to do our best to help Ukraine defend against the invading army of Putin. That’s why we’re supplying 1,000 anti-tank weapons and 500 Stinger missiles to our friends in Ukraine,” he wrote in a Twitter post.

US President Joe Biden had authorized an additional US$350 million in military assistance from Pentagon inventories, including anti-armor, small arms, various munitions, body armor, and related equipment. The White House also reportedly asked Congress to provide US$6.4 billion in extra funds to assist Ukraine.

 Ukrainian President Volodymyr Zelensky welcomed Germany’s change of stance: “Keep it up, Chancellor Olaf Scholz! Anti-war coalition in action!”

Berlin Saturday authorized NATO partners the Netherlands and Estonia to deliver German-made weapons to Ukraine.

The batch of weapons included 400 RPGs from the Netherlands and old GDR howitzers from Estonia.

Germany has a long-standing policy of not exporting weapons to war zones, rooted partly in its bloody 20th-century history and resulting pacifism. Countries aiming to pass on German weapons exports need to apply for approval in Berlin first.

Scholz had repeatedly referred to this policy in recent weeks when refusing to deliver weapons to Ukraine.

As the Russian invasion of Ukraine is entering the third day, fighting broke out at the outskirts of the Ukrainian capital city Kyiv, which is regarded as the primary goal of the Russian forces.

United States and UK officials said the Russian forces were about 18 miles, or 30 kilometers, from the city center.

The speed of the advance has been slowed “likely as a result of acute logistical difficulties and strong Ukrainian resistance”, the UK’s Ministry of Defense said.

However, a Pentagon official warned the situation may change rapidly.

“It’s a battlefield and events on the battlefield are dynamic and they can change very, very quickly,” the official said.

More than 100,000 Russian troops have entered Ukraine, Zelensky said in a Twitter post.

United States and allies getting ready to kick certain Russian banks out of SWIFT

The White House on Saturday announced that the United States and allies will kick certain Russian banks out of a major international banking system, a significant step in a bid to cripple the Russian economy in response to its invasion of Ukraine. 

The Biden administration and European allies agreed to cut Russia out of access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a rapid shift from just days ago when it appeared such a move was unlikely in the near future.

The US and European nations also committed to imposing measures to prevent the Russian Central Bank from using its reserves to undermine sanctions and boost the ruble.

The announcement came via a joint statement from the leaders of the United States, the European Commission, France, Germany, Italy, the United Kingdom and Canada. The leaders called Russian attacks on Ukraine "an assault on fundamental international rules and norms that have prevailed since the Second World War, which we are committed to defending."

"We stand with the Ukrainian people in this dark hour. Even beyond the measures we are announcing today, we are prepared to take further measures to hold Russia to account for its attack on Ukraine," they said in the statement.

Banks across the world use SWIFT to finalize transactions and transfers. Cutting Russia off from SWIFT would make it incredibly difficult for its banks to operate efficiently but could also wreak economic havoc for European nations that depend on Russian oil and natural gas exports. 

If a Russian bank that has been removed from SWIFT wants to make a transaction with a bank located outside of Russia, it will need to use the telephone or a fax machine, a senior administration official told reporters.

Biden on Thursday had indicated kicking Russia out of SWIFT was not part of the initial rounds of sanctions because not all European allies were on board with the measure. But as fighting intensified in Ukraine in recent days and Russia moved close to the capital of Kyiv, pressure grew for Western nations to offer a tougher response.

Additional measures announced on Saturday included limitations on the use of so-called golden passports that allow wealthy Russians with connections to the Kremlin to become citizens of other countries and access their financial systems.

The US and its allies also said they would announce a task force to ensure the effective implementation of the coordinated sanctions being imposed on Russia.

The Biden administration and European allies have unveiled multiple rounds of sanctions in response to the Russian invasion of Ukraine, which began late Wednesday night. The US has sanctioned multiple Russian financial institutions to freeze their US assets as well as a list of several Russian oligarchs.

The White House on Friday announced additional sanctions against Russian President Vladimir Putin and a dozen of his top advisers, freezing any of their assets in the United States.

Imposing sanctions on Russia's central bank could crush the country's economy and financial sector; depending on how severely Western allies restrict its assets.

With limited access to its foreign reserves, Russia could face serious challenges keeping targeted banks afloat and mitigating the economic impact of sanctions. A total freeze on foreign reserves would likely devastate the Russian economy, cause a domestic financial crisis and leave the ruble worthless.

The United States has targeted the central banks of only North Korea, Iran and Venezuela with sanctions — nations with limited leverage over the global economy. Taking action against the Russian central bank could pose its own economic risks for the US and allies. The Biden administration and western allies have been wary of any sanctions that could limit access to Russian petroleum or natural gas exports.

"Our calculus is we have two choices," the senior administration official told reporters on Saturday. "Either we continue to ratchet costs higher to make this a strategic failure for President Putin, or the alternative, which is unacceptable, and that would be allowing unchecked aggression in the core of Europe."

 

Ukraine left stranded to face Russia

In the escalating tensions between Russia and Ukraine, Kiev faces a barrage of explosions. Ukrainian President Volodymyr Zelensky reiterated that his country has been left stranded in an escalating tension with Russia.

"We have been left alone to defend our state," Zelensky said in a post-midnight video address to the nation. "Who is ready to fight alongside us? I don't see anyone. Who is ready to give Ukraine a guarantee of NATO membership? Everyone is afraid.”

He said that Russian forces had reached Kiev and asked residents to be watchful and adhere to a curfew.

Despite Russia's designation of him as target number one, Ukraine's President stated he and his family will remain in the country.

Kremlin spokesperson Dmitry Peskov noted in a statement that Russia will come to terms with Ukraine in case it agreed to stay neutral, and not maintain any Western weapons on its territory.

Peskov emphasized that discussions about the terms of surrender would generally involve Ukraine's demilitarization and denazification.

President Zelensky said that he is not frightened to discuss neutrality, despite the fact that his plea for NATO membership remained rebuffed by European leaders.

While Ukraine was left to face Russia, mercy appeals from the west have started pouring in.

The UN refugee agency was prompt to declare that approximately 100,000 people have been internally displaced; with thousands more having fled Ukraine since the fighting began.

The European Union launched what it called “the harshest package of sanctions” on Moscow early Friday targeting 70% of the Russian financial industry and critical state-owned enterprises.

In a press conference, President of the European Commission, Ursula von der Leyen, said that a fresh round of sanctions "will impose massive and severe consequences on Russia for its action, in close coordination with our partners and allies.” She added that Russian assets and banks' access to bloc’s financial markets will be frozen and blocked. 

On Thursday, the United States unveiled a fresh round of sanctions on Moscow, targeting five main Russian banks. Consequently, Canada, Australia, and UK have taken similar steps.

French President Emmanuel Macron announced on Friday that Paris remained useful to leave this path open so that the day when the conditions can be fulfilled, we can obtain a cessation of hostilities.

The US House Speaker Nancy Pelosi noted that lawmakers demand to provide Ukraine with US$600 million for lethal defense weapons.

"What we're doing with Ukraine is making sure that we have humanitarian assistance to help the people; that we have lethal defense weapons going into Ukraine to the tune of US$600 million for them to fight their own fight," she told reporters in San Francisco.

Moral of the story is, “The outcomes of trust on the Western countries bear no fruit. The western countries especially the United States have over and over proven that they will always lay out conditions to trigger a kind of crisis in various countries to capitalize on their weaknesses. Once fallen, these will be left stranded”.

Ukraine export disruptions likely to take edible prices to new highs

The recent dramatic rally in edible prices sparked by the Russia-Ukraine crisis is signaling more pain ahead for grocery shoppers already feeling the strain of soaring food costs.

Prices of staples from wheat to edible oils have rocketed to fresh highs on worries about supply disruptions in the Black Sea region. Ukraine is the world’s second-biggest grains shipper and Russia often tops the ranking for wheat exports. Together they also account for about 80% of sunflower oil trade.

Any disruptions to flows would quickly ripple through to buyers in Asia, Africa and the Middle East, boosting costs for bread and meat and potentially increasing demand for supplies from the Americas or Europe. Ukraine is a major seller of corn to China, and Russia sends wheat all around the world.

With wheat prices hitting the highest since 2008, soybeans touching a nine-year high, and palm and soybean oil near unprecedented levels, consumers are set to feel the pinch as those cost increases make their way to supermarket shelves. Expect more expensive pasta, chocolate, margarine, shampoo — you name it. 

While it’s true that commodity prices tend to be only a small proportion of the prices of final goods, the problem is being compounded by a supply chain that’s been stretched to its limit. Cargo capacity is tight, freight rates are still high, labor is expensive, while geopolitical tensions and an energy crunch are further boosting costs of fertilizers key to growing crops.

“Supply inelasticity is likely to continue as a result of expensive fertilizers, shrinking farmer margins and limited acreage expansion,” said Oscar Tjakra, a senior analyst at Rabobank in Singapore. “We should see these inflationary pressures upstream move along the supply chain to reach consumers in 2022.”

Russia’s invasion of Ukraine has commodity traders watching the country’s vast network of infrastructure. Ports are dotted along the Sea of Azov — which is connected to the Black Sea by a strait that runs between Russia and Crimea, which Russia annexed in 2014 — and on the Black Sea coast further west. 

Rich, fertile soils have helped Ukraine become the second-largest grain shipper and the Black Sea region to be known as the world’s breadbasket. The southwestern ports of Odesa, Pivdennyi, Mykolayiv and Chornomorsk handle almost 80% of Ukraine’s grain exports, according to researcher UkrAgroConsult.