Don's Weekly, 2 December 2024: Part 3

by Donald Hill

(…continued from Part 2…)

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Russia

After the ruble fell to its lowest point since March, 2022, Russia suspended buying foreign currency on the domestic market until 2025 to stop the panic. It will continue to sell foreign currency from its stored national wealth fund at a rate of 8.4 billion rubles per day. (That’s the equivalent of $74 million a day as of 27 November). Russia’s finance minister says the weak ruble benefits Russian exports. It also fuels inflation, which will result in higher interest rates from the central bank which will further lower economic production.

Dairy, oil and vegetables are up 74% since December and butter rose 30% since October. The ruble lost 35% of its value since August. The central bank has a choice of increasing the interest rate to fight inflation, but that strangles business. Or they can lower the interest rate to grow business, but then inflation will run away. In the meantime, the black market will set the true value of the ruble even if domestic trading is closed. The last time the markets were closed after the open invasion business was conducted online and exchanges made in train stations as Russians tried to preserve their savings.

A surging dollar or plunging ruble is just a matter of perspective

Economists, including Russian economists, have been talking about the pressures on the Russian economy for almost three years. The water has been heating up. Only now, with the first bubbles appearing, has there been an increase in the news coverage. Here are some more indicators:

● Resources are being used to the maximum. This means they will be increasingly expensive for enterprises, and not everyone will be able to afford them.

● Prices are increasing, and the Russian Central Bank cannot stop them. Last week, according to Rosstat, inflation rose again: up to 0.37% (a week earlier, it was 0.30%). To slow down price growth, it is necessary either to stop economic growth and budget expenditures (infusions in the military-industrial complex, etc.) or put up with inflation rates above the target, the Russian Academy of Sciences said.

● Only certain industries are growing in Russia, primarily machinery. In other words, what the budget pays huge amounts of money for and what goes to be destroyed in Ukraine is on the rise. This means that the money poured into industry does not bring anything to the economy except for the figures that are pleasant to the ear of the authorities. But even this growth has already been exhausted, as next year, GDP will increase by only 0.5-1%, and the growth rates of investments and private consumption may go to zero.

● The International Monetary Fund predicts that the Russian economy will slow down threefold, from 3.9% growth this year to 1.3% next year. This is three and a half times less than in developed countries and 5-6 times less than in China or India.

● A total of 4,363 legal Russian entities were declared bankrupt in the first six months of 2024, which is 40% more than in the same period a year earlier. And this is with the declared economic growth of 4%. What will happen at the economic growth of 0.5%, as predicted by the Central Bank? Mass bankruptcies and the economy of the early 90s - lots of tanks, nothing to eat?

A reminder: A collapse of the economy does not mean an inability to produce weapons. It means a steady increase in the hardship for the Russian population. A reduction in military production will ease some of the hardships, though. And current Russian production does not meet their wartime needs.

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An oil depot in Rostov that was attacked in August was attacked again. It was still burning the next day.

At Kaluga, an oil depot was hit. Across the street, an electronics factory was also attacked. Here is a street view of the depot and factory.

A fire broke out at the Saratov refinery.

Drones attacked a Russian chemical plant in Salavat, 1200 km from Ukraine. Among other things, it produces heptyl, a component in rocket fuel. Fires were seen after the attack. An AN-2 biplane was flying in the night sky soon after and Russian air defense gunners mistook it for a drone and tried to shoot it down. The 1947 plane is still used by the North Korean military and various civilian functions in Russia, such as crop dusting. Despite a couple dozen rounds impacting the plane, and one round passing through the pilot’s clothing, the pilot was unharmed and the plane was able to continue flying.

Yekaterinburg is 1700 km from Ukraine. On July 18, at an artillery production factory, 420 square meters of an adjacent building burned reportedly due to a welding accident. On July 30, 800 square meters of a building that produced control systems for rockets burned when a chemical production unit was said to have caught fire. On December 1st, 1500 square meters burned at a facility that produces drone components and foamed polyethylene Ecofoam, which is used to shield against thermal imaging.

At least 156 FAB bombs failed to function properly and fell on Russian soil in 2024. Most of them did not explode. Since there can be as many as 900 of these bombs launched in a week, that represents some fraction of 1% of all glide bombs.

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Ukraine

Zelensky said, "If we want to stop the hot phase of the war, we need to take under the NATO umbrella the territory of Ukraine that we have under our control. We need to do it fast. And then on the [occupied] territory of Ukraine, Ukraine can get them back in a diplomatic way." Knowing that NATO (Hungary and Slovakia, at a minimum) and Russia would not agree to Ukraine’s membership, this is a negotiation marker for some other objective.

Syrsky downgraded the situation in the Kurakhove and Prokrovsk sectors from critical to difficult and says Ukraine is outnumbered 5:1 there. Russia has its own manpower issues as its losses were higher than expected. He said armored vehicles that used to carry eight to ten Russians now carry three. He also said that victory is impossible if Ukraine is only defending so they will need to seize the initiative and counterattack.

In addition to the impending formation of corps in some form, successful commanders have been promoted to higher command and advisory positions:

● Major General Mykhailo Drapaty is the new commander of ground forces under Syrsky, replacing a Lieutenant General. In the last ten years he was a battalion commander in the 72nd Brigade, was chief of staff of the 30th Brigade, commander of the 58th Brigade, and he was brought in to organize the defense of the units in the Kharkiv sector after the Russian incursion in May.

● The commander of the 93rd Brigade (fought Wagner in Bakhmut, now located south of Chasiv Yar), Pavlo Palisa, is now Deputy Head of the Office of the President of Ukraine, which is run by Andrii Yermak, seen by many as Zelensky’s right-hand man and a power broker. As this article explains, Yermak is not without controversy in the landscape of oligarchs, but also has the ability to make changes. Time will tell if meaningful changes will be made in the military with the advice of a successful brigade commander.

● Colonel Oleh Apostol, commander of the 95th Brigade (holding Pogrebki in Kursk), replaced a Lieutenant General and is now the deputy commander-in-chief of the Armed Forces of Ukraine, working directly for Syrsky.

The Chairman of the Council of Reservists said that all men aged 18-25 will undergo basic military training. They said that the process is not mobilization and is not related to mobilization. Due to heavy losses in WW2, there are very few people in that age group and that demographic is a population and economic challenge without the added issue of war. Ukraine is resisting outside calls to lower the draft age to 18 but will train that age group to raise their level of readiness. Ukraine plans to mobilize 160,000 men in the November-January time frame.

After massive missile and drone strikes on November 17th, Ukraine started rolling blackouts on November 22nd to meet the demand with reduced energy production.

The CEO of the Ukrenergo energy company was fired for not building bunkers to reduce the damage to substations during Russian attacks. Ukrenergo Supervisory Board members said the dismissal was politically motivated. The fired CEO said that over 60 of the defensive structures were built, all with international aid, not Ukrainian money. There are claims that the motivation for the dismissal was the Energy Minister’s desire to take control over Ukrenergo.

There is a report that while the 155th Brigade finished training and is being deployed to the front soon, they don’t have a budget for drones or EW systems.

There’s about a thousand personnel in Ukrainian border guard detachments and their subordinate department units and while they fight, they are designed to protect the section of border assigned to them with light weapons and possibly boats and other tools. They are now being reorganized into brigades and assigned artillery and other weapon systems of standard combat units.

Previous Shahed drones had cluster munitions. The drones that struck Sumy recently had shrapnel warheads, designed to kill people, not destroy buildings.

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Diplomacy

Trump’s pick for special envoy to Ukraine is an 80-year-old retired general who earlier said that US aid to Ukraine is dependent on Ukraine being willing to negotiate for peace. He thinks that only Trump’s strength and unpredictability would have prevented an invasion and can bring about a peace deal.

In April, he co-wrote a paper for the America First Policy Institute, saying, “It was in America’s interest to make a deal with Putin on Ukraine joining NATO, especially by January 2022 when there were signs that a Russian invasion was imminent. This was the time when the Biden Administration should have dropped its obsession with publicly criticizing Putin and worked toward a compromise. A U.S. offer to delay Ukraine’s admission into NATO for a decade might have been enough to convince Putin to call off the invasion, but Biden Administration officials refused to make such an offer.”

“In exchange for abiding by a cease-fire, a demilitarized zone, and participating in peace talks, Russia could be offered some limited sanctions relief. Ukraine would not be asked to relinquish the goal of regaining all its territory, but it would agree to use diplomacy, not force, with the understanding that this would require a future diplomatic breakthrough which probably will not occur before Putin leaves office. Until that happens, the United States and its allies would pledge to only fully lift sanctions against Russia and normalize relations after it signs a peace agreement acceptable to Ukraine. We also call for placing levies on Russian energy sales to pay for Ukrainian reconstruction.”

“The Ukrainian government and the Ukrainian people will have trouble accepting a negotiated peace that does not give them back all of their territory or, at least for now, hold Russia responsible for the carnage it inflicted on Ukraine. Their supporters will also. But as Donald Trump said at the CNN town hall in 2023, “I want everyone to stop dying.” That’s our view, too. It is a good first step.”

In any case, Russia has no interest in freezing the conflict.

The complete paper is here. Stefan Korshak compares and contrasts the paper with reality.

This is also completely different from what Kellogg said two years ago: “Bottom line, the Ukrainians want to fight. All they want is equipment and they’re going to fight this until the end. I believe it’s very important to get them equipment to fight. This is going to be a fight to the end. Ukraine is not going to negotiate. They want to eject Russian forces from Ukraine. I don’t care if it’s the Donbas. I don’t care if it’s Crimea. I think it’s a fight to the finish.

I think the Ukrainians have the fighting spirit to do it as long as we give them the kit because I think they have the Russians at least at a stalemate and possibly on their heels. If the Ukrainians can defeat Russia in the field and eject them from the Donbas or Crimea, Putin falls. It changes Europe for a generation to come. I don’t think there’s going to be anything to negotiate. Zelynski’s not going to do it and neither is Putin.”

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(…to be continued…)