NYT - Russia - Ukraine War Briefing

 

June 27, 2022

By Yana Dlugy

Hello. This is your Russia-Ukraine War Briefing, a weeknight guide to the latest news and analysis about the conflict.

A Russian missile struck a busy shopping center in the central Poltava region, killing at least 13 people and wounding dozens. NATO intended to increase the number of troops it had on standby to 300,000 from 40,000, the alliance’s secretary general said. The U.S. will buy Ukraine an advanced air defense system, officials said. A Russian court will begin the trial of U.S. basketball star Brittney Griner on Friday, her lawyer said. Follow our live updates.

President Volodymyr Zelensky addressed the G7 summit today.Kenny Holston for The New York Times

New ways to try to punish Russia

With Russia’s economy holding up much better than expected despite sweeping sanctions, the U.S. and its allies are looking for new ways to inflict economic damage on Moscow for its invasion.

At their meeting in the Bavarian Alps, the leaders of the Group of 7 countries agreed over the weekend to ban imports of Russian gold, and today they moved closer to an agreement on adopting price caps on Russian oil.

The moves are an acknowledgment that the embargoes the U.S. and its allies swiftly imposed on Moscow’s energy exports have not dented Russian oil revenues. India’s and China’s purchases of discounted Russian crude have undermined Western efforts to punish Moscow economically.

In fact, with the war now in its fifth month, Russia’s revenues from oil sales are higher than they were before the war began. Last week, the ruble hit a seven-year high against the dollar.

Many details of the possible oil deal have yet to be worked out, including how it could be enforced and whether Russia’s major foreign buyers, such as India, would go along with it.

By limiting the purchase price of Russian oil, Western leaders hope to keep Moscow from taking advantage of skyrocketing crude prices to finance its war machine, while easing the pain felt by energy consumers in their countries.

But with nearly $600 billion in foreign currency and gold reserves (though about half of that is frozen overseas), Russia’s finances remain strong, and President Vladimir Putin’s military campaign shows little sign of easing.

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The Russian Central Bank headquarters in Moscow. The New York Times

What does default mean for Russia?

Russia missed a bond payment yesterday, signaling its first default on foreign debt in more than 100 years. The default is unusual because the country has the money and the willingness to pay. Russia is rejecting the default declaration on the grounds that it has tried to make the payment but was blocked from doing so by Western sanctions.

I spoke to Eshe Nelson, a Times business and economics reporter, about how this default differs from other debt crises. Our conversation has been lightly edited.

What happens when a country defaults?

Eshe: There’s often a process of restructuring debt, agreed upon by the government and bondholders, so that existing investors can get something back. This can take a long time and effectively blocks a country from borrowing on international markets for years. And when it returns, borrowing costs are higher.

What makes the Russian situation different?

Ordinarily a country will default when it can no longer afford to pay its investors.

But Russia hasn’t run out of money. It has almost $600 billion in foreign currency reserves and gold, though about half is frozen overseas, and money coming in from oil and gas sales. Instead, sanctions have cut off Russia’s access to international financial institutions, blocking its path to paying its bondholders. Investors simply can’t receive the payments.

So what happens now?

Honestly, it’s unlikely anything will change immediately for investors or for ordinary Russians. Normally the problem with being in default is that you no longer get access to investors. But sanctions mean that Russia is already cut off from a lot of foreign investors. So there isn’t going to be a sudden change in demand for Russian debt.

In the long term, it’s harder to say. A default is a stain on Russia’s reputation. The questions are: How will investors respond further down the line in a scenario where sanctions are lifted? Will they remember this default and still choose to shun Russian debt? Or will they focus on the country’s financial situation and, if it still has reserves, be willing to lend to Russia once again?

The long-term reaction is incredibly difficult to predict because we haven’t been in this situation before.

What else we’re following

In Ukraine

Civilians remaining in Lysychansk in the east should evacuate immediately, the regional governor, Serhiy Haidai, said. Russia carried out dozens of missile strikes on Ukraine over the weekend, including from Belarus, hitting targets across the north and west. Under Russian occupation, the port of Mariupol has no working sewage system or drinking water, and garbage is overrunning the streets, according to its mayor. At a boarding school near Lviv, displaced children from the east try to lead normal lives, worrying for the parents they left behind.

In Russia

President Vladimir Putin promised to provide nuclear-capable missiles to Belarus. Putin plans to participate in the Group of 20 summit in Indonesia in November, TASS, a Russian state-owned news agency, reported.

Around the world

Sri Lanka wants to buy more oil from Russia to overcome an energy crisis, a government official said. “Show them our pecs” — G7 leaders mocked Putin’s penchant for shirtless horseback riding, AFP reported. Russian gas cuts are threatening BASF’s chemical complex in Germany, the world’s largest, The Wall Street Journal reported. At a summit this week, NATO leaders plan to agree on the most significant overhaul of the alliance’s defenses since the Cold War.

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