Russia"s Former Economy Minister Sentenced To 8 Years In Jail

Last November, one week after Trump"s election and just as the "Russian collusion" narrative in the US was getting warmed up, we reported a bizarre incident in the top echelons, one in which Russia"s Economy Minister Alexey Ulyukayev was arrested on suspicion of taking a $2 million bribe in return for his ministry’s support of a positive assessment that would allow state oil company Rosneft to complete a deal to purchase the government"s stake in another Russian oil major, Bashneft, after he was monitored and his cell phone was bugged by the FSB for more than a year. The bribe in question involved the sale of Rosneft"s 50% stake in Bashneft.

"The circumstances of the crime are connected with Alexey Ulyukayev, who occupies a public post in the Russian Federation, receiving $2 million on November 14 for the positive assessment provided by the Economic Development Ministry that allowed Rosneft to complete the deal on purchasing the government"s 50 percent stake in Bashneft," said Svetlana Petrenko, deputy head of the Investigative Committee.

Fast forward 13 months when on Friday, the former Russian economy minister was found guilty on the charge of taking a $2 million bribe and sentenced to eight years in prison. He is now the highest-ranking Russian official to have been convicted on corruption charges. The charges were based on the testimony of Rosneft CEO Igor Sechin, as well as a on the evidence of a sting operation, in which Sechin personally handed a bag containing $2 million in cash to Ulyukayev, the then-economy minister.

The proceeding caused controversy in Russia, as Sechin delivered his testimony in written form, rather than in person. According to RT, he refused four times to testify in court, citing scheduling differences due to the taxing nature of his job.

The defense argued that he was dodging a personal appearance and violating due process, while critics accused him of being arrogant and considering his position to be above the law. The issue was raised at this week’s Q&A session with President Vladimir Putin, who refrained from criticizing Sechin for his conduct.

According to the court ruling, Ulyukayev extorted the bribe from Sechin, and in so-doing abused his position as member of the Russian cabinet. In his remarks, the presiding judge said “Ulyukayev acted under a preconceived plan, motivated by personal gain and with full understanding that the process of the privatization of Bashneft depended on his decisions.”

The court sentenced him to an eight-year prison term and a fine of over $2.2 million. He was arrested in the courtroom before the sentence hearing proceeded. Prosecutors asked for a sentence of ten years in a penal colony for Ulyukayev.

The former minister pleaded not guilty at the start of the trial and continued to maintain his innocence up until the verdict announcement on Friday. In his last address, he said a ‘not guilty’ verdict would be the only just outcome for his case. After hearing the sentence, Ulyukayev said he considered it unjust. His defense team confirmed that they would appeal the ruling.

Ulyukayev‘s defense argued that the money did change hands between Sechin and Ulyukayev, but that it was an entrapment on the part of the Rosneft head. The then-economy minister was not aware of the cash being inside the bag, his lawyers told the court. In his final plea, the ex-minister reiterated his position. “The case contains no proof of my complicity in bribe-taking whatsoever. Moreover, it testifies that I am a victim of a monstrous provocation,” Ulyukayev said in court earlier this month.

“I am guilty of a different thing. I have served Russian citizens for many years, and I have managed to achieve something, but not enough. Only when I myself got into trouble I started to understand how hard people’s lives are. People, forgive me for this. I am guilty before you,” he added.

After his arrest in mid-November last year, Ulyukayev spent around two days in a pre-trial detention facility before being placed under house arrest at his apartment, located in an elite housing complex in Moscow.

Ulyukayev is the first, and highest-ranked, government minister in Russia’s modern history to be found guilty of corruption by a court.

Oil Producers Turning To Crypto To Solve Sanctions Problems

Authored by Tom Luongo,

Last week, Venezuela announced it would develop a national cryptocurrency backed by its oil reserves, the Petro.  Now there is a report that Russia is considering the same thing.  Iran will likely follow suit.

As of right now this is just a rumor, but it makes some sense.  So, let’s treat this rumor as fact for the sake of argument and see where it leads us.

The U.S. continues to sanction and threaten all of these countries for daring to challenge the global status quo.  There is no denying this.  And so much of what we see in the geopolitical headlines are knock-on effects of this challenge.

The Geopolitical “Why”

From the Middle East to North Korea, the Dutch changing their laws to block Nordstream 2 to the Saudis breaking off relations with Qatar, everything you read about in the news is a move on the geopolitical “Go” board.

Because at the heart of this is the petrodollar. Contrary to what many believe, the petrodollar is not the source of the U.S. dollar’s power around the world, but rather the U.S.’s main fulcrum by which to keep competition out of the markets.

It is a secondary effect of the dollar’s dominance in global finance today.  But it is not the main driver.  Financial market are simply too big relative to the size any one commodity market for it to be the fulcrum on which everything hinges.

It was that way in the past. But it is not now.  That said, however, getting out from underneath the petrodollar gives a country independence to begin building financial architecture that can be levered up over time to threaten the institutional control it helped create.

U.S. foreign policy defends the petrodollar along with other systems in place – the IMF, the World Bank, SWIFT, LIBOR and the central banks themselves – to maintain its control.

The main oil producers, however, can escape this control simply by selling their oil in currencies other than the U.S. dollar.  That’s not enough to dethrone the dollar, but, like I just said, it is where the process has to start.

Therefore, any and all means must be employed to defend the dollar empire by keeping everyone inside that system. 

So, it looks like the petrodollar is all-important, but only in the long-run.  In the short run, monetary policy, diplomacy and political stability are far more powerful actors on the system.

Russia’s Crypto-Upside

However, the oil-backed cryptocurrency by Venezuela is very important.  And it’s why attaching a rumor to Russia makes sense.  Who do you think put this idea in President Maduro’s head, anyway?  Martians?  No, it was Putin.

Because it deepens Russia’s tools to combat U.S. hybrid war tactics, which include financial sanctions.  They’ve already announced their plans for a crypto-ruble, as well as supporting cryptocurrency research, massive Bitcoin mining operations, and the possibility of a BRICS-Coin as well.

And, most importantly, legal frameworks under which all of this will operate.  In short, these things create certainty in the minds of companies doing business in Russia that the government will act in predictable ways.

Those ways may still not be profitable enough to lay off other risks and attract capital, but predictability first and fine-tuning second.

Adding in a cryptocurrency backed by their oil reserves which can trade on the open market then only makes sense.  It allows smaller oil and gas companies to avoid the worst of U.S. banking sanctions.  It will help create secondary markets for corporate debt and equity issuance, fast-international clearing without need of centralized systems like SWIFT, etc.

This can facilitate a shift in the oil supply chain economy away from banks sanctioned by the U.S. and spur development in that space across not only Russia, but the entire region served by the Eurasian Economic Union.

Especially if this potential “Neft-coin”(Neft is Russian for ‘oil’) is convertible into crypto-Rubles and, by extension, Rubles themselves.  There will be no barrier for Russian businesses to use the “Neft-coin” to get around sanctions since it the crypto-Ruble was predictable tax consequences.

Moreover, since the crypto-Ruble will only be taxed at 13%, the capital gains tax rate in Russia, this, in effect, could be a back-door way for companies to lower their corporate tax rate to 13% from the current 20% Russian corporate tax rate.   I am just spitballing here.  But, if I were Vladimir Putin I would consider this, highly to compete with the U.S. pushing their corporate tax rate down from 35%.

The Other Side of the Coin

Those are the benefits, but what are the potential drawbacks?

The problem with backing any currency with physical reserves is the fluctuations in value of those reserves.  It’s not like oil is a low-beta commodity or anything.  But, like everything else in the commodity space, price movements are supposed to be smoothed out by the futures markets helping to coordinate price with time.

But the bigger problem is the estimation of those reserves the coin’s value is based on.  First, how do you accurately quantify them?  Can holders of Petro or Neft-coin trust the Russian or Venezuelan governments to provide accurate assessments of their reserves?

Second, there is the ability of the country to pull it out of the ground and sell it into the market at anything close to a fair price.  This isn’t a concern for Russia, the world’s 2^nd largest supplier of oil and very stable government but Venezuela is the opposite.  And, its “Petro” would probably trade at quite a discount early on to the dollar price of oil.

It will open up all kinds of arbitrage opportunities.

Moreover, the blockchain that backs this “Neft-coin” is subject to hacking by hostile actors… I wonder who those will be?

A cryptocurrency is only as secure as its blockchain is.  And, the size of the mempool backing that blockchain is the elephant in the room and it has to be big, deep and incorruptible.

Don’t think for a second that various U.S. ‘intelligence’ agencies are not developing ways to attack anything crypto-based that either of these countries put in place.  And, as well, don’t think that the Russians, masters themselves of cryptography, aren’t thinking of ways to combat this at a fundamental level.

Bitcoin Solves Other Problems

Now, there are schemes emerging in the blockchain space that can mitigate this possibility very simply.  And it all depends on the architecture of this “Neft-coin” or Venezuela’s “Petro.”  Tying either of these coins to a massive proof-of-work based blockchain like Ethereum or Bitcoin would be the right way to do this.

Like I said at the outset, this is purely speculation on my part, but it’s important to ask these questions now to see what shakes out.

I wouldn’t be surprised to see this “Neft-coin” if it’s happening, is employing some form of double-proofing that ties back into the plans for Russian Miner Coin, and the employment of not only the best new Bitcoin mining ASICs but the incredibly cheap Russian electrical grid.

I wrote about this when it was first announced back in August, seeing it as a way to get around sanctions and create a potential crypto-reserve system for the Russian economy.

Not only does Bitcoin get potentially elevated to the level of reserve asset to reside right next to Russia’s enormous pile of gold that represents nearly 20% of M2 in Rubles at insanely depressed prices, but it also furthers the argument for Russia to be a destination for capital as the sovereign debt crisis unfolds.

 

Capital is flowing into cryptos at an astounding pace.  Governments are completely behind the curve in their adoption of this technology.  Russia under Putin is moving quickly to remedy this and now fully groks how it can help him acheive his goals for Russia’s financial independence from the U.S.

 

Lastly, if this proves successful, Russia’s new Bitfury chips that will power this system could see wide demand in the global mining market.

And now you know why Russia is interested in taking over 10% of the Bitcoin mining hashing power.  In cryptocurrency mining, he who controls the hashing power controls the network, in essence.  Russia wants in on this for the strategic purpose of leveraging it for a number of reasons.

Both a crypto-Ruble and this potential “Neft-coin” can be tied to the Bitcoin blockchain by proxy and insulate it from any number of attack types.  For an example of how they could structure this read about Komodo’s delayed-Proof-of-Work system.

The drive to attract global capital away from the existing and (in my opinion) failing monetary and political system is what is driving the creation of these new types of digital assets.  Contrary to the opinion of many America Firsters, the U.S. is not capable of militarily taking on the world.  It does most of its fighting through the financial markets and political backrooms.

Moves like this and assets like Bitcoin itself happen because of that very natural human desire to be free from external control which enriches the few at the expense of the many.  Even if Russia isn’t working on a “Neft-coin” because of its relationship with China and its developing a crypto-Ruble, it’s obvious that there is a coordinated effort via the blockchain to secure Russia’s future free from U.S. control.

Identity of Secret Informant In FBI’s Clinton Probe Unveiled

More information about the Congressional probes into the Obama-era Uranium One deal leaked out Thursday when Reuters reported that Senate Republicans say their investigation into the Clinton’s role in approving the deal largely hinges on the testimony of a secret informant who was until recently the subject of a federal gag order.

But a month after Trump asked the DOJ to lift the gag order - a command that the DOJ promptly obeyed - the man has decided to speak out publicly for the first time in an interview with Reuters.

His name is Christopher Campbell, and was formerly a lobbyist for Tenex, the US-based arm of Rosatom, the Russian government’s nuclear agency.

At the time the Uranium One deal was approved, Campbell was a confidential source for the FBI in a Maryland bribery and kickback investigation that eventually led to the conviction of the head of the US unit of Rosatom, the Russian state-owned nuclear power company that received permission to buy Uranium One from a US strategic-resources panel, on bribery and corruption charges. Campbell was identified as an FBI informant by prosecutors in open court and by himself in a publicly available lawsuit he filed last year, but his identity as the informant was somehow not widely known, Reuters noted.

That’s largely because the DOJ put Campbell under a gag order after the investigation was settled. The FBI never informed Congress of its investigation into corruption at Rosatom and Uranium One, and in 2010, Hillary Clinton and a majority of the nine-member panel voted to approve the sale of Uranium One to Rosatom - thereby ceding control of 20% of US uranium assets to Russia.

Campbell’s lawyer, Victoria Toensing, who has not previously identified her client, said despite Campbell telling the government ”how corrupt the company was,” Rosatom still got permission to buy Uranium One. And while that certainly sounds suspicious, she didn’t say what Campbell would reveal regarding any alleged wrongdoing by Clinton.

A Uranium One Facility

In a telephone interview with Reuters, Campbell said he wanted to testify because of his concerns about Russia’s activities in the United States, but declined to comment further.

Campbell’s lawyer, Victoria Toensing, who has not previously identified her client, said despite Campbell telling the government ”how corrupt the company was,” Rosatom still got permission to buy Uranium One. She did not say what Campbell would reveal regarding any alleged wrongdoing by Clinton.

However, some law enforcement officials who spoke with Reuters under cover of anonymity said they doubt Campbell would be much help to investigators digging into Uranium One.  That’s because although both Uranium One and the bribery cases involved Rosatom, the two cases involved different business units, executives and allegations, with little other apparent overlap, Reuters found in a review of the court records of the bribery case.

Yet Campbell insisted that he had meaningful evidence of corruption related specifically to the Uranium One deal.

Campbell countered those who dismiss his knowledge of the Uranium One deal. “I have worked with the Justice Department undercover for several years, and documentation relating to Uranium One and political influence does exist and I have it,” Campbell said. He declined to give details of those documents.

And Campbell’s role in the probe will likely only expand if the Justice Department does end up appointing a special prosecutor, as a leak to the Washington Post Monday suggested it might. Though AG Jeff Sessions was quick to play down those rumors during public testimony earlier this week.

Campbell potentially now has a larger starring role in the Washington drama after the Justice Department said in a letter to Congress on Monday that it was considering appointing a special prosecutor to launch an investigation into Republican allegations of wrongdoing by Clinton, Trump’s former political rival, in the deal.

 

Under Clinton, the State Department was part of a nine-agency government Committee on Foreign Investment in the United States that approved the purchase of Uranium One. Her critics, including Trump, allege large donations by people connected to the Uranium One deal made to her family’s foundation influenced the State Department’s decision to approve it.

 

Reuters has no evidence that Clinton orchestrated the approval of Uranium One.

 

In an email, Rosatom said the company had made no donations to the Clinton Foundation and had not asked others to do so. The foundation stressed the State Department was only one member of the committee that approved the deal and said Clinton had no personal involvement in the decision.

 

Senate Judiciary Committee Chairman Charles Grassley said in a letter to Toensing, Campbell’s lawyer, that her client appears to have information “critical to the Committee’s oversight of the Justice Department and its ongoing inquiry into the manner in which” the Uranium One sale was approved.

As Reuters reports, Campbell was slated to testify against Vadim Mikerin, the Russian official in charge of US operations for Tenex, the US-based unit of Rosatom. Authorities later accused Mikerin of taking bribes from a shipping company in exchange for contracts to transport Russian uranium into the United States. He pleaded guilty in federal court in Maryland and was sentenced to prison for four years. The Justice Department had also initially charged Mikerin with extorting kickbacks from Campbell after hiring him as a $50,000-a-month lobbyist.

However, prosecutors eventually decided against it, saying Campbell lacked credibility.

Prosecutors alleged Mikerin had demanded Campbell pay between one-third and half of that money back to him each month under threat of losing the contract and veiled warnings of violence from the Russians. The demand prompted Campbell to turn to the FBI in 2010, which gave its blessing for him to remain part of the scheme.

 

Federal prosecutors were ready to use Campbell as a star witness against Mikerin, but they backed away after defense attorneys raised questions about Campbell’s credibility and whether he was a victim or had “entered into a business arrangement with eyes wide open,” according to court records.

As is often the case when it comes to international espionage and corruption, many questions remain unanswered. Prosecutors dropped the extortion charges against Mikerin and never mentioned Campbell again in any charging documents. A Justice Department spokeswoman declined to comment on the case. Campbell also declined to comment on the issue.

Reuters has been unable to learn why Tenex chose Campbell as its lobbyist. He acknowledged in lawsuit he filed in 2016 that he was hired despite the fact he “had no experience with nuclear fuel sales."

Given his proximity to some of the individuals at the center of the Congressional investigations, it’s possible Campbell might be able to provide some game-changing information about Uranium One that could better illuminate the Clintons’ role in approving the deal. Of course, he could be just another crank.

Russia Goes All In On Arctic Oil Development

Authored by Tsvetana Paraskova via OilPrice.com,

Neither sanctions nor persistently low oil prices are hindering Russia’s ambitions or plans to develop oil resources in its sections of the Arctic.

In April, state-controlled oil giant Rosneft started drilling the northernmost well on the Russian Arctic shelf in the Khatangsky license area in the Laptev Sea. In June, Rosneft struck first oil in the Eastern Arctic in this license.

Earlier this month, the oil firm said that recoverable reserves at the field exceed 80 million tons of oil, which is equal to around 586.4 million barrels. Geological data point to reserves at the field at 298 million tons of oil, or some 2.184 billion barrels, and the oil is high quality - light and low-sulfur, according to Rosneft.  

The Russian oil giant - whose CEO Igor Sechin is a close ally of Vladimir Putin - continues to drill at the field to study its geology, search for more oil, and define future drilling strategies at the license, Rosneft says.

Rosneft and Gazprom’s oil unit Gazprom Neft are the only two companies allowed to drill in the Arctic offshore under Russia’s legislation.

Gazprom Neft operates the only oil-producing platform in Russia’s Arctic currently. The Prirazlomnoye oil field in the Pechora Sea started pumping oil back in late 2013. The field is estimated to hold 70 million tons of oil, or 513 million barrels, with annual production averaging 5.5 million tons (40.3 million barrels) at full capacity. Related: Is The Aramco IPO On The Brink Of Collapse?

Rosneft also plans to resume drilling in the Barents Sea next year and in the Kara Sea within two years, thus committing itself to conduct drilling works across the entire Russian section of the Arctic.

Rosneft holds 28 licenses in the Russian Arctic shelf that are estimated to have combined reserves of 34 billion tons of oil equivalent, or 249.22 billion barrels. Since 2012, Rosneft has invested $1.74 billion (100 billion rubles) in Arctic exploration, and will invest in 2017-2021 another $4.354 billion (250 billion rubles).

Russia, for its part, has stated that Arctic oil and Arctic development are priorities in its policies, and is supporting development with financing in a kind of political message that sanctions won’t deter its Arctic oil ambitions.

The U.S. Treasury sanctions list from 2014 prohibits the exports of goods, services (not including financial services), or technology in support of exploration or production for Russian deepwater, Arctic offshore, or shale projects that have the potential to produce oil. 

While Western banks are still evaluating the potential impact of the latest round of U.S. sanctions on Russia from this summer, Moscow is committing funds to Artic development. At the end of August, Prime Minister Dmitry Medvedev said that Russia will finance the development of the Artic continental shelf and the economy of the local areas with more than $2.787 billion (160 billion rubles) by 2025. He said Russia’s program for Arctic development rests on three pillars: boosting economic growth, developing sea infrastructure, and developing the continental shelf with modern technology and equipment. Related: Oil Markets Fear Iraqi Escalation

As part of that program, in 2021-2025, the government will fund $414.5 million (23.8 billion rubles) for a program to build oil and gas equipment and technology and industrial machinery for exploration and development in the Arctic.

According to experts cited by Rosneft, the Arctic shelf is expected to account for 20-30 percent of Russia’s total oil production by 2050.

It’s not clear who will need Russian Arctic oil in 2050, but in the shorter term, Russia is betting on the Arctic, and Rosneft’s exploration success this year could really pay off. 

China Launches Yuan-Ruble Payment System

The monetary regimes of China and Russia, two of the world"s most resource-rich nations, are drawing closer with every passing day.

In the latest push for convergence, China has established a payment versus payment (PVP) system for Chinese yuan and Russian ruble transactions in a move to reduce risks and improve the efficiency of its foreign exchange transactions. The PVP system for yuan and ruble transactions, designed to streamline commerce and curency transactions between the two nations, was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.

It marks the first time a PVP system has been established for trading the yuan and foreign currencies, said the statement, which was posted on Wednesday on the website of the China Foreign Exchange Trade System (CFETS). PVP systems allow simultaneous settlement of transactions in two different currencies.

According to CFETS, the system would reduce settlement risk as well as the risk of transactions taking place in different time zones, and improve foreign exchange market efficiency. Of course, if the two countries had a blockchain-based settlement system, they would already have all this and much more.

CFETS said it plans to introduce PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative, and complying with the process of renminbi internationalization. Russia, however, is a top priority: the world"s biggest oil producer recently became the largest source of oil for China, the world’s top energy consumer.

To be sure, the monetary convergence between Beijing and Moscow is hardly new. The most notable recent development took place in April, when the Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade. As the South China Morning Post reported at the time, the new office was part of agreements made between the two neighbours "to seek stronger economic ties" since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

At the time, Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon, to which we said that If Russia - the world"s fourth largest gold producer after China, Japan and the US - is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

Furthermore, also around the same time, as the Russian central bank was getting closer to China, China was responding in kind with the establishment of a clearing bank in Moscow for handling transactions in Chinese yuan. The Industrial and Commercial Bank of China (ICBC) officially started operating as a Chinese renminbi clearing bank in Russia on Wednesday this past Wednesday

"The financial regulatory authorities of China and Russia have signed a series of major agreements, which marks a new level of financial cooperation," Dmitry Skobelkin, the abovementioned deputy head of the Russian Central Bank, said. "The launching of renminbi clearing services in Russia will further expand local settlement business and promote financial cooperation between the two countries," he added according to.

Irina Rogova, a Russian financial analyst told the Russian magazine Expert that the clearing center could become a large financial hub for countries in the Eurasian Economic Union.

* * *

The creation of the clearing center, and the launch of PVP systems enables the two countries to further increase bilateral trade and investment while decreasing their dependence on the US dollar. It will create a pool of yuan liquidity in Russia that enables transactions for trade and financial operations to run smoothly. In expanding the use of national currencies for transactions, it could also potentially reduce the volatility of yuan and ruble exchange rates. The clearing center is one of a range of measures the People"s Bank of China and the Russian Central Bank have been looking at to deepen their co-operation, Sputnik reported.

But one of the most significant measures under consideration is the previously reported push for joint organization of trade in gold.

In recent years, China and Russia have been the world"s most active buyers of the precious metal. On a visit to China last year, the deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.

"We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets," First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia"s TASS news agency.

In other words, China and Russia are continuing to shift away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts, just as China - which has been the biggest accumulator of gold in recent years - likes it.

Did This Oil & Gas Deal Just Change The Global Energy Balance?

Authored by Dave Forest via OilPrice.com,

One of the biggest energy stories this year has been Russia’s Rosneft buying India’s Essar Oil - giving the Russian company a firm grip on one of the world’s biggest emerging oil and gas markets. 

And this past week, that story got more complex. With Rosneft striking another big deal — drawing in another heavyweight energy nation. 

China. 

Rosneft announced Friday it is selling a significant chunk of its equity to Chinese investors. In this case, little-known exploration and production firm CEFC China Energy. 

Although few investors know CEFC, the company is bringing significant capital to the deal. With the firm agreeing to pay $9 billion to acquire a 14.16 percent stake in Rosneft. 

The deal is historic in being the first major buy-in by China into the Russian oil and gas sector (although Chinese firms have been involved in financing LNG export projects in the Russian Arctic).

Showing the strength of the ever-growing ties between Russia and China in the energy space. 

Rosneft and CEFC have been at the center of that burgeoning relationship. With the two companies having signed a deal this past September for long-term supply of Russian crude into China. 

This week’s equity purchase further cements those business ties. And shows that China sees Russia as a critical ally in the energy game going forward.

But there are implications well beyond these two countries. With China now having backdoor access into markets like India — through Rosneft’s recently-acquired holdings in that country. 

That’s a critical development for the world energy picture. Given that Chinese companies haven’t directly gained much access into India — despite the nation being one of the most important emerging players on the energy stage. 

Ownership in Rosneft could help change that. And could open up opportunities in other parts of the world — with Rosneft currently having operations in places ranging from Egypt to Brazil to Venezuela. 

An intriguing side note to the story: CEFC is buying the Rosneft stake from Glencore, and Qatar’s sovereign wealth fund. Who reportedly purchased the interest just nine months ago — for $12 billion.

That means these holders are taking a 25% loss on the sale, less than a year after buying in. But in the meantime, Glencore was able to strike a lucrative deal to trade Rosneft’s Russian crude — probably making up for the losses on the Rosneft equity, and then some. 

All of which shows just how complex things are in this rapidly-changing corner of the energy world. Watch for more China-Russia energy deals — and emerging influence from these two energy superpowers in other key markets like India.

Kalashnikov Unveils New Anti-Drone Weapon

Authored by Mac Slavo via SHTFplan.com,

While most western countries are reverting back to medieval technology to combat the use of drones, legendary Russian arms manufacturer Kalashnikov, makers of the AK series, has developed an advanced anti-drone gun.

Drones are now becoming more widely available, therefore, anti-drone technology is becoming a major field in the defense industry.

Of course, Kalashnikov is leading the pack in anti-drone warfare. Built on the MP-514K rifle system, the fully modular device comes equipped with interchangeable jamming units, which disrupt GPS, GLONASS, WiFi, and other electronic and radio signals, rendering drones inoperable. Due to its ability to block phone signals, the device also can be used to prevent remote detonation of improvised explosives.

Meet the REX-1.

For the first time in Russia, Kalashnikov Concern, the largest arms manufacturer in the country, showed off its electromagnetic anti-drone rifles at the Army-2017 expo in the Moscow Region. Prototypes of the REX-1 are also undergoing tests in some subunits of the Russian National Guard.

The gun has some fascinating features which makes it extremely effective. It is able to “fire” continuously for four hours. It can then be recharged for four hours using an ordinary 220-volt socket, or it can be connected to an additional battery for uninterrupted use. And, according to Nikita Khamitov, head of the special projects department at Zala Aero Group – the company that developed the new weapon and is part of Kalashnikov Concern, it’s possible to change each component in a matter of seconds, just like changing the magazine on an assault rifle.

“This radiomagnetic ‘gun’ suppresses the command and control channels of the world’s most commonly encountered drones. It’s also installed with a number of interchangeable electromagnetic and infrared units that suppress GSM, GPS, GLONASS, Galileo [the last three are various types of satellite navigation systems – RBTH], and other channels,” said Khamitov. -RBTH

Drones generally have two default modes in case communication is lost with the operator.  They will either return to the start point or automatically land. 

“In the latter case the drone will disappear from enemy radars, and you effectively have a new toy in your hands,” Khamitov added.

 

“A particular feature of the device is the possibility of not just neutralizing unmanned aerial vehicles but also explosive devices triggered by remote control – via a phone call or text message, as one sees in films. The gun shuts out all external signals and gives the combat engineer group time to arrive on the spot and completely eliminate the threat,” Khamitov said.

And it’s possible you could end up getting your hands on a REX-1 too.  Well, the civilian version, anyway.  According to Khamitov, a version of the gun could definitely be designed for the civilian market. Or course, not all its functions would be made available. For instance, in the civilian version, the GPS neutralizing device would not be included.

The price of the weapon will be determined when the subunits of the Federal National Guard Troops Service decide the number they want to procure. “Looking at the market, I think the civilian version of our system could cost around $5,000,” Khamitov said.

Senate Overwhelmingly Votes For New Russia Sanctions, Now It's Up To Trump

Two days after the House passed bipartisan legislation in a 419-3 vote codifying and imposing further sanctions against Russia, Iran and North Korea and preventing the president from acting unilaterally to remove certain sanctions on Russia, moments ago the Senate also overwhelmingly approved the measure in a 98-2 vote.  Only Senators Rand Paul and Bernie Sanders voting no. The bill will now head to the White House where it will be either signed into law by the president or vetoed, setting up a potential showdown with the White House over Russia. The move marks congressional Republicans" first rebuke of Trump"s foreign policy, where the administration"s warmer stance toward Russia has drawn heavy skepticism from both parties.

The three countries named in the bill are accused of violating “the international order” by Senator Bob Menendez, the former chairman of the foreign relations committee.

Under the bill, existing sanctions on Russia for its aggression in Ukraine and interference in the 2016 election would be codified into law. New sanctions would go into effect against Iran for its ballistic missile development, while North Korea’s shipping industry and people who use slave labor would be targeted amid the isolated nation’s efforts to launch an intercontinental ballistic missile (ICBM).

While a full breakdown of the key details in the legislation is provided at the bottom of this post, in a nutshell the sanctions target Russian gas and pipeline developments by codifying six of Barack Obama’s executive orders implementing sanctions on Russia for its alleged interference in the US elections.

John McCain lauded the bipartisan process that supported the bill: “We will not tolerate attacks on our democracy!” the Senator, who chairs the armed services committee, said from the Senate floor. “That"s what this bill is all about.”

The Senate passage now sends the sanctions bill to Trump"s desk, although lawmakers expressed mixed expectations on whether the president would sign it into law. In recent days, White House press secretary Sarah Huckabee Sanders offered mixed messages in recent days.  On Sunday, Sanders told ABC’s “This Week” that the administration supports the bill. But on Monday, she told reporters on Air Force One that Trump is “going to study that legislation” before making a final decision.

* * *

Should Trump sign the bill into law, a prompt Russian response is imminent. On Thursday, Russia"s Kommersant newspaper reported that Russia is planning “symmetrical" response to earlier U.S. actions, including expelling diplomats and seizing U.S. Embassy properties, if and when Trump signs the new sanctions legislation.

It noted that Russia may take the Serebryany Bor vacation complex, and send home 35 diplomats, the same number as the Russian diplomats who were expelled by Barack Obama late in December. Komersant added that Russia may also limit maximum number of U.S. diplomatic personnel, which currently exceeds Russian staff in U.S.

Also on Thursday, Vladimir Putin said that Russia would be forced to retaliate if Washington pressed ahead with what he called illegal new sanctions against Moscow, describing U.S. conduct towards his country as boorish and unreasonable.

"As you know, we are exercising restraint and patience, but at some moment we"ll have to retaliate. It"s impossible to endlessly tolerate this boorishness towards our country," Putin told a joint news conference during a press conference in Findland.

"When will our response follow? What will it be? That will depend on the final version of the draft law which is now being debated in the U.S. Senate."

Putin also spoke about an ongoing diplomatic row between Moscow and Washington which erupted last December when then U.S. President Barack Obama ordered the seizure of Russian diplomatic property in the United States and the expulsion of 35 Russian diplomats.

"This goes beyond all reasonable bounds," said Putin. "And now these sanctions - they are also absolutely unlawful from the point of view of international law." Calling the proposed sanctions "extremely cynical," Putin said the demarche looked like an attempt by Washington to use its "geopolitical advantages ... to safeguard its economic interests at the expense of its allies".

* * *

But while Russia"s adverse reaction is to be expected, it is the EU"s response that will be closely watched.

According to an internal memo leaked to the FT earlier in the week, Brussles said it should act "within days" if new sanctions the US plans to impose on Russia prove to be damaging to Europe’s trade ties with Moscow. Retaliatory measures may include limiting US jurisdiction over EU companies. The memo, reported by the Financial Times and Politico, has emerged amid mounting European opposition to a US bill seeking to hit Russia with a new round of sanctions. 

Morning London, while you were sleeping this was our most read story https://t.co/eC4kSgYeHN

— Financial Times (@FT) July 24, 2017

The document said European Commission chief Jean-Claude Juncker was particularly concerned the sanctions would neglect the interests of European companies. Juncker said Brussels “should stand ready to act within days” if sanctions on Russia are “adopted without EU concerns being taken into account,” according to the Financial Times.

The EU memo also warns that “the measures could impact a potentially large number of European companies doing legitimate business under EU measures with Russian entities in the railways, financial, shipping or mining sectors, among others.”

The freshly leaked memo suggests that the EU is seeking “a public declaration” from the Trump administration that it will not apply the new sanctions in a way that targets European interests.  Other options on the table include triggering the ‘Blocking Statute,’ an EU regulation that limits the enforcement of extraterritorial US laws in Europe. A number of “WTO-compliant retaliatory measures” are also being considered, according to the memo.

Over the weekend, we reported that Brussles expressed its concerns over the sanctions bill, when the European Commission said in a statement that “the Russia/Iran sanctions bill is driven primarily by domestic considerations,” adding that it “could have unintended consequences, not only when it comes to Transatlantic/G7 unity, but also on EU economic and energy security interests.”

And so, trapped between looking like a Russian crony on one hand if he refuses to sign the bill, and inflaming relations with not only Moscow but also Europe if he does sign, it will be up to Trump to determine if the feud with Russia escalates even more and involves European nations who are far closer to Russia in socio-economic terms than they would like to admit.

* * *

Finally, courtesy of Goldman, here are the main details of the legislation:

Here are the main details of the draft legislation:

• Codifies existing US sanctions on Russia and requires Congressional review before they are lifted.


• Reduces from 30 days to 14 days the maximum allowed maturity for new debt and new extensions of credit to the state controlled financial institutions targeted under the sectoral sanctions.


• Reduces from 90 days to 60 days the maximum allowed maturity for new debt and new extensions of credit to sectoral sanctions targets in the energy sector, although this largely only brings US sanctions in line with existing EU sanctions, which already impose a 30-day maximum for most energy companies.


• Expands the existing Executive Order authorising sectoral sanctions to include additional sectors of the Russian economy: railways and metals and mining.


• Requires sanctions on any person found to have invested $10 million or more, or facilitated such an investment, in the privatisation of Russian state-owned assets if they have “actual knowledge” that the privatisation “unjustly benefits” Russian government officials or their close associates or family members.


• Authorises (but does not require) sanctions “in coordination with allies” on any person found to have knowingly made an investment of $1 million or more (or $5 million or more in any 12-month period), or knowingly provided goods or services of the same value, for construction, modernisation, or repair of Russia’s energy export pipelines.


• Orders the treasury, in consultation with the Director of National Intelligence and the Secretary of State, to prepare detailed reports within the next 180 days:
  
  • on Russia’s oligarchs and parastatal companies including individual oligarchs" closeness to the Russian state, their involvement in corrupt activities and the potential impact of expanding sanctions with respect to Russian oligarchs, Russian state-owned enterprises, and Russian parastatal entities, including impacts on the entities themselves and on the economy of the Russian Federation, as well as the exposure of key US economic sectors to these entities.
  
  
  • on the impact of debt- and equity-related sanctions being extended to include sovereign debt and the full range of derivative products.
  
  

Russophobia Tops Trumphoria - Moscow Stocks Plunge To 8-Month Lows

For eight straight week after President Trump was elected, global investors fell over themselves to buy Russian stocks, driving the MICEX index to record highs. However, the constant Russian headlines climaxing in the last two weeks of chaos has seen Russian stocks collapse - erasing all of the post-election gains and more.

However, as is clear from the chart above, while Russian stocks are languishing at 8 month lows; Russian credit risk remains near 3 year lows.

“We see no reason that the market would return to the difficult-to-justify euphoria seen in the aftermath of Donald Trump’s victory,” Sberbank CIB analysts Cole Akeson and Andrey Kuznetsov said in an e-mailed note on Thursday.

“Recent events in Syria evoke a higher level of caution than in weeks prior.”

Interestingly, the last two days have seen a notable divergence as while Tillerson and Russian Foreign Minister Sergei Lavrov were talking through their disagreements in negotiations in Moscow late on Wednesday, the Micex Index closed at its lowest level since before the U.S. election but Russia"s credit risk actually improved...

Almost as if someone wanted to send the message (via stocks - because the mainstream can understand that) that Russia is "bad".

The slump has made Russian stocks the cheapest relative to emerging-market peers since 2015.

Is This The Greatest 'Arb' In The World?

Since it first entered service with the Soviet army in 1948, the AK-47 and its derivatives have become the world"s most widely used assault rifles.

As Statista"s Niall McCarty writes, in his book "AK47: The Story of The People"s Gun", author Michael Hodges estimates that there are as many as 200 million Kalashnikov rifles in circulation, one for every 35 people on earth. Its popularity among soldiers, criminals and militants is primarily due to its cheap price, durability, reliability and sheer simplicity.

However, while demand may be high, prices vary dramatically... which gave us an idea.

You will find more statistics at Statista

200 different types of Kalashnikov are produced in at least 30 countries with vast quantities of rifles turning up in trouble spots all over world, especially in Africa. The AK rifles used in the Paris attacks at Charlie Hebdo and the Bataclan theater were purchased in Belgium and traced back to the Balkans (and to Serbia in particular). Given that the AK-47 is at the center of the illegal ams trade (worth an estimated $1.7 to $3.5 billion every year), how much would one cost on the black market?

A recent report from Global Financial Integrity has shed light on the cost of an illegally-procured AK-47 in several selected countries. Somebody seeking one in Pakistan could pay $148 for a locally produced version or $1,200 for the real deal. In Belgium, where the Paris attackers obtained their guns, an AK-47 has an average pricetag of $1,135. It"s also possible to find AK-type rifles through the darknet and they can cost anywhere from $2,800 to $3,600.

So, is buying AK-47s in Afghanistan and selling them online via the Dark Web, the greatest globalization "arb" ever? Or simply the correct risk-premium for life-threatening procurement costs and jail-threatening sales anxiety?

Moscow And Beijing Join Forces To Bypass US Dollar In Global Markets, Shift To Gold Trade

The Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade.

According to the South China Morning Post the new office was part of agreements made between the two neighbours "to seek stronger economic ties" since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

According to Dmitry Skobelkin, the deputy governor of the Central Bank of Russia, the opening of a Beijing representative office by the Central Bank of Russia was a “very timely” move to aid specific cooperation, including bond issuance, anti-money laundering and anti-terrorism measures between China and Russia.

The new central bank office was opened at a time when Russia is preparing to issue its first federal loan bonds denominated in Chinese yuan. Officials from China’s central bank and financial regulatory commissions attended the ceremony at the Russian embassy in Beijing, which was set up in October 1959 in the heyday of Sino-Soviet relations. Financial regulators from the two countries agreed last May to issue home currency-denominated bonds in each other’s markets, a move that was widely viewed as intended to eventually test the global reserve status of the US dollar.

Speaking on future ties with Russia, Chinese Premier Li Keqiang said in mid-March that Sino-Russian trade ties were affected by falling oil prices, but he added that he saw great potential in cooperation. Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

If Russia - the world"s fourth largest gold producer after China, Japan and the US - is indeed set to become a major supplier of gold to China, the probability of a scenario hinted by many over the years, namely that Beijing is preparing to eventually unroll a gold-backed currency, increases by orders of magnitude.

* * *

Meanwhile, as the Russian central bank was getting closer to China, China was responding in kind with the establishment of a clearing bank in Moscow for handling transactions in Chinese yuan. The Industrial and Commercial Bank of China (ICBC) officially started operating as a Chinese renminbi clearing bank in Russia on Wednesday this past Wednesday. 

"The financial regulatory authorities of China and Russia have signed a series of major agreements, which marks a new level of financial cooperation," Dmitry Skobelkin, the abovementioned deputy head of the Russian Central Bank, said.

"The launching of renminbi clearing services in Russia will further expand local settlement business and promote financial cooperation between the two countries," he added according to.

Irina Rogova, a Russian financial analyst told the Russian magazine Expert that the clearing center could become a large financial hub for countries in the Eurasian Economic Union.

* * *

Bypassing the US dollar appears to be paying off: according to the Chinese State Administration of Taxation, trade turnover between China and Russia increased by 34% in January, in annual terms. Bilateral trade in January 2017 amounted to $6.55 billion. China’s exports to Russia grew 29.5% reaching $3.41 billion, while imports from Russia increased by 39.3%, to $3.14 billion. Just as many suspected, with Russian sanctions forcing Moscow to find other trading partners, chief among which China, this is precisely what has happened.

The creation of the clearing center enables the two countries to further increase bilateral trade and investment while decreasing their dependence on the US dollar. It will create a pool of yuan liquidity in Russia that enables transactions for trade and financial operations to run smoothly.

In expanding the use of national currencies for transactions, it could also potentially reduce the volatility of yuan and ruble exchange rates. The clearing center is one of a range of measures the People"s Bank of China and the Russian Central Bank have been looking at to deepen their co-operation, Sputnik reported.

One of the most significant measures under consideration is the previously reported push for joint organization of trade in gold. In recent years, China and Russia have been the world"s most active buyers of the precious metal. On a visit to China last year, the deputy head of the Russian Central Bank Sergey Shvetsov said that the two countries want to facilitate more transactions in gold between the two countries.

"We discussed the question of trade in gold. BRICS countries are large economies with large reserves of gold and an impressive volume of production and consumption of this precious metal. In China, the gold trade is conducted in Shanghai, in Russia it is in Moscow. Our idea is to create a link between the two cities in order to increase trade between the two markets," First Deputy Governor of the Russian Central Bank Sergey Shvetsov told Russia"s TASS news agency.

In other words, China and Russia are shifting away from dollar-based trade, to commerce which will eventually be backstopped by gold, or what is gradually emerging as an Eastern gold standard, one shared between Russia and China, and which may day backstop their respective currencies.

Meanwhile, the price of gold continues to reflect none of these potentially tectonic strategic shifts, just as China - which has been the biggest accumulator of gold in recent years - likes it.

AK-47 Maker Staffs Up Amid Surge In Export Orders

As the world roils amid Middle East maelstroms, Donald Trump dysphoria, and terrorist tantrums, there is a silver-lining for some. As MSN reports, the maker of the AK-47 semi-automatic machine gun says it is to increase staff by 30% because of a surge in export orders.

As a reminder this surge in demand follows US sanctions banning the import of Kalashnikov firearms from Russia in 2014.

The Kalashnikov Group put out a press release from its Moscow office Monday stating that it will create a further 1,700 jobs this year.

"Following the growth of production volume, which was driven by the rise in the number of export orders, it was decided to increase the number of the Group"s employees," said Alexey Krivoruchko, chief executive of the Kalashnikov Group.

"The challenge we face is managing the growing number of orders. To fulfil them, as of April 2017, production will run in three shifts," he added.

The Kalashnikov Group said it employed around 5,500 people at the end of 2016. The new staff will be recruited to work as service technicians, grinders, toolmakers and machine operators.

Kalashnikovs remain the most popular rifle in history...

This "Rogue" Oil & Gas Nation Just Set A Slew Of Output Records

Submitted by Dave Forest via OilPrice.com,

With 2016 now closed out, we’re getting the first looks at year-end data. And numbers from one nation in the energy space have been particularly eye-catching this week.

Russia.

Over the last 15 years, Russia vaulted upwards in oil and gas production — challenging for the world’s top producer of crude. A fact that’s especially critical given this big producer is a “rogue” nation that lies outside the purview of OPEC.

And 2016 was another big year for Russian oil output. With stats showing the country’s production rose again this past year — to an average 10.96 million barrels per day, up from 10.72 million barrels per day in 2015.

That came on the back of strong national production in December, where Russian producers pumped 11.21 million barrels per day — marking the highest output level in nearly 30 years.

That’s a very important data point for energy markets, showing that Russian supply is continuing to surge even as other big producers like Saudi Arabia are seeking production cuts.

And it isn’t just oil where Russia is having a major impact on global markets. Recent stats show the nation also had a banner year for natural gas output.

Russian natgas giant Gazprom said this past week that it increased 2016 production levels to 419 billion cubic meters, or 14.8 trillion cubic feet. A mark that exceeded Gazprom’s own forecasts for the year by 2.7 percent.

That rising production translated into higher exports, with Gazprom shipping 179 billion cubic meters to Europe during 2016 — marking a record yearly total.

It’s not just pipeline gas that’s surging either. Russia’s burgeoning LNG exports also saw a 1.1 percent rise during 2016, to 14.69 billion cubic meters, according to government reports this week.

In fact, Russian LNG has been picking up speed even in the past few weeks, with December exports up 10.8 percent, to a total 1.47 billion cubic meters.

That puts Russia’s LNG shipments on pace for a 20 percent rise this coming year.

Watch for more numbers on supply growth from this critical energy nation — and resulting effects on pricing in both oil and natural gas markets.