Ukraine Latest: Kyiv Lauds Isle Retake; Putin Shifts Gas Plant

·12 min read

(Bloomberg) -- Ukrainian President Volodymyr Zelenskiy used his nightly address to praise the departure of Russian forces from Snake Island in the Black Sea, but signaled difficulties in the Donbas region. Moscow framed the move as a gesture toward facilitating grain exports, but Kyiv says its barrage of missile and artillery was behind the decision.

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Russian President Vladimir Putin signed a decree to transfer rights for the Sakhalin-2 natural gas project to a new Russian company, a move that could force foreign owners including Shell Plc to abandon their investment in the facility. The move could also pressure Japanese trading houses to drop ownership in the plant, or disrupt vital LNG deliveries to the country.

Ukrainian officials are exploring the possibility of debt restructuring as the war-ravaged country’s funding options are at risk of running out, according to three people familiar with the discussions.

(See RSAN on the Bloomberg Terminal for the Russian Sanctions Dashboard.)

Key Developments

  • Putin’s Swoop on Key Gas Plant Could Force Foreign Partners Out

  • Russia’s Oil Revival Gets Some Help From Domestic Refineries

  • Ukraine Considering Debt Restructuring Options as Payments Loom

  • US Treasury Blocks $1 Billion Trust Tied to Russian Oligarch

  • Russia Withdraws Troops from Snake Island After Ukraine Strikes

  • Lawmakers Slam London’s ‘Dirty Money’ Habit and UK Sanctions

On the Ground

As the largest-scale military operation in Europe since World War II continues in its fifth month, Russia pressed ahead with its goal of occupying Ukraine’s Donetsk and Luhansk regions. Kremlin forces are closing in on Lysychansk, Ukraine’s last major foothold in Luhansk. The region’s governor described the situation as “extremely difficult” with evacuations not possible and Russian troops at the city’s outskirts. Russia fired two missiles at Odesa but damage was limited. Russia continued to strike targets far from the eastern front, keeping up a volume and intensity that’s risen since last weekend.

(All times CET)

US Details Additional $820 Million in Security Aid (8:39 p.m.)

The Pentagon said the latest batch of security assistance for Ukraine includes two National Advanced Surface-to-Air Missile Systems, four counter-artillery radars and up to 150,000 rounds of 155mm artillery ammunition.

“The United States continues to work with its allies and partners to provide Ukraine with capabilities to meet its evolving battlefield requirements,” the Pentagon said in a statement.

The $820 million in additional support, first announced by President Joe Biden in Madrid on Thursday, will bring total U.S. security assistance to Ukraine to $6.9 billion since Russia’s invasion in late February, according to the statement.

Swoop on Gas Plant Could Force Foreign Partners Out (6:33 a.m.)

The decree to transfer rights to the Sakhalin-2 natural gas project cites threats to Russia’s national interests and economic security, according to a statement dated June 30, issued by the Kremlin and signed by Putin. Stakeholders have one month to say whether they’ll take a holding in the new company, and those who opt out may not be fully compensated, the statement said.

The move could prove complicated for Shell, which holds a 27.5% stake in the liquefied natural gas facility in Russia’s far east. Japanese trading houses Mitsubishi Corp. and Mitsui & Co., which fell in early trading Friday on the news, own a combined 22.5% of the project, and a majority of the gas produced there supplies Japan.

Read more: Putin’s Swoop on Key Gas Plant Could Force Foreign Partners Out

US Announces $1.3 Billion in Government Support (11:45 p.m.)

The US Agency for International Development said it was providing $1.3 billion in direct budget support for Ukraine, facilitated by the World Bank, which earlier announced about $470 million for the war-torn country.

“The additional resources provided by the United States will help the Ukrainian government alleviate the acute budget deficit caused by the Kremlin’s brutal war of aggression and ensure the continued delivery of core government services during a time of exceptional need,” according to the USAID statement.

The statement said the US has now provided about $2.3 billion direct budgetary support for Ukraine.

Zelenskiy Hails Russian Departure from Snake Island (11:20 p.m.)

Zelenskiy said the departure of Russian forces from Snake Island “significantly changes” the situation in the Black Sea, while urging caution about how much it will really affect the course of the war.

“It does not guarantee safety yet, it does not yet guarantee that the enemy will not return,” Zelenskiy said in his nightly address to the nation. “But it already limits the actions of the occupiers significantly. Step by step, we will drive them out of our sea, our land and our sky.”

At the same time, Zelenskiy said the fighting in the Donbas region “remains the toughest” in the conflict, adding that Ukraine is outgunned by Russian forces.

World Bank Provides $470 Million for State Budget (7:55 p.m.)

Ukraine received 447 million euros ($468 million) from the World Bank to support budget expenditures and state governance, the Finance Ministry said on its website. Most of the loan, 424.6 million euros, is guaranteed by the UK, according to the statement.

The funds will support financing for state sector employees, including in education, Finance Minister Serhiy Marchenko said.

US Blocks Oligarch’s $1 Billion Trust (7:03 p.m.)

The US Treasury Department said it’s blocking a Delaware-based trust containing over $1 billion of assets that’s linked to Russian oligarch Suleiman Kerimov.

“This action ensures that those assets remain blocked and inaccessible to Kerimov,” the Treasury Department said in an announcement on the issuance of a notification of blocked property to Heritage Trust. Kerimov “holds a property interest” in the trust, according to the statement.

Kerimov is a Russian gold billionaire who was first sanctioned by Washington in 2018. He’s worth about $13.3 billion, according to the Bloomberg Billionaires Index.

Ukraine Considers Debt Restructuring (6:48 p.m.)

Ukrainian officials are looking into the possibility of a debt restructuring, according to three people familiar with the plans. The country has time to make a decision -- until Sept. 1, when it faces a $1.4 billion redemption and interest payments, according to Bloomberg calculations.

The International Monetary Fund is offering advice and analysis about Ukraine’s financial and debt situation, according to two of the people, all of whom asked not to be identified discussing a sensitive issue.

IMF staff have been engaging with the Ukrainian authorities since the invasion began in late February and continue to do so, a fund spokesman said, without commenting directly on questions regarding the possibility of debt restructuring.

Jokowi Says He Handed Zelenskiy Message to Putin (5:24 p.m.)

Indonesian President Joko Widodo said he handed a message to Putin from Ukrainian leader Zelenskiy, who he met in Kyiv on Wednesday. Jokowi, as he’s known, didn’t comment on the content. “I expressed my readiness to facilitate dialogue between the two leaders,” Widodo said after talks with Putin in the Kremlin on Thursday.

The Indonesian leader said food shortages since the war in Ukraine started in February were affecting hundreds of millions of people in developing nations.

His visit came as efforts have stalled on restarting the export of grains from Black Sea ports blockaded by Russian navy ships. Russia has said its own grain and fertilizer exports are being limited, even though the US has assured buyers they won’t be breaking any sanctions by making purchases.

Kremlin Hints Putin May Not Attend G-20 In Person (5:01 p.m.)

Putin may attend the Group of 20 summit in Indonesia in person or send a representative, the Interfax news service reported, citing his spokesman. “Russia will take part in the G-20, we’ll decide what format best suits our interests,” Dmitry Peskov said.

Biden Backs Turkey F-16 Purchase (5:08 p.m.)

Biden said he told Turkish President Recep Tayyip Erdogan that he supported the sale of F-16 jets to modernize Turkey’s air force, after the two leaders met following Ankara’s decision to drop its opposition to NATO expansion.

Biden spoke at the conclusion of a NATO summit in Madrid on Thursday. Erdogan’s change of heart on supporting NATO membership for Sweden and Finland brought the alliance one step closer to bolstering its eastern front with Russia. The American president said his support for the F-16 sale is long-standing and wasn’t a “quid pro quo” for Turkey’s support of the NATO ascension deal.

Kyiv Cuts Diplomatic Relations With Syria Over Donbas (3:46 p.m.)

Ukraine said it was breaking diplomatic ties with Syria after the Middle Eastern country officially recognized the “independence and sovereignty” of Luhansk and Donetsk, breakaway regions in eastern Ukraine that together are known as the Donbas.

Kyiv sees Syria’s move as an “unfriendly gesture” and a danger to Ukraine’s sovereignty and territorial integrity, the foreign ministry said on its website. Consular relations with Syria will continue.

Zelenskiy foreshadowed the move in his nightly video address on Wednesday, saying Moscow had “squeezed out the message of Syria about the alleged recognition of the occupation structures in Donbas as alleged states.”

Biden Says US to Announce Another $800 Million in Defense Aid (3:06 p.m.)

Biden said the US will announce another $800 million in defense assistance for Ukraine in the next few days. The new tranche would include a “new advanced Western air defense system” as well as “more artillery and ammunition,” he said.

Speaking at a news conference at the end of the NATO summit in Madrid, Biden said the military alliance is rallying the world to stand with Ukraine.

Johnson Targets UK Defense Spending at 2.5% of GDP (2:10 p.m.)

The UK will raise defense spending to 2.5% of annual GDP from its current 2.3% by the end of the decade and wants other NATO members to do likewise, said Prime Minister Boris Johnson.

The UK premier spoke at the NATO summit in Madrid of “a more dangerous and competitive world.” “We want Jens Stoltenberg, the General Secretary, to start work on that new target now and he has agreed to do that,” Johnson said.

On Wednesday Stoltenberg said that 2% “is increasingly considered a floor, not a ceiling” for members’ defense spending. Some 19 allies “have clear plans to reach it by 2024,” he said.

Read more: Boris Johnson Wants More NATO Defense Spending to Counter Putin

Canada to Send Dozens of Armored Troop Transport Vehicles (1:40 p.m.)

Canada will send 39 troop transports to Ukraine this summer, Prime Minister Justin Trudeau announced at the NATO summit in Madrid. The General Dynamics vehicles, known as armored combat support vehicles, will be new and part of an order of 360 recently made by the Canadian military.

Canada will also provide an additional six drone surveillance cameras to Ukraine, supplementing a delivery of 18 made this spring.

Stoltenberg Says NATO Is Ready for Anything (1:35 p.m.)

Stoltenberg said the alliance was “prepared for all eventualities” concerning Finland and Sweden joining the alliance, when asked about Putin’s comments that Moscow would respond in the event of a military buildup.

“We are ready to protect all allies, and of course Finland and Sweden,” Stoltenberg said after a gathering of NATO leaders in Madrid. He said Russia is, for now, “fully focused” on Ukraine.

Stoltenberg said signing of the accession protocols for the Nordic countries would take place on Tuesday. Turkey lifted its block on the bids of Sweden and Finland after they pledged to better address terrorism in their countries.

Voluntary Russian Withdrawal Called ‘Fake’ (12:15 p.m.)

Ukraine’s armed forces expelled Russian troops from the Black Sea territory known as Snake Island and the idea that it was a voluntary withdrawal is “a complete fake,” according to the head of Zelenskiy’s office, Andriy Yermak.

Valeriy Zaluzhnyi, the commander-in-chief of Ukraine’s military, added: “Invaders have left Snake Island as they can’t endure our artillery, missile and air strikes.” He praised a Ukrainian-made howitzer that “played an important role in liberating the island,” as well as western partners, who he said delivered the “means to strike.” He didn’t provide further details.

Ukraine has plans to install its presence on the island eventually and at the moment it controls the area with the help of far-range artillery, military spokesman Oleksiy Hromov said at a briefing.

ECB to Ask Banks to Weigh Gas Embargo (11:20 a.m.)

The European Central Bank plans to ask the region’s lenders to factor in the economic hit of a potential cutoff of Russian gas when considering payouts to shareholders.

“We will propose to ask banks to recalculate their capital trajectories under a more adverse scenario including also potentially a gas embargo or a recession,” said Andrea Enria, who leads the ECB’s supervisory board. European banks have seen their prospects clouded as Russia’s invasion of Ukraine threatens to foster a wave of soured loans given a spike in inflation and difficulties in sourcing commodities.

German Jobless Jumps on Ukrainian Refugees (11 a.m.)

German unemployment unexpectedly rose, snapping 15 straight months of decline as refugees from the war in Ukraine were included in those searching for work.

Joblessness jumped by 133,000 in June, lifting the jobless rate to 5.3% -- the highest since November. Economists had estimated a drop of 5,000. The European Central Bank predicted this month that refugees fleeing Russia’s invasion could end up boosting the euro area’s active labor force by as many as 1.3 million people.

Zelenskiy Thanks UK for Latest Aid (10 a.m.)

Zelenskiy thanked Prime Minister Boris Johnson after the UK said it will almost double its military support for Ukraine with an extra £1 billion ($1.2 billion).

Britain is “our true friend and strategic partner,” Zelenskiy said in a tweet. He also spoke with New Zealand Prime Minister Jacinda Ardern and invited the country to contribute to Ukraine’s “post-war reconstruction.”

First Grain Shipment Leaves Occupied Port (9 a.m.)

A first merchant ship left Russian-occupied Berdyansk carrying 7,000 tons of grain after the Azov Sea port reopened following a mine-clearing operation, Yevgeny Balitsky, the head of occupation authorities in the Zaporizhzhia region, was quoted as saying by the Tass news agency.

The grain is headed for “friendly countries” under the protection of Russia’s Black Sea fleet, Balitsky said, without identifying which ones. According to Balitsky’s earlier comments, there are 1.5 million tons of grain in occupied territories in Ukraine.

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