Russia/Ukraine War Update - June 18th, 2022

 *** MILITARY SITUATION ***

-An overnight Russian air-launched rocket strike hit a suburb of the northern Ukrainian city of Sumy

-Ukraine’s navy has claimed it has struck the Russian rescue tug Spasatel Vasily Bekh, which it says was in the process of the “transportation of ammunition, weapons and personnel of the Black Sea fleet to Snake Island.”

-A major highway leading out of the bombarded city of Lysychansk has been the target of such severe Russian shelling that it is no longer passable, said Luhansk regional governor Serhiy Gaidai on Friday.

Russia army operation of clearing mines at the coast of the Sea of Azov near the port of Mariupol by Russian engineering units.

-Russia has probably renewed its efforts to advance south of Ukraine’s eastern city of Izium in the past 48 hours, Britain’s defence ministry says. Russia’s goal was to penetrate deeper into the Donetsk region and envelope the pocket around the embattled city of Sievierodonetsk from the north, it said on Twitter on Saturday. Reuters reported the ministry adding that if trapped Ukrainian civilians did not take up an offer of leaving via a corridor, Russia was likely to claim justification in making less of a distinction between them and any Ukrainian military targets in the area.

*** ECONOMIC & POLITICAL ***

-The Biden administration’s plan to sell four large, armable drones to Ukraine has been paused on the fear its sophisticated surveillance equipment might fall into enemy hands, according to two people familiar with the matter. The objection to the export of the drones arose due to concerns the radar and surveillance equipment on the drones could create a security risk for the United States if it fell into Russian hands.

-NATO has announced it will boost forces on its eastern flank as Vladimir Putin’s brutal war with Ukraine enters its fifth month. For the first time since the Cold War, the alliance will have ‘pre-assigned forces to specific countries in the east, linked to our defense plans’. This is to enable a faster response in case of a threat, following repeated Russian propagandist threats that ‘nuclear war could be coming’. Long-term plans to help Ukraine defend itself against Moscow’s aggression have been discussed as peace talks flop once again.

-Small business owners in America are feeling their gloomiest in nearly five decades, a survey released Tuesday morning showed. The National Federation of Independent Business (NFIB) said its gauge of businesses expecting better business conditions over the next six months fell to the worst reading in the 48-year history of the survey.

-The FBI and US Department of Commerce have launched a probe into claims that American-made computer chips have been found in Russian military hardware in Ukraine, the Washington Post reported on Wednesday. Government agents have been visiting companies and asking about how their components ended up in Russian radars, drones, tanks, ground-control and other weapon systems, “people familiar with the matter” told the paper.

-Kiev has revealed the extent of its daily casualties in the conflict with Russia. As many as 1,000 Ukrainian soldiers are being killed or wounded each day in Donbass, a senior official said on Wednesday, as cited by Axios. David Arakhamia, who leads Kiev’s negotiations with Moscow and heads the Ukrainian president’s party in parliament, disclosed the figures during a roundtable meeting at the German Marshall Fund in Washington DC. He said the number of daily casualties among Ukrainian soldiers has significantly increased since Russia stepped up its offensive in Donbass.

-Germany will provide Ukraine with three multiple launch rocket systems in the coming months, Defense Minister Christine Lambrecht confirmed on the sidelines of a NATO meeting on Wednesday evening. That figure is down from four due to a lack of munitions, according to Business Insider. The Mars-II rocket systems will come from the stocks of the German Armed Forces, the Bundeswehr, Lambrecht said at a meeting involving representatives from almost 50 countries. They will be in addition to rocket launchers the US and the UK have promised to send to Ukraine.

-Biden Briefed As US Says 3rd American, A Retired Marine Officer, Missing In Ukraine. A bombshell investigative report in NBC has revealed President Biden sought to clamp down on the ratcheted Ukraine war rhetoric of his own top officials on fears their words would make escalation with Russia inevitable, and would set false expectations among allies. In particular questions and concerns were raised within the administration following the late April trip by Secretary of State Antony Blinken and Defense Secretary Lloyd Austin to Kiev, where they met with President Zelensky. Their statements at the time asserted official US positions of wanting to see Ukraine forces "winning" against the Russians. It was especially Austin's words during a press conference which seemed to mark a strategic shift in US planning, portending Washington escalation in support of Ukrainian forces. "We want to see Russia weakened to the degree that it can't do the kinds of things that it has done in invading Ukraine," the Pentagon chief said at the time. But in a phone call Biden questioned the statements, calling his own officials to account, after he was reportedly angered upon learning about rhetoric centered on 'winning' against the Russians. "Biden thought the secretaries had gone too far, according to multiple administration officials familiar with the call," NBC reports. "On the previously unreported conference call, as Austin flew to Germany and Blinken to Washington, the president expressed concern that the comments could set unrealistic expectations and increase the risk of the U.S. getting into a direct conflict with Russia. He told them to tone it down, said the officials."

-"I have been briefed. We don’t know where they are," President Biden told reporters at the White House Friday of two Americans who had been fighting Russian forces on behalf of Ukraine. The State Department starting Thursday identified Alexander John-Robert Drueke, 39, from Tuscaloosa, Alabama and Andy Tai Ngoc Huynh, 27, from Hartselle, Alabama as currently "missing" from the battlefield, after Russian social media reports said they were captured by pro-Kremlin forces. But now there's a third reported missing in the war-torn country. "I want to reiterate: Americans should not be going to Ukraine now," Biden emphasized, despite early in the war some Western officials and US allies, particularly the UK, appeared to actually encourage Westerners joining Ukraine's volunteer foreign legion. "They should not be going to Ukraine."

-Two American nationals have told RT that they surrendered to Russian forces after being abandoned by their Ukrainian commanders. The pair told veterans like them to “think twice” before making the trip to Ukraine. Alexander Drueke and Andy Huynh spoke to RT from a detention center in the Donbass People’s Republic, a day after The Daily Telegraph reported that they had been taken prisoner. The British newspaper described them as being the first American citizens captured while fighting for Ukraine, and Washington has vowed to secure their return.

-Ukraine has received a $733 million loan from Canada. In a statement released on Friday, Ukraine’s finance ministry said that funds, which were “raised in accordance with the loan agreement between Ukraine and Canada,” will be “directed to the state budget to finance priority expenditures, in particular, to ensure priority social and humanitarian expenditures.”

-Lithuanian authorities have said a ban on the transit through their territory to the Russian enclave of Kaliningrad of goods that are subject to EU sanctions will take effect from Saturday.

-Dozens of Ukrainian civilians performed military exercises on Friday in fortified positions left by Russian troops in Bucha. “Most of those who are here aren’t soldiers. They’re just civilians who want to defend their country - 50 percent of them have never held a weapon until today,” said a sergeant known as “Ticha”.

-Vladimir Putin has delivered a combative speech repeating his critique of the west and saying the sanctions “blitzkrieg” against Moscow never had any chance of succeeding. In an address to the St Petersburg economic forum, which the Kremlin had billed as “extremely important”, Putin claimed Russia’s decision to start its “special military operation” in Ukraine was difficult but forced and said all tasks of its operation would be fulfilled. Putin’s address was delayed by nearly two hours after the event was hit by “large-scale” cyberattacks, according to the Kremlin.

-German chancellor Olaf Scholz said that it is “absolutely necessary” for leaders to speak directly with Russian president Vladimir Putin in attempts to end the war.

-A third American volunteer fighting in Ukraine has been reported as missing amid concerns that all three may have been captured by Russian or pro-Russian forces. The family of the former Marine Corps officer Grady Kurpasi said he had been missing in the Kherson area since late April following the earlier disclosure that two other American military veterans had lost contact with their families.

-A Russian warship violated Danish territorial waters north of the Baltic Sea island of Bornholm where a democracy festival attended by senior lawmakers and business people was taking place, the Danish Armed Forces said. Denmark called this morning’s actions an unacceptable provocation. Reuters reports the Russian warship entered Danish waters without authorisation at 0030 GMT on Friday and again a few of hours later. The armed forces said in a statement that the warship left after the Danish navy established radio contact, it said.

-Beijing launched a new-generation aircraft carrier Friday, the first such ship to be both designed and built in China, in a milestone as it seeks to extend the range and power of its navy. The Type 003 carrier christened Fujian left its drydock at a shipyard outside Shanghai in the morning and tied up at a nearby pier, state media reports said. State broadcaster CCTV showed assembled navy personnel standing beneath the massive ship as water jets sprayed over its deck, multi-colored streamers flew and colorful smoke was released. Equipped with the latest weaponry and aircraft-launch technology, the Type 003 ship’s capabilities are thought to rival those of Western carriers, as Beijing seeks to turn its navy, already the world’s largest, into a multi-carrier force.

-On Wednesday Russian President Vladimir Putin and Chinese President Xi Jinping held their second phone call since the Ukraine war began. Xi told Putin that China is "willing to continue to offer mutual support (to Russia) on issues concerning core interests and major concerns such as sovereignty and security," as quoted in state broadcaster CCTV. Just on the heels of the Putin-Xi call, Gazprom essentially declared no gas for Western Europe while assuring "energy stability for Russia's friends". CEO of Gazprom Alexey Miller had this to say before the St. Petersburg International Economic Forum, which is continuing through the end of the week:

-A new poll revealed young people born between 1997 and 2012 are overly optimistic about striking it rich one day after they've watched financial markets melt up for most of their lives. The oldest Gen Zer, born in 1997, is now at the prime working-age of 25 and opened their first brokerage account in 2015 (unless an adult opened a custodial account for them). Since then, these youngsters have watched stocks and cryptos soar to the moon, and observed people on YouTube, Instagram, and TikTok promote stock and crypto picks in 'get rich quick' schemes.  According to online investment advisors MagnifyMoney, a survey of 2,000 customers found nearly three-quarters (72%) of Gen Zers believe they'll become rich one day, making them the most financially optimistic generation. The study showed that 44% of all respondents said they would become wealthy at some point in their lifetime, down from 51% in 2019. In describing wealth, respondents said it comes down to living comfortably without concern for finances. Only 23% of them had the vision of becoming a millionaire. Only 9% thought wealth was associated with driving a luxury vehicle.The survey asked: "Can you be wealthy and be in debt?" Two-thirds of respondents said yes, while 30% say the debt should be tied to only mortgages. Only 38% say debt-free is their definition of being wealthy. Building wealth through owning a home wasn't on most respondents' radars. Only 27% thought owning property was the best wealth-building strategy. "Gen Zers are the only generation to think investing in stocks is a better strategy than homeownership," MagnifyMoney said.

-Though consumers are being hammered by price inflation at gas stations and grocery stores, they may be surprised by what they find at electronics, clothing, furniture and appliance stores. Swamped by excess inventory, many major retailers are offering big-time discounts on a variety of consumer goods. One such retailer is Target, which has twice cut its profitability outlook in recent weeks. In its June 7 warning, Target projected its second-quarter operating margin would be roughly 2%, well less than half the 5.3% the company projected in May. At the same time, Target said it was "planning several actions in the second quarter, including additional markdowns, removing excess inventory and canceling orders." “We thought it was prudent for us to be decisive, act quickly, get out in front of this, address and optimize our inventory in the second quarter — take those actions necessary to remove the excess inventory and set ourselves up to continue to be guest-relevant with our assortment,” Target CEO Brian Cornell told CNBC. Last month, inventories at mega-retailers surged 26% over the previous year. Idle product is a double whammy, since it also entails higher storage costs.  

-A gas shortage and high prices will send “shockwaves through the country,” leading to landlords cutting the heat for tenants and widespread company bankruptcies, warned Klaus Müller, the head of Germany’s Federal Network Agency, which is the regulatory office for electricity, gas, telecommunications, postal services, and railway markets.

-Pennsylvania farmers are being "crushed" by the record cost of diesel - so much so, that questions about a food crisis are starting to loom, the Morning Call reported. One farmer in Lehigh County is quoted as saying: “I’ve got a tractor hooked up to my corn planter out here, no diesel fuel, and I can’t afford to get any.” That farmer was airing his gripes to Kyle Kotzmoyer, a legislative affairs specialist for the Pennsylvania Farm Bureau. Kotzmoyer then turned around and testified to state lawmakers: “We have reached that point to where it is very close to being a sinking ship. We are teetering on the edge right now.” The situation looks as though it will continue to push food prices higher, after the government reported that food prices in May were 10.1% higher than last year.  Kotzmoyer lamented the possibility of a food shortage: “One, if they can’t afford to put it in the ground. Or, two, if they can’t afford to take it out.” The PA average for diesel is now $6.19 per gallon, up about 75% from a year ago, the report notes. It is a “huge, huge expense” for farmers, Kotzmoyer told state legislators.

-Ukraine should be the one to decide whether to accept any territorial concessions towards Russia in attempts of ending the war, said French president Emmanuel Macron upon his visit to Kyiv.

-Russia has announced that is is faciilitating grain and oilseed exports from Ukraine via Russian-held transit points on the Azov Sea without disclosing who is providing the sources for export.

-Oil demand growth is set to accelerate next year, with global demand averaging a record 101.6 million barrels per day (bpd) and exceeding pre-COVID levels, the International Energy Agency (IEA) said on Wednesday in its first outlook for 2023. “While higher prices and a weaker economic outlook are moderating consumption increases, a resurgent China will drive gains next year, with growth accelerating from 1.8 mb/d in 2022 to 2.2 mb/d in 2023,” the IEA said in its closely-watched Oil Market Report for June published today. Next year, global oil supply may struggle to catch up with demand, the agency said, as sanctions on Russia would curtail more supply when they officially enter into force at the end of this year.

-Another day, another disappointing macro data point in the US economy. While 'hard' data has been tumbling, we now see the usual optimism-filled 'soft' survey data giving up hope as Philly Fed's business barometer plunged into contraction in June (from +2.6 to -3.3), notably missing expectations of a small rebound to +5.0. This is the first contraction since the COVID lockdowns of 2020. Looking into the details, we see that new orders contracted dramatically, as did the workweek as backlogs are worked through:

    June prices paid fell to 64.5 vs 78.9
    New orders fell to -12.4 vs 22.1
    Employment rose to 28.1 vs 25.5
    Shipments fell to 10.8 vs 35.3
    Delivery time fell to 9.9 vs 17.5
    Inventories fell to -2.2 vs 3.2
    Prices received fell to 49.2 vs 51.7
    Unfilled orders fell to -7.0 vs 17.9
    Average workweek fell to 11.8 vs 16.1

And most troubling of all, the six-month outlook fell to -6.8, its weakest since 2008

-A combination of factors this week and last have put a massive squeeze on crucial natural gas flows to Europe, sending prices sky-high. Dutch front-month NatGas futures, the European benchmark, jumped as much as 24% Thursday morning, adding to the 46% increase this week and last. Flow reductions began last Wednesday when an explosion rocked the Freeport LNG Terminal in Quintana, Texas. Most LNG exports from that facility end up in Europe as the continent weens off Russian supplies. Rapid shifts in the supply dynamic have sent US NatGas prices tumbling (though rising Thursday morning) while EU NatGas soars. This was followed by news Tuesday that state-controlled Russian energy giant Gazprom said flows to Europe were restricted after Canadian sanctions over the war in Ukraine prevented German partner Siemens Energy from delivering a gas turbine that powers a compressor station on the pipeline that was recently overhauled. Then on Wednesday, Russian NatGas deliveries through Nord Stream to Europe dropped and are expected to decline by around 40% this year.

-Two American citizens and military veterans who were fighting alongside Ukraine forces against the Russian invasion are feared captured, CNN and other major media are reporting Thursday. Alexander John-Robert Drueke, 39, from Tuscaloosa, Alabama and Andy Tai Ngoc Huynh, 27, from Hartselle, Alabama are currently "missing" from the battlefield, however, their precise fate is as yet unconfirmed, according to a State Department official. If their capture by the Russian army is confirmed, it would mark the first known instance that American volunteers have been taken into custody by Russia, raising the stakes and tensions significantly between Washington and Moscow.

-Wells Fargo said the US economy will tip into a recession in 2023 after the Fed hiked interest rates by the most since 1994. The Fed's move caused analysts across Wall Street to lower their growth expectations for the US economy. The central bank itself envisages having to cut rates in 2024, suggesting it expects growth to slow sharply.

-Severe weather has forced Abbott Nutrition to pause production at a Michigan baby formula factory that had just restarted after being closed for several months, contributing to a national shortage . Production for Abbott's EleCare specialty formula has been suspended, but there is enough supply to meet demand until production resumes, the company said. Abbott had prioritized ramping up production of the specialty formula for infants with severe food allergies and digestive problems who have few other options for nourishment. Abbott says it needs to assess damage and re-sanitize the factory after severe thunderstorms and heavy rains swept through southwestern Michigan late Monday. Spokesman Jonathon Hamilton said flooding hit a few areas of the factory, but he declined to provide more specific details about damage. The storm also brought high winds, hail and power failures to Sturgis, Mich., where the factory is located. The company expects production and distribution to be delayed for a few weeks as it cleans the plant.

-Costco is facing a lawsuit over its breeding and treatment of chickens that are sold in stores as $4.99 rotisserie chickens, The Nebraska Examiner first reported. Plaintiffs say that Costco is violating its fiduciary duty to shareholders by not acting lawfully. The lawsuit, filed in Costco's home state of Washington, accuses the membership club of "illegal neglect and abandonment" in its Nebraska chicken facility. This mistreatment is "an integral part of the company's poultry production strategy and its business model," according to the lawsuit viewed by Insider.

-Russia has warned that gas flows to Europe via the Nord Stream 1 pipeline could be suspended, blaming problems with turbine repairs. Russia’s ambassador to the EU, Vladimir Chizhov, told the state-owned news agency Ria that a complete halt in gas flows in the pipeline, which supplies gas from Russia to Europe under the Baltic Sea, would be a “catastrophe” for Germany. The Nord Stream 1 gas flow to Germany has been cut twice this week, a move that the country’s economy minister said was aimed at sowing uncertainty and pushing up fuel prices. Uniper, Germany’s biggest importer of Russian gas, said yesterday that deliveries from Russia were down a quarter from agreed upon volumes. Sergiy Makogon, the head of Ukraine’s gas transit operator, said the gas cuts amounted to “blackmailing of the EU”.

-Russia’s chief negotiator, Vladimir Medinsky, said Moscow was ready to restart peace talks with Kyiv but claimed it had yet to receive a response to its latest proposals, the Interfax news agency reports.

-Ukrainian peace talks negotiator Mykhailo Podolyak dismissed Russia’s most recent comments about being willing to continue negotiations as “an attempt to deceive the world.”

-Nato says it is committed to providing equipment to maintain Ukraine’s right to self-defence, and will be making more troop deployments on its eastern flank. Nato’s secretary general, Jens Stoltenberg, condemned “a relentless war of attrition against Ukraine” being waged by Russia, and said Nato continued to offer “unprecedented support so it can defend itself against Moscow’s aggression”.

-The head of the UK’s armed forces says Russia has already “strategically lost” the war in Ukraine and is now a “more diminished power”. Admiral Sir Tony Radakin said Vladimir Putin had lost 25% of Russia’s land power for only “tiny” gains. In an interview with PA Media, he said Russia was running out of troops and advanced missiles and would never be able to take over all of Ukraine.

-Ukraine’s president, Volodymyr Zelenskiy, appeared as a hologram while referencing Star Wars in an attempt to secure more aid from big tech firms. Zelenskiy told a crowd of hundreds at the VivaTech trade show in Paris on Thursday that Ukraine was offering technology firms a unique chance to rebuild the country as a fully digital democracy.

-Children born in Ukraine’s Kherson region since 24 February will automatically receive Russian citizenship, according to an official.

-The UK has purchased and refurbished more than 20 long-range guns – M109s – from a Belgian arms company which it is sending to Ukraine, Britain’s defence secretary, Ben Wallace, said.

-Temporary silos on Ukraine’s border would prevent Russia from stealing Ukrainian grain and ensure the winter harvest is not lost due to a lack of storage, US agriculture secretary Tom Vilsack said on Thursday. It follows comments from US President Joe Biden that temporary silos would be built along the border with Ukraine.