Russia/Ukraine War Update - June 1st, 2022

*** MILITARY SITUATION ***

 

-Most of the city of Sievierodonetsk, a city in east Ukraine, is controlled by the Russians, according to Serhiy Haidai, Luhansk’s regional governor. On Telgram, Haidai wrote: The city is not surrounded, and there are no prerequisites for this. The regional centre is approaching the level of destruction of Rubizhne and Popasna. The city’s critical infrastructure has been destroyed by almost 100%, 90% of the housing stock has been damaged, 60% of which is critical, i.e. it cannot be restored. Haidai added that due to shelling, it is not possible to transport humanitarian goods and evacuate people.

-Russian forces now control “around half” of the east Ukrainian city of Sievierodonetsk, the head of the city’s administration told national television within the last hour, Reuters reports. The BBC also reports quotes from the head of the city. It writes that Oleksandr Stryuk told Ukrainian TV: “Unfortunately, the front line has cut the city into two halves, but the city is still defending [itself], the city is still Ukrainian.” “The evacuation is suspended. Unfortunately, it’s impossible [to evacuate civilians]... because street fighting is continuing,” he said.

-Government leaders in the besieged Ukrainian city of Severodonetsk in the Donbas region are urgently telling residents to stay inside their homes and shelter in place after huge plumes of smoke containing Nitric acid was released into the air. Ukraine says the contamination happened after Russian forces struck a tank containing nitric acid at a large chemical plant. Emerging videos on social media show thick orange smoke in the form of a mushroom cloud rising high into the air over the city, reminiscent of the deadly Beirut port warehouse explosion of 2020 that involved ammonium nitrate.

-Ukrainian forces are holding just 20% of the eastern city of Sievierodonetsk, the largest still held by Kyiv in the Luhansk region, according to the Ukrainian head of the city administration, Oleksandr Stryuk. Serhiy Haidai, Ukraine’s governor of Luhansk, said earlier this morning that Russia controls 70% of the city. The expected loss of Sievierodonetsk “is unlikely to be the crux” of Russia’s Donbas campaign, a Western official said.

*** ECONOMIC & POLITICAL ***

-Fuel believed to be partially made from Russian crude has reportedly reached US shores despite a ban on all imports of Russian oil, gas and energy. Traders are attempting to evade US sanctions by obscuring the origins of Russian oil, concealing the oil in blended refined products such as gasoline, diesel and chemicals, the Wall Street Journal reports.

-Ukraine’s president, Volodymyr Zelenskiy, has conceded that Kyiv’s forces are currently suffering up to 100 fatalities and 500 wounded every day.

-The US secretary of state, Antony Blinken, said Ukraine has given “assurances” that it will not use long-range weapons systems provided by Washington against targets on Russian territory. Blinken’s remarks came after the US president, Joe Biden, confirmed he will send the more advanced, longer-range rocket systems to Kyiv, a critical weapon that Ukrainian leaders have been asking for as they struggle to stall Russian progress in the Donbas region.

-The UK has reportedly asked the US to sign off on a plan to send advanced, medium-range rocket systems to Ukraine within a few weeks, following President Joe Biden’s announcement that he will send similar weapons. Britain’s prime minister, Boris Johnson, spoke with Biden about the transfer of US-made M270 multiple launch rocket systems this morning, Politico reports, citing a person familiar with the matter. The meeting will then be followed by a discussion between his foreign secretary, Liz Truss, and the US secretary of state, Antony Blinken, on Thursday, the source said. The UK would be the first country to send the US-made MLRS, the news site reports. The US must officially approve the move due to export regulations.

-President Biden in an op-ed for The New York Times published Tuesday night sought to clarify his Ukraine policy amid what appears to much of the public as constant incremental escalation. Crucially, he argued the US is not seeking regime change targeting Putin, nor is Washington seeking to escalate toward war with Russia. "We do not seek a war between NATO and Russia. As much as I disagree with Mr. Putin, and find his actions an outrage, the United States will not try to bring about his ouster in Moscow," Biden wrote. "So long as the United States or our allies are not attacked, we will not be directly engaged in this conflict, either by sending American troops to fight in Ukraine or by attacking Russian forces," he added. Now in the fourth month of war since the Feb. invasion, it's very telling that Biden would himself have to take pains to clarify this, suggesting that Moscow would perhaps be fully rational and justified seeing in Washington's economic war and (indirect) military participation in the form of training and unprecedented arms transfers aid a commitment to fighting Russia.

It's also no wonder than many observers might look upon America's Ukraine policy and be "confused," to say the least. While declaring that he doesn't want to fight Russia, Biden in the same NY Times op-ed unveiled he'll be sending "more advanced rocket systems and munitions" to Ukraine, which will "enable them to more precisely strike key targets on the battlefield."

He wrote that arms already going to the Ukrainians will continue, while also pledging "billions more" in US aid. He said:

"We will continue providing Ukraine with advanced weaponry, including Javelin anti-tank missiles, Stinger antiaircraft missiles, powerful artillery and precision rocket systems, radars, unmanned aerial vehicles, Mi-17 helicopters and ammunition. We will also send billions more in financial assistance, as authorized by Congress."

Biden stressed, "We have moved quickly to send Ukraine a significant amount of weaponry and ammunition so it can fight on the battlefield and be in the strongest possible position at the negotiating table." However, it remains that Ukraine-Russia negotiations toward a ceasefire have been essentially non-existent over the last month, having collapsed amid accusations and mistrust following the last Istanbul talks.

-Russia's nuclear forces have launched fresh drills northeast of Moscow, in the Ivanovo province, according to new Russian defense ministry statements Wednesday. Reuters cited Interfax news agency to report that "Some 1,000 servicemen are exercising in intense maneuvers using over 100 vehicles including Yars intercontinental ballistic missile launchers," based on the Russian MoD statement. Some Western media reports are seeing the drill as a response and warning to Washington over the White House approving yet more military aid and weapons to Ukraine, particularly longer range rockets.

-Russia said it has completed testing of its hypersonic Zircon cruise missile and will deploy it before the end of the year on a new frigate of its Northern Fleet. President Vladimir Putin has described the Zircon as part of a new generation of unrivalled arms systems, travelling at nine times the speed of sound.

-In some of the Kremlin's strongest words yet denouncing Western arms shipments, Russian Foreign Minister Sergey Lavrov warned Ukraine that newly ramped up arms transfers including US missile systems being sent to Kiev risks drawing a third country into the war. In the Wednesday statements, he accused Ukraine of seeking to involve outside countries, and slammed the missile transfer as marking a 'direct provocation'. His words come on the heels of Biden on Tuesday night announcing longer range missile systems for Ukraine, which however likely can't reach Russian territory, given they are short to "medium range" systems. Moscow previously called the White House's expressed desire to avoid direct confrontation with Russia a "rational" policy.

But Lavrov took the opportunity to warn hawks both in the US and Europe: "I will say it frankly: not everyone in the European Union, especially in its northern part [understands this]. There are politicians, who are ready to do this madness in order to satisfy their ambitions. But serious countries in the EU naturally are well aware that such scenarios are unacceptable," the top diplomat said according to state media.

The blistering attack also seemed aimed a Germany, which just announced new anti-air radar and defense systems for Ukraine: "Germany will supply Ukraine with the IRIS-T modern air defence and radar systems, Chancellor Olaf Scholz has said, stepping up arms deliveries amid criticism that Berlin is not doing enough to help Kyiv in its fight against Russia. “The government has decided that we will send the IRIS-T system – the most modern system that Germany currently possesses,” the German chancellor told parliament.

In separate statements on the same day, Kremlin spokesman Dmitry Peskov told reporters that Russia "does not believe Ukrainian President Vladimir Zelensky’s claims that Kiev will not attack Russian territory, should it obtain US-made long-range multiple launch rocket systems."

-The European Commission will look into setting a price cap on imported Russian natural gas, Italy’s Prime Minister Mario Draghi said on Tuesday. “The Commission received a mandate to study the feasibility of a gas price cap,” Draghi told reporters after today’s summit in Brussels.

-Reports are circulating that US senior officers from the US Army's 4th Security Force Assistance Brigade (SFAB) were spotted in Odessa and Nikolaev area, and may also have been assigned to Zaporozhye and Dnieper, tasked to assist in preparing the Ukrainian defenses in those areas as we'll as coordinating channels for the supply of Western weapons and to train Ukrainian personnel.

-Russia has further cut off gas supplies to Europe. State energy giant Gazprom turned off the taps to a top Dutch trader and halted flows to some companies in Denmark and Germany. The intensification of the economic battle on Tuesday over Russia’s invasion of Ukraine follows the EU’s overnight decision to place an embargo on most Russian oil imports as part of its financial sanctions against the Kremlin.

-Despite recent warnings not to do so from the United States, Turkey's President Recep Tayyip Erdoğan on Wednesday announced a fresh 'special operation' of the Turkish army to clear "terrorist elements" from northern Syria's Tal Rifaat and Manbij areas. The operation hearkens back to when an initial major Turkish offensive kicked off in the region, which is on sovereign Syrian territory south of Turkey's border, in 2019 which earned international outrage and condemnation. "We are taking another step in establishing a 30-kilometer security zone along our southern border. We will clean up Tal Rifaat and Mambij," Erdogan announced, saying that the operation will from there continue to other parts of northern Syria.

-In a weekend German media interview the head of the European police agency Europol has issued a dire warning about the huge amount of weapons being pumped from the West into Ukraine. Europol Director Catherine De Bolle told the German newspaper Welt am Sonntag that the flood of weapons on the Ukraine-Russia battlefield could end up in the hands of criminal groups for years to come. "At some point the war will be over. We want to avoid a situation like the one that followed the war in the Balkans 30 years ago," she said to the publication in reference to conflicts in the wake of Yugoslavia's collapse. "The weapons from this war are still being used by criminal groups today," De Bolle emphasized in speaking of Balkan conflicts, and what's looking to be a similar situation emerging in Ukraine.

-A governor in Donetsk has urged people who remain to flee and “save your lives”, as more civilians die in bombings. An overnight rocket attack left at least three people dead and six wounded in the city of Sloviansk, Donetsk regional governor Pavlo Kyrylenko said Tuesday on Telegram.

-Ukrainian lawmakers voted on Tuesday to remove the nation’s human rights commissioner, Lyudmila Denisova, from her post. The official has been accused of failing to perform her duties and in particular of spreading unverified information about atrocities supposedly committed by Russian troops in Ukraine. Such actions only served to tarnish Ukraine’s image, MPs have argued. According to Frolov, the ombudswoman’s “inexplicable focus” on supposed sex crimes and the “rape of minors in the occupied territories, which she could not substantiate with evidence” only harmed Ukraine. The MP has also accused Denisova of spending most of her time abroad as the conflict unfolded.

-Speaking after the two-day EU summit in Brussels, German chancellor Olaf Scholz told reporters:We will provide Greece with German infantry fighting vehicles. The defence ministries will work out the details and quickly implement this agreement. Defence sources told Reuters that Berlin aims to deliver 100 old Marder IFVs owned by arms-maker Rheinmetall to Greece. In return, Athens would supply Soviet-style BMP IFVs to Ukraine.

-Canada announced sanctions today on Vladimir Putin’s reputed girlfriend, former gymnast Alina Kabaeva, as well as other Russian officials and institutions over Russia’s ongoing war in Ukraine, reports AFP.

-Japan will not withdraw from Russia’s Sakhalin-2 liquefied natural gas project even if it’s told to do so, the country’s industry minister told parliament on Tuesday. The comments follow criticism from Moscow, last week, accusing Japan of benefiting from its participation in the project while being an “unfriendly nation” that joined the West in placing sanctions on Russia.

-Germany’s plan to invest a whopping 100 billion euro ($107.35 billion) into its military will allow Berlin to significantly expand its fighting force, Chancellor Olaf Scholz told local media on Monday. This will make the German army the biggest in Europe among NATO members, he said. The pledge, which the Chancellor made in an interview with several domestic newspapers, came after the country’s major parliamentary factions agreed, on Sunday night, to a special exemption required to borrow the money and invest it in the military.

-The Pentagon is “proactively planning” cooperation between the US National Guard and Taiwan’s defense forces, Taiwanese President Tsai Ing-wen revealed on Tuesday, without specifying the details. Welcoming a delegation led by US Senator Tammy Duckworth, Tsai said Taipei is looking forward to “closer and deeper Taiwan-US cooperation on matters of regional security.” She added that Duckworth was one of the key sponsors of the Taiwan Partnership Act, “which received bipartisan support in the US Congress.” “As a result, the U

-Beijing has once again hit out at Washington, stating that the US has “no right to talk about rules” after it has repeatedly broken them itself on numerous occasions. During a daily press briefing on Monday, Chinese foreign ministry spokesperson Zhao Lijian was asked to respond to the recent comments made by US Secretary of State Antony Blinken, who stated that China posed “the most serious and long-term challenge” to the international order. Zhao responded by saying that Blinken’s policy speech was “full of lies” and that it was, in fact, the US that posed the biggest challenge to the world. He noted that the “rules-based international order” proposed by the US actually meant one based on “American rules,” which serve to uphold Washington’s interests and hegemony.S Department of Defense is now proactively planning cooperation between the US National Guard and Taiwan's defense forces,” the Taiwanese President said.

-Ankara is a mediator between Russia and Ukraine and will not join the US-led campaign to sanction Russia for its military action against its neighbor, Turkish Foreign Minister Mevlut Cavusoglu said on Tuesday. “Our position on sanctions needs to be accepted due to the role of a mediator that we play. Our position is clear: we will not join them, and we will not allow sanctions to go through us,” he said as cited by the media. The remark came as the EU announced agreement in principle on a sixth round of sanctions against Russia, which includes a partial oil embargo.

-The world's top automaker reported a decline in global production in April. It slashed June production expectations, indicating semiconductor chip shortage and supply chain disruptions in China due to factory shutdowns weighed on production. Toyota reported Monday that April sales were 692,259, which fell 9.1% from the same month last year, missing the mark of a planned 750,000 vehicles worldwide, according to Reuters. Last week, the automaker slashed its June production twice. In total, the company has now cut 150,000 vehicles to 800,000.

-The US is ready to give “comfort letters” to companies to help facilitate exports of Russian grain and fertilizer, reports Reuters. US ambassador to the United Nations Linda Thomas-Greenfield said today that “comfort letters” will be given to shipping and insurance companies to help export the grain and fertilizer. She noted that Russian grain and fertilizer are not under US sanctions but that “companies are a little nervous and we’re prepared to give them comfort letters if that will help to encourage them.” A “comfort letter” is a document that assures the financial obligations of a company can be met.

-At a Brussels press conference, the president of the European Commission Ursula von der Leyen said that the EU will make available funds to help replenish “the military material that has been sent to Ukraine”. She also called for greater coordination and interoperability of the military equipment of member states. Defence sources told Reuters that Berlin aims to deliver 100 old Marder IFVs owned by arms-maker Rheinmetall to Greece. In return, Athens would supply Soviet-style BMP IFVs to Ukraine.

-Ukraine’s giant seed bank near battlefields is in danger of being destroyed, Reuters reports. The genetic code for nearly 2,000 crops rests in underground vaults based in Kharkiv, north-eastern Ukraine, which has come under intense bombing from Russia forces. Earlier this month, a research facility was damaged near the country’s national seed bank, according to Crop Trust, a nonprofit set up by the United Nations Food and Agriculture Organisation. According to the trust, only 4% of the seeds in Ukraine’s store, the 10th largest of its kind in the world, has been backed up. Stored genetic material has become increasingly vital to ensure enough food is produced to feed 7.9 billion people as weather grows more extreme.

-President Biden on Monday told reporters that the US will not send Ukraine rocket systems that can strike targets inside Russian territory. "We’re not going to send to Ukraine rocket systems that strike into Russia," Biden told reporters. Biden’s comments came after several media outlets reported that the administration was leaning towards providing Ukraine with Multiple Launch Rocket Systems (MLRS), which Ukrainian officials have been requesting for months. A White House official later clarified Biden’s comments and said sending the MLRS is still on the table, but that it wouldn’t have long-range capabilities. "MLRS is under consideration, but nothing is on the table with long-range strike capabilities," the official said. If equipped with long-range munitions, the MLRS can reach targets up to 190 miles away. But the US could potentially send Kyiv the MLRS with shorter-range rockets that can reach between 20-45 miles, which would still be the longest range weapons given to Ukraine. The shells fired by the M777 Howitzers the US has been shipping to Ukraine can hit targets about 15 miles away. After the reports came out that the US was considering giving Ukraine long-range rockets, Russian officials warned strongly against the move. Russian Foreign Minister Sergey Lavrov said it would be a "serious step towards unacceptable escalation."

-Moscow struck a defiant tone in reaction to the European Union’s new partial ban on Russian oil imports, with a senior Kremlin official saying his country would simply pivot to other importers. .U. leaders agreed at a May 30 summit in Brussels to embargo the majority of Russian oil imports into the bloc by the end of 2022 as part of the sixth package of sanctions against Russia over its invasion of Ukraine. Ursula Von der Leyen, the head of the E.U.’s executive branch, said the move would cut around 90 percent of oil imports from Russia to the bloc by the end of the year, while Charles Michel, chief of the E.U. Council, said the agreement covers over two-thirds of oil imports from Russia. Mikhail Ulyanov, Russian Permanent Representative to international organizations in Vienna, reacted to the decision with a critical tweet. “Russia will find other importers. Noteworthy that now she contradicts her own yesterday’s statement. Very quick change of the mindset indicates that the #E.U. is not in a good shape,” Ulyanov wrote.

-Following Germany's post-Weimar record high inflation print, the European Union's consumer price inflation data this morning surged to a record high at +8.1% YoY (notably hotter than the +7.8% YoY expected). The surge in European inflation is dominated by energy prices rising, and food costs. Finally, we note that the recently agreed EU import ban on a major portion of Russian oil, meanwhile, risks further stoking pressure on prices. The report comes just 10 days before a crucial ECB meeting where officials are set to announce the conclusion of large-scale asset purchases and confirm plans to raise interest rates in July for the first time in more than a decade. President Christine Lagarde indicated last week that quarter-point increases are likely at meetings in July and September. As Bloomberg reports, Chief economist Philip Lanebacked that timeline on Monday, calling moves of that size a “benchmark pace” in exiting stimulus, which also includes large-scale bond-buying. Some officials have floated the idea of hiking by a half-point for the first time in the ECB’s history -- mirroring the latest Federal Reserve decision. Dutch Governing Council member Klaas Knot has said inflation numbers for May and June will determine whether such a step is warranted.

-After posting solid gains on Monday when cash markets were closed in the US for Memorial Day, boosted by optimism that China's  covid lockdowns are effectively over, and briefly topping 4,200 - after sliding into a bear market below 3,855 just over a week earlier - on Tuesday US equity futures fell as oil’s surge following a partial ban on crude imports from Russia added to concerns over the pace of monetary tightening, exacerbated by the latest data out of Europe which found that inflation had hit a record 8.1% in May.  As of 7:15am ET, S&P futures were down 0.4% while Nasdaq futures rose 0.1% erasing earlier losses. European bourses appeared likely to snap four days of gains, easing back from a one-month high while Treasury yields climbed sharply across the curve, joining Monday’s selloff in German bunds and European bonds. The dollar advanced and bitcoin continued its solid rebound, trading just south of $32,000. Traders will be on the lookout for any surprise announcement out of the White House after 1:15pm when Joe Biden holds an Oval Office meeting with Fed Chair Jerome Powell and Janet Yellen.