Russia/Ukraine War Update - July 1st, 2022

*** MILITARY SITUATION ***

-Ukrainian forces say they have pushed Russian forces from Snake Island, a strategic Black Sea island off the southern coast near the city of Odesa. Russia portrayed the pullout from the island as a “goodwill gesture”. Ukraine’s military said the Russians fled the island in two speedboats following a barrage of Ukrainian artillery and missile strikes.

-The frontline eastern city of Lysychansk is under relentless shelling as Russia presses on with its offensive in eastern Ukraine. Ukrainian authorities said they were trying to evacuate residents from the city, the focus of Russia’s attacks, where about 15,000 people remained.

-Russia’s defence ministry has said more than 6,000 Ukrainian fighters have surrendered or been captured, according to Russian state media.

*** ECONOMIC & POLITICAL ***

-The Biden administration announced plans for new US military deployments to Europe:

1. Create permanent HQ Base for US 5th Army Corps in Poland
2. Deploy additional rotational brigade to Romania
3. Deploy 2 additional F-35 squadrons to the UK
4. "Enhance" rotational deployments in Baltics
5. Deploy 2 additional Navy destroyers to Spain, bringing total from 4 to 6
6. Deploy "additional" air defense to Germany, Italy

Poland:
"We will permanently forward station V Corps HQ Forward Command Post, Army garrison HQ, and field support battalion."
"First permanent US forces on NATO’s Eastern Flank."
"US will also maintain and seek to enhance rotational force presence..."

Romania:
"US will position rotational Brigade Combat Team, thus maintaining an additional brigade on the eastern flank compared to our January 2022 posture. This additional brigade will maintain the ability to deploy subordinate elements across the eastern flank."

Baltics:
The US will "enhance rotational deployments – which include armored, aviation, air defense, and special operations forces... a persistent, heel-to-toe presence in the region."

Germany:
US will forward station air defense artillery brigade HQ, short-range air defense battalion, combat sustainment support battalion headquarters, engineer brigade headquarters. 625 personnel
Italy: US will forward station short-range air defense battery w/ 65 personnel

-Stoltenberg said NATO in future would have "well over 300,000" troops on high alert, compared to 40,000 troops that currently make up the alliance's existing quick reaction force, the NATO Response Force (NRF).

NATO does not have 300,000 troops to put on high alert. The troops are controlled by member states and I see no willingness by any of them to shoulder the costs that a real high alert status would have. Units on high alert means that they fully manned with no one on vacation and with enough supplies ready to sustain weeks of battle. All of that costs money. Member states will instead designate existing units as 'high alert' ones and change nothing else in their usual equipment and training.

-Pentagon leaders should consider sending weapons inspectors to Ukraine to monitor the billions of dollars’ worth of U.S. arms flowing to the country, a top Defense Department official said. All U.S. officials can do now is review receipts of the arms transfers from other locations in Europe and take Ukrainian officials’ word that the weapons are being properly used and stored. “Over time, we would like to be able to extend our insights with greater presence on the ground,” said Jed Royal, deputy director of the Defense Security Cooperation Agency, the arm of the Pentagon that oversees U.S. arms sales. Royal spoke as U.S. lawmakers push to create a new U.S. government watchdog to oversee the more than $6 billion in security assistance sent in the wake of Russia’s February invasion. Royal said senior administration officials, outside of DSCA, will decide if and when weapon inspectors enter Ukraine.

-Russian oil cargoes are increasingly disappearing from view in the Atlantic Ocean as sanctions against the nation’s exports ratchet up. In the past 10 days, at least three tankers have vanished from vessel-tracking systems as they approached the Azores, a tiny group of islands about 950 miles west of mainland Portugal. They probably transfered their consignments onto other vessels. Such transfers didn’t happen there before Russia invaded Ukraine, let alone out of view of satellite monitoring. It’s not clear why the ships have gone dark -- it could be that some buyers want to conclude their purchases as privately as possible. The European Union instituted a ban on Russian oil buying that fully enters into force only in December.

-Electricity prices in Europe are soaring again as the market starts to fear that energy shortages this winter would be much larger than expected a few weeks ago. The German power prices for next year, a benchmark in the European electricity market, have surged by 12 percent so far this week and were rising by 2 percent early on Thursday, according to Bloomberg estimates. Europe is grappling with filling gas storage in time for the winter, after Russia slashed supply to major EU consumers, including Germany and Italy, citing “technical reasons.” Germany and Italy dismissed Gazprom’s reasons for the lower flows and said the move was politically motivated.At any rate, the low Russian gas deliveries and the two-week maintenance on Nord Stream which will halt supply via the pipeline in July are making European governments and electricity market traders and participants nervous about gas and power supply.

-China Cabinet will issue CNY 300bln of bonds to replenish capital for major projects and boost employment, according to Global Times. Furthermore, China will start construction of a new batch of connection projects including national expressways within 2022.

-China's Defense Ministry said the Chinese military will take countermeasures whenever foreign military aircraft come on China's doorstep to provoke, in response to ‘recent provocation’ by Australian and Canadian warplanes, according to Global Times.

-Russian Security Council Deputy Chairman Medvedev said in certain circumstances, sanctions may be seen as an act of aggression and justification for war.

-Russia will reportedly ban exports of rice from July 1st to December 31st, according to IFX.

-Russian Deputy PM Novak said oil output in June was nearly back to the level seen in February and warned that price caps for oil would lead to market imbalances and a deficit, according to Tass. It was also reported that Russia's Kremlin sees risks that Western sanctions could hit revenues from oil exports, according to IFX.

-US stocks declined in which the S&P 500 closed off its worst H1 performance since 1970 as growth concerns were exacerbated after data showed weak consumer spending dynamics in May, which resulted in the Atlanta Fed GDPnow model tracking an economic contraction of 1.0% in Q2 and stoked recession fears.

-Oil tumbled amid risk-off trading conditions and concerns about the growth outlook which weighed on the demand side of the equation, while analysts noted futures of Brent (for August), heating oil (for July), and RBOB (for July) expired which may have contributed to the volatile price action.

-OPEC+ ratified the planned August oil-supply hikes, as expected, while OPEC+ made no decision on output policy beyond August and the next meeting is planned for August 3rd, according to Reuters sources.

-US President Biden said he hopes the Gulf state leaders he will be meeting with next month see it as in their interest to increase oil production, according to CNN. It was also reported that President Biden said he will not be making an individual request to Saudi Arabia to increase oil production, according to CNBC's Tausche.

-The Biden administration is laser-focused on sending Ukraine billions of dollars in weapons, including the latest round of anti-ship systems, artillery rockets, and rounds of 105 mm ammo for howitzer cannons that it has entirely lost focus on reshoring efforts to boost semiconductor production Stateside. Multiple manufacturers of semiconductor wafers have announced plans for new multi-billion dollar factories across the U.S. but are contingent on Congress allocating funds to aid in building facilities under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act. Congress passed the CHIPS Act in January 2021 as part of last year's National Defense Authorization Act, which proposed $52 billion in funding for increasing the domestic capacity of chip production, though the House and Senate have come to a standstill over disagreements on certain parts of the bill that have sparked so much uncertainty among companies set to build new factories.

-Just when the wife of one incarcerated Jan. 6 prisoner believed things couldn’t get worse, the Department of Veterans Affairs (VA) informed her they are going to suspend all of her husband’s benefits. According to United States Representative Louie Gohmert (R-Texas), “this is what you have when vindictive leftists get in charge of major parts of the government.” The letter further noted that: “Pursuant to 38 U.S. Code § 6105(a)”—Forfeiture for subversive activities—”after receiving notice of an indictment for the above offense” the “VA must suspend payment of gratuitous benefits pending disposition of the criminal proceedings. If convicted, gratuitous benefits are forfeited, automatically, from and after the date of the offense.”

In a letter on June 15, dozens of technology executives from IBM, Intel, Microsoft, Analog Devices, Micron, Amazon, and Alphabet called on Congress to move quickly on the CHIPS Act. They wrote, "the rest of the world is not waiting for the U.S. to act," and funding for new chip factories must be achieved immediately. The uncertainty around Congress not formally allocating any budget to finance the CHIPS Act is causing concern among top chipmakers planning to build massive factories that might have to delay expansion plans. "Unfortunately, CHIPS Act funding has moved more slowly than we expected, and we still don't know when it will get done. It is time for Congress to act so we can move forward at the speed and scale we have long envisioned for Ohio and our other projects to help restore U.S. semiconductor manufacturing leadership and build a more resilient semiconductor supply chain," an Intel spokesperson recently said in a statement.

-The OPEC+ coalition ratified an oil-production increase that completes the return of supplies halted during the pandemic, while deferring discussions on its next move for another day. The 23-nation group led by Saudi Arabia rubber-stamped plans to add 648,000 barrels a day in August, restoring the final tranche of the 9.7 million barrels a day that was shuttered just over two years ago But with most members besides the Saudis and their neighbors unable to raise output, the decision is largely symbolic.

-The continued erosion in economic data has prompted The Atlanta Fed to slash its forecast for Q2 GDP growth from 0.0% to -1.0%+0.9% to 0.0%, meaning the US is now right on the verge of a technical recession (after Q1's confirmed 1.6% contraction yesterday). According to the Atlanta Fed's GDPNow model estimate for real GDP, growth in the second quarter of 2022 has been cut to a contractionary -1.0%, down from 0.0% on June 15, down from +0.9% on June 6, down from 1.3% on June 1, and down from 1.9% on May 27.

-Shares in German gas and power utility Uniper crashed, plunging as much as a fifth on Thursday after the company slashed its outlook and sought a possible bailout from the German government after Russia reduced natural gas deliveries to Europe, according to Financial Times. Uniper said earnings before interest and taxes would be "significantly below" previous years, considering it only received 40% of the NatGas from Russia's Gazprom PJSC.

-President Biden announced Wednesday during the NATO summit in Madrid steps that the US will take to increase its military presence in Europe, including the establishment of a permanent base in Poland. The base in Poland will mark the first time the US will establish an official permanent military facility in the area known as NATO’s "eastern flank." The US military presence elsewhere in Eastern Europe and in the Baltic states is technically on a rotational basis, although Washington has no plans to scale back its presence in the region.

-ECB Will Buy Italian, Greek Bonds Using Proceeds From German, French Bonds To Avoid Crash.

-G7 Quietly Shelves Russian Oil Price Cap Idea, Biden Will Beg Mideast Allies To Pump More

-President Joe Biden announced Thursday he would support ending the 60-vote Senate filibuster to pass bills to allow abortions at the federal level. Biden was asked during the NATO summit in Spain on Thursday about keeping the rule in the midst of the Supreme Court’s decision to overturn Roe v. Wade. He said that the only way to respond is by Congress passing a law.

-The US president, Joe Biden, has said he is in favour of supplying new F-16 fighters to Turkey, but needs congressional approval. Biden rejected suggestions that the new planes were in return for Turkey dropping objections to Finland and Sweden joining Nato.

-Norway’s foreign minister, Anniken Huitfeldt, has said her nation is not blocking Russian access to Svalbard. On Wednesday, Russia accused Norway of disrupting the delivery of critical supplies and threatened retaliation.

-Russia’s former president and current deputy security council chairman, Dmitry Medvedev, has said sanctions against Moscow may be seen as an act of aggression and justification for war. Medvedev said “under certain circumstances such hostile measures can also qualify as an act of international aggression, and even as a casus belli,” adding that Russia had the right to defend itself.

-The UK’s foreign secretary, Liz Truss, has said it is a “realistic” ambition to push Russian forces out of Ukraine entirely.

-Nato leaders yesterday announced a new “strategic concept” in response to Russia’s war against Ukraine, describing Moscow as “the most significant and direct threat to allies’ security and stability”. Leaders also pledged further help to Kyiv and agreed on a package of support aimed at modernising the country’s defence sector.

-Nato’s secretary general, Jens Stoltenberg, has said Sweden and Finland are expected to formally sign the Nato accession protocol on Tuesday.

-A cargo ship has left the Russian-occupied Ukrainian port of Berdiansk for the first time since the city was seized by Moscow’s troops, according to a pro-Russia local official. Yevgeny Balitsky, the head of the pro-Russia administration, was cited by Russian state media as saying the first cargo ship to leave Berdiansk was carrying 7,000 tonnes of grain to “friendly countries”.

-Russia’s president, Vladimir Putin, has denied that Moscow is blocking Ukrainian grain exports and downplayed the impact of missing Ukrainian agricultural goods on the world food market. In a joint press conference after talks with visiting Indonesian president, Joko Widodo, Putin said: We do not prevent the export of Ukrainian grain. The Ukrainian military has mined the approaches to their ports, no one prevents them from clearing those mines and we guarantee the safety of shipping grain out of there. Instead, the Russian leader blamed western sanctions for problems in the global food market and rising prices.

-Russia’s foreign minister, Sergei Lavrov, said, a new “iron curtain” was descending between Russia and the west, and that Moscow would not trust Washington and Brussels “from now on”.

-Joe Biden has declared that the US and Nato allies will stick with Ukraine “as long as it takes” at the end of a two-day summit that saw the military alliance promise hundreds of thousands more troops to defend eastern Europe. The US president also announced another $800m of military aid to Kyiv.

-The Biden administration announced it will expand access to monkeypox vaccines in a new “enhanced” national strategy to combat the outbreak, which includes the deployment of 296,000 vaccine doses over the coming weeks, and potentially 1.6 million vaccine doses over the coming months. The plan seeks to “expand vaccination for individuals at risk and make testing more convenient for healthcare providers and patients across the country,” the White House said in a statement on June 28.

-Russia is using inaccurate missiles from old Soviet stocks for more than 50% of its strikes in Ukraine, leading to significant loss of civilian life, a brigadier general in Ukraine’s armed forces said. The rate of Russian strikes in Ukraine has more than doubled in the last two weeks, Brigadier Gen Oleksii Hromov said in a news conference, Reuters reports. He said Russia was trying to hit military and critical infrastructure but using old Soviet missiles that are less accurate.

-Russia’s foreign ministry said it had summoned the British ambassador in Moscow, Deborah Bronnert, to protest against Boris Johnson’s “offensive” remarks regarding Russia and Vladimir Putin. A strong protest was expressed to the ambassador over “the frankly boorish statements of the British leadership regarding Russia, its leader and official representatives of the authorities, as well as the Russian people”, it said in a statement. The ministry said Bronnert was handed a memorandum stating that “offensive rhetoric from representatives of the UK authorities is unacceptable”, adding: In polite society, it is customary to apologise for such statements. The ministry said Russia had told her it objected to British statements containing “deliberately false information, in particular about alleged Russian ‘threats to use nuclear weapons’”. Russia’s move comes after Johnson said Putin would not have started the war in Ukraine if he was a woman and said the military operation was “a perfect example of toxic masculinity”.

-The former Formula One chief executive Bernie Ecclestone has said he would “take a bullet” for Vladimir Putin, whom he described as “a first-class person”. Ecclestone said Russia’s invasion of Ukraine could have been avoided if Volodymyr Zelenskiy had done more.