Weekly Overview Cables - Ukraine war, Xi snubs Putin at San Francisco, and fixing porous sanctions on Russian oil.
Ukraine War Updates.
1) Ukraine secures a bridgehead on the east of the Dnipro river.
Late last week, Ukrainian forces have successfully crossed the Dnipro river and have secured multiple bridgeheads on the left (or less confusingly, the east) bank of the river in the occupied parts of the Kherson region.
It is estimated that Russia has sustained over 1,000 casualties in this river crossing operation.
This is the first major breakthrough of the past several weeks.
Those fully bought into the narrative of an insurmountable stalemate, were quick to point out that not more than a few thousand troops (at the highest estimate) had crossed the river, and that this therefore diminishes any strategic value of the entire operation.
But this is an analytically deficient argument: we should not confuse attainment of a bridgehead with a complete control of the surrounding territories.
For example, here is the US Army definition of a bridgehead:
“an area on the enemy’s side of the water obstacle that is large enough to accommodate the majority of the crossing force, has adequate terrain to permit defense of the crossing sites, provides security to crossing forces from enemy direct fire, and provides a base for continuing the attack”
Given the hitherto careful and meticulous approach demonstrated by Ukraine’s Commander-in-chief General Valery Zaluzhny (who has repeatedly refused to dedicate troops to large-scale brigade-size operations - given a lack of adequate capabilities against Russian minefields and air power) it stands to reason that the Ukrainian military believes that the aforementioned definitional thresholds have been met.
After weeks of slow progress, this is a major strategic accomplishment to celebrate.
2) David Cameron’s return is good news for Ukraine.
Former PM of Ukraine has now returned to politics as a Foreign Secretary.
David Cameron’s legacy on foreign policy as a UK Prime Minister is certainly a mixed bag - as a NATO leader however, he was decisive in removal of Libyan dictator Muammar Gaddafi and warned (presciently) Barack Obama against allowing for an increasing Russian involvement in Syria.
The UK was also one of the three countries (alongside the US and Russia) signing onto the 1994 Budapest memorandum - security guarantees offered to Ukraine (in exchange for the latter’s decision to give up its nuclear weapons).
It was therefore wrong for the UK to cede diplomatic leadership to France and Germany (the Normandy Format) following the first Ukraine crisis in 2014-2015 (annexation of Crimea and Russia-sponsored military separatism in Donbas).
More recently however, David Cameron was a strong proponent of strong support for Ukraine - famously photographed delivering some of the aid himself.
Cameron is also very-well connected and in the loop with many players of the Middle East and the global south (only quite recently attending a royal wedding in Jordan) - he will prove instrumental in trickiest NATO missions.
And at the time of waning political will in the west, Cameron was a much needed boost in demonstrating western resolve.
In his first official trip to Kyiv as a Foreign Secretary last week, David Cameron renewed UK’s commitment to Ukraine:
"We will continue to give you...all the military support that you need, not just this year and next year, but however long it takes."
Precisely what Putin (increasingly confident with western disillusionment) needed to hear.
3) Xi Jinping snubs Putin in San Francisco.
The Biden-Xi meeting in San Francisco was broadly successful along all parameters - those denying this have had unrealistic expectations going into the meeting.
We shall focus on this meeting and its implications in the upcoming cables, but for now, it is important to highlight the way Xi Jinping described the US - China relationship:
“The most important bilateral relationship in the world”So then, not the one with Russia? With your ‘‘no limits’’ partner?
Naturally, what Xi said is factually true, but saying it so openly and directly is a snub to Putin.
There is no need to read too much into this, extrapolate further, and interpret it as a deliberate snub - it is simply more likely that there was little natural concern and care shown to Russia.
Xi simply did not care that this is a prestige injury to Russia.
Throughout the war in Ukraine, Putin had added narratives of grandiosity to Russia’s relationship with China - pitting the Russia-China alliance as bulwarks of Western imperialism.
And now he finds out that his main prop on the global stage considers the relationship with the US as being more important than that with Russia - something that he already knew of course, but most likely did not expect to hear this truth being revealed in public and at such a high-profile event - when the whole world was watching.
Embarrassing for Putin and for his standing within Russia and his own regime.
Policies to tighten the noose around Russian oil sanctions.
A lot of recent media has shone a light on how Russia managed to blunt the worst outcomes from the G7 ‘‘buyer’s club’’ $60 price cap on the Russian crude oil.
For example, according to the FT reporting (citing a senior European government official) "almost none" of seaborne crude shipments in October adhered to the $60-a-barrel limit
In addition, official Russian statistics for October indicate an average oil price received above $80 a barrel - well above the limit.
Additional investigative reporting had also revealed a real bombshell: that even the US military was still using Russian oil.
This is because the petroleum products from Russia had reached the Motor Oil Hellas refinery in Greece - via a circuitous route through a Turkish oil storage facility, obscuring Russia's involvement through ownership changes.
Now, as it is evident from recent reports, the price cap has some loose ends that needs fixing, but some perspective is also in order:
1) Remembering the original objectives of the G7 price cap: a) to cause major loss of revenue to Russia, b) while maintaining as much supply of Russian crude oil as possible.
This is important to remember: the goal was never to get rid of Russian oil - this would have only caused major price spikes, would have destabilized energy markets, and possibly led to even more cost-push inflationary pain in the countries allied to Ukraine.
Far from it: the goal was to maintain Russia’s supply while skimming off the cream and inflicting a major financial dent to Russia’s proceeds from the sale of crude oil.
2) Given the existence of these dual objectives, the price cap has been largely successful: Russia has earned $47.3 bln less than it would have had since the introduction of this cap.
This is a very significant number, and for context, this amounts to around 40% of the planned Russia’s military budget of $118 bln in 2024 - the highest in three decades.
This is clearly a major success: Russia could have built far more factories and produced thousands more tanks, missiles, and artillery munitions with this extra $47.3 bln - and would have done so without having to freeze their social spending to the same extent (and/or by abstaining from other ‘‘creative’’ taxes imposed on Russians)
Cutting off Russia’s escape routes.
With all that said, it is also important to tighten the screws around current measures - the current status may be far from ideal but even their maintenance is not a guarantee.
With time, it is only reasonable to expect Russia to get even better at evading western measures.
In other words, the West must remain two steps ahead: not only to prevent entropy and maintain the current measures, but also to tighten them up preventively.
Beyond the most immediate and obvious decisions (like banning the sale of crude oil and petroleum tankers to Russia) there are a number of measures that must be discussed and evaluated in detail, but broadly, these are:
1) Crackdown on shadow fleets.
The $60 price caps come with a disincentive that makes the whole thing work: that all those companies found in violation of the price cap will lose access to western insurance and shipping services - this a significant disincentive to most of the legitimate businesses that want continuous access to the EU and other G7 markets.
But what if you don’t care?
What if you are an offshore company in a country with lenient shipping rules like Panama, Liberia and Marshall Islands - well then you are in high demand with the Kremlin.
In addition to their own fleets of 200+ aging tankers (that are so old that but for these sanction-busting missions they were on a path to being decommissioned - a clear environmental hazard) Russia has contracted a fleet of tankers owned and operated by companies of dubious reputation - based in aforementioned states.
Moreover, a lot of these ships turn off their geolocation transponders and engage in ship to ship transfers in high seas - to cover the tracks of Russian crude.
This is a common practice that countries like Venezuela, Iran, and North Korea have engaged in for many years - Russia is simply copying this on a massive scale.
But this is additionally a clear environmental hazard and the G7 must crack down on this practice.
The mechanisms for this already exist: EU’s 11th sanctions package contain legal provisions to preclude access to EU ports for “vessels that engage in ship-to-ship transfers suspected to be in breach of the Russian oil import ban or G7 [Group of Seven] Coalition price cap”.
But this is not enough - this should be extended to all territorial waters of the EU and other G7 member states - not just limited to ports.
The fleets that engage in this practice would need to divert and extend their transport costs - reducing the revenue due to the Russian treasury.
2) Target fake attestations.
It is too easy to provide fake certificates of origin.
And a lot of parties are incentivized not to dig deep.
The EU/G7 must form a central database of uniform certificates that sellers would need to produce in order to prove compliance - modern enterprise-level software should help to build this.
Granted, this is a long-term project, but one with a worthwhile long-term return: the resulting infrastructure will prove valuable in all future instances of similar sanctions
3) Target refined products.
A lot of countries are now buying cheap Russian crude to thereafter resell them as refined petroleum products at a higher profit.
Case in point: India - which already made extra $2.7 bln in fuel savings this year by substituting Iraqi crude with cheaper Russian crude.
Some of the petroleum is for domestic retail use.
But there has been a 41% increase in exports too.
Countries like India - who have been importing more Russian crude and then reselling more refined products like petroleum, must face stricter compliance measures - in return for continuous access to the EU/G7 markets, they should need to prove the the original Russian crude was bought under the price cap.