Weekly Overview Cables - Ukraine war updates, and Russia - Iran relations amidst Tehran's escalating conflict with Israel.
Ukraine war updates.
1) Massive gaps remain in sanctions enforcement against Russia.
This great Financial Times report highlights how Russia can continue to avoid oil sanctions/price caps imposed by the G7 (which necessitates sale of oil below $60 for a continuous access to Western maritime insurance, tankers, and other logistical/financial services).
Here is an incredible insight: Russia’s major oil producer Lukoil, used its Dubai-based subsidiaries to fund a UK citizen’s purchase of oil tankers.
Tankers were purchased via shell companies in the Caribbean.
Despite being under U.S. sanctions since 2014, Lukoil’s affiliates like Eiger Shipping DMCC and Litasco Middle East DMCC in Dubai are not sanctioned.
Dubai-based companies can bypass Western restrictions as long as they avoid G7 financing or services, allowing them to continue operations outside the sanctions framework.
This is an astonishing gap in the enforcement of sanctions.
Why aren’t the subsidiaries of Russia’s major oil company sanctioned as well?
What are the Western policymakers waiting for?
Is it really not obvious that Lukoil’s Dubai-based subsidiary can be used for such crucial activities as evading Western sanctions?
2) Putin’s popularity drops following the Kursk incursion.
AI analysis of Russian social media (by Filter Labs) shows a sharp drop in public sentiment toward Putin after Ukraine’s successful capture of Russian territories in the Kursk offensive, with negative comments spiking in August.
One particularly blunt online comment: "Our great strategist seems to have shit himself, there’s more to come."
The sentiments are largely corroborated by polling too.
Even pro-regime polling recorded a dip in Putin’s approval rating from 60% to 50%.
Even though Ukraine’s positions in Kursk are increasingly precarious, and this gamble is quickly turning into a net-negative (as warned by these cables back in early August-at the outset of the incursion) at least one of the political objectives of the incursion (denting Putin’s image as a ‘‘patriarch protector’’ of Russia) has been accomplished.
3) Japan and the U.S. to co-produce missiles.
It didn’t take long before Japan’s new government led by the defense-conscious fresh Prime Minister Shigeru Ishiba signaled seriousness of intent: Tokyo and Washington are discussing co-production of air-to-air missiles vital to Ukraine's defense against Russian advances.
At a recent meeting in Hawaii, both countries agreed to speed up a feasibility study on jointly manufacturing the AIM-120 advanced medium-range air-to-air missile.
This is great news for Ukraine, and also, framing it as a “help for Ukraine” endeavor is a nice (but very transparent) attempt to not trigger China.
Putin and Pezeshkian meet in Turkmenistan.
The meeting between Iranian and Russian presidents (held at the sidelines of a regional conference in Turkmenistan) on Friday was highly anticipated by the western media.
A lot of analysts have speculated that Putin was going to provide an unequivocal support for Iran in its latest confrontation with Israel.
But Putin did not in fact, say anything openly, and directly about Israeli actions and Iran's response.
Instead, there were two things of note:
1) As the conference opened on Friday, Putin said he wanted to create a “new world order” for Moscow’s allies to counter the West.
Putin emphasized his desire for a broad tent in this anti-western coalition - saying that Moscow is open to talks within key regional and global forums, including the Commonwealth of Independent States (CIS), Eurasian Economic Union (EAEU), Shanghai Cooperation Organisation (SCO), and BRICS.
2) Putin described the relationship with Iran by saying that their view of international relations was "very close".
Now, on the surface, this is of course, an affirmative statement.
But in diplomatic terms, this is a hint that Russia and Iran don't see eye to eye on everything.
Naturally, neither of the two countries.
But we are not holding the relationship between Iran and Russia to an impossible standard.
We are, however comparing Putin's rhetoric, when describing his relationship with other states.
After all, he has described his relationship with many other countries as "friendly".
With China for example, there is no shortage of descriptors like no "limits partnership", or "unlimited friendship".
And this is in spite of more objective reasons for friction with China (there is after all an open border dispute over Russian territories. And China's new updated border map still continues to claim that land.)
Of course, Russia needs China way more than it does Iran, and there's certainly just the political and economic cost of supporting Iran, but Putin could've simply skipped that "very close" descriptor altogether..
Why highlight that there is still a gap in the way that the two countries view international developments?
Of course, in geopolitics, every act, and/or omission has a purpose.
And speculatively, one such purpose could be Putin’s aim to create an “invitation to treat” - by emphasizing that he isn’t set on a specific policy or course of action in the upcoming Israel vs Iran war.
For example, perhaps a commitment from a) Israel to not supply Ukraine with Iron Domes, and/or David's sling/Arrow anti-ballistic missile systems, or b) by the Western powers, not to enable Ukraine use their long range weapon systems to strike deep within Russia, could be reciprocated by Russia's delay in providing certain type of weapons to Iran.
Weapons of big importance like more fighter jets, sharing advanced missiles and satellite technology, providing S-400 air defense systems.
Of course, Russia is in no position to dispense with many of these advanced systems.
But the know-how on tactical deployment, and the use of current systems, intel- sharing, GPS spoofing, and or joint production of the currently share and/or future systems could still be in play.
Perhaps, this is an opportunity for Russia to trade respective “red lines” with the west: something like “you don’t provide X to Ukraine and we will avoid helping with Y in relation to Iran”.
3) Delay the conclusion of a “strategic partnership” agreement with Iran.
First of all, it is notable that in spite of a close cooperation with Iran since the outset of the war in Ukraine, in spite of joint production of Shahed attack drones in Russia (which would allow Russia to produce them in the thousands by the end of 2025), and Iran’s delivery of ballistic missiles (which is a big sacrifice - given that it detracts from their own deterrence), Russia and Iran are not signing a defense pact - something that Russia signed with North Korea back in June (a mutual defense treaty.)
To be clear, Tehran would love it - but Russia wouldn’t need such a deal.
This is because there is a clear asymmetry in what each side can offer in a future military pact.
What is Iran going to give to Russia beyond what it has already committed itself to?
It is doubtful that Russia could gain anything more significant than what it is already receiving.
Naturally, this is not the case with Iran - it potentially gets (but at the minimum, definitely asks for) a lot of advanced air defense/air superiority hardware.
It would probably not get these - and in the meantime, there is a high chance of Iran dragging Russia down - with a possible full-scale war with Iran and the US, it could well turn into a liability for Russia (see more below).
It is also notable that the strategic partnership with Iran was not signed at the sidelines of this event.
Why delay this deal any further?
Is there a substantive disagreement as to the terms of the partnership?
To be clear we're not aware of the full details of what this entails, but neither have we had any media reports about any possible differences in substance and policy about the remits of the deal.
So why delay it? Could it possibly be that Moscow wants to see events play their course?
That there is no rush to align on a strategic level with the regime that could soon face the full might of Israel, and possibly even that of the US military?
After all, declaring a strategic partnership with a country which could get itself into major trouble very soon, by either over-reacting and causing a major crisis in the oil markets, or getting pummeled by a superpower is not a very attractive proposition at all.
Surely, the prudent thing to do is to wait it out instead, and observe the full extent of the brewing crisis.
The value of delaying this deal is therefore added optionality and avoidance of prematurely declaring a strategic partnership with a country that may drag you down and turn into a massive liability.
Israel vs Iran escalation: implications for Russia.
Beyond the very obvious point that this conflict do a lot to distract the US/the West and weaken their ability to sustain support for Ukraine at current level of intensity and consistency, there are a number of potential short-to-medium term implications for Russia - some are more favorable than others:
1) Oil revenue boost.
Firstly, the price of crude oil matters a lot for Moscow.
And here, Russian interests and those of the West diverge rather significantly.
A short term price hike in all markets - one that lasts between 1 to 3 months could be a boon for the Russian treasury.
The math is pretty simple here: we don't even need oil to be sold at $100 a barrel - even a consistent 10% to 20% rise in the price of oil (which is very plausible) would lead to extra billions in revenue for Russia.
This would essentially be an early Christmas for the Kremlin.
Suddenly, billions or even tens of billions in additional revenue can be reallocated to military, defense-industrial production and for the added recruitment drive/sign-up bonuses.
At the time when the pressure on Ukraine is building this would be an extra boost to Russia’s already highly favorable medium-term outlook.
This will enable Russia to prosecute a harsher version of compellence strategy.
If the negotiations with Ukraine take place by the end of the year or early in the next year, Russia's hand will now be even stronger.
Since the Kremlin will now have an irrefutable evidence of additional means to prosecute this war - signaling to Kyiv that if the cost of continuous war was always more favorable for Russia in any case, well then now, this is more so the case.
And once again, if the war continues (after a failed negotiation) Russia will simply have more resources to pour into this war.
And it is true that in the scenario of a price hike to $100 a barrel. OPEC will respond to significantly higher prices by increasing production (already, many of its members were pushing for increasing volume).
But we don’t need to go that far- even in a far more conservative scenario of 10% to 20% price rises that stabilize and remain in place for weeks or months is already sufficiently beneficial for Russia.
Crucially, this also implies that the war in the Middle East is not out of control all out and chaotic – which would not be an Russia's interests (more that later below), but one where there's some continuous confrontation and disturbance (or even better: a possibility of conflict) is clearly in Russia's interests.
But even then, this would also imply that there's still a risk of escalation, and a potential disruption to the supplies originating not only from Iran, but also from those in the Gulf states - this leads to the second potential interest for Russia.
2) How did leverage over the gulf states and an opportunity to play a role of a mediator.
Countries, like the UAE in Saudi Arabia are rightly freaking out about the possibility of Iranian attacks on their oil fields.
They also don't want to be in the middle of flying missiles or Israeli attempts to utilize there is air space for attacks against Iran
(side note: using Saudi aerospace is the most operationally opportune way for Israelis to launch air strikes against Iranian nuclear facilities - it is a shortcut for their bomber fleet. Otherwise, they will have to travel around way and enter Iranian airspace from the Persian gulf: extra distance will put strain on the operation and will necessitate involvement of more tanker aircraft (like the KC-46) to help with the mid-air refueling)
And even though a direct strike against the Saudis or the UAE is still unlikely, Iran can always instruct its militia (like the Hoothis in Yemen) to do the necessary dirty work.
Enter Russia - its increasing proximity with Iran makes it a valuable third-party and a mediator in preventing the worst of escalation, and lowering down the tensions.
Naturally, this provides new avenues of leverage for Russia.
In exchange, for this help, Moscow could seek more help in the evasion of sanctions (the UAE) or a closer, diplomatic alignment in general (with Saudi Arabia).
And now that Russia is switching sides in the conflict in Sudan (from the rebel RSF to Sudanese Armed Forces) it could furthermore insist on the UAE to reduce their own involvement in the conflict and reduce their support for the RSF.
Finally, Putin could also insist on a direct investment from both of these powerful and rich gulf monarchies - something that is not only economically valuable, but one that creates an additional geopolitical signal that Russia's reputation is being rehabilitated on the global stage: a return to status quo ante.
3) Iran’s weakening hand in Syria.
In the long-term Iran's weakening hand in Lebanon or Syria isn't necessarily bad for Russia either.
In Syria, Iran’s logistics hubs and Iran-aligned militias, (as well as the Hezbollah and Hezbollah-aligned militias) have been battered by Israeli airstrikes.
It is therefore unlikely that Iran will be able to re-enter the Syrian theater as a powerful force anytime soon.
And this in turn means that Russia's leverage over the Assad regime will increase - for it will remain as the most reliable security guarantor for Syria’s bloodthirsty dictator.
(side note: And Assad certainly likes this too. He has carefully Syria being dragged into the Gaza and Hezbollah conflict (even though the latter played an incredibly valuable role in butchering opposition forces and massacring civilians in order to save its regime), and the regime’s muted and belated reaction to the assassination of is also indicative of Assad’s geopolitical desires.)
4) Iran's ability to help Russia.
The longer that this conflict drags on, the bigger will be the demands imposed on the Iranian military.
That means less of a wiggle room and ability to continue sending more ballistic missiles and drones to Russia.
Naturally, this is not in Russia’s interest: Moscow would like to see more of the Fath-360 (sent late summer) missiles come its way.
(side note: these have mile range and carry smaller payload of .This makes them comparable to existing short-range rocket artillery systems like the 9M54 missiles- which also benefit from better accuracy. But volume helps, and overwhelming Ukrainian air defenses is worth the lower accuracy rate.)
There is therefore a fine sweet spot for Russia: an all-out escalation and war, or one that translates into a long-term war of attrition (low intensity but continuous tit-for-tat that drains Iranian ammo) is decidedly not in Russia’s interests.
But one that remains as a low-intensity/prolonged stand-off with a continuous possibility of a full-scale conflict, could potentially do a lot to replenish the Russian coffers, increase its regional weight/leverage, and remove a competition in Syria.