Ukraine Latest: Russia Troop Boost; Sanctions Pain to Take Years

(Bloomberg) -- Russia’s defense minister unveiled plans to create new commands along its western frontier as the nation expands the military to 1.5 million people amid deepening tensions with the US and its allies.

As members of the global elite gather in Davos, Polish President Andrzej Duda said pressure is growing on the German government to give the green light to send German-made Leopard battle tanks to Ukraine. Olena Zelenska, the wife of Ukraine’s president, used a speech to the global elite gathered in Davos to urge the release of thousands of Ukrainians deported to Russia, including illegally adopted children. 

Russian sanctions will take years to gain traction in crippling the economy as oil and gas revenues are buoyed, trade is reconfigured and policy makers in Moscow react to the shifts, according to Beata Javorcik, the chief economist of the European Bank for Reconstruction and Development. 

(See RSAN on the Bloomberg Terminal for the Russian Sanctions Dashboard.)  

Key Developments

• Ban on Russian Fuel to Boost Asia’s Refiner Profits, Rystad Says
• US Funds Win $118 Million Asset Freeze Over Lost Ukraine Grain
• Russian Sanctions Will Take Years to Bare Teeth, EBRD Says
• Scholz Nominates Pistorius as Germany’s Next Defense Minister
• US Tanks to Ukraine Would Help Germany Send Leopard, Habeck Says

On the Ground

Ukrainian troops repelled attacks near more than 20 settlements, including Soledar and Bakhmut in the eastern Donetsk region over the past day, the General Staff said on Facebook. According to the statement, Russian forces conducted two missile and seven air strikes, as well as more than 70 attacks from multiple-launch rocket systems over the past day. Six Russian missile carriers capable of launching a total of 44 Kalibr missiles are deployed in the Black sea, Ukrainian military spokeswoman Natalia Humenyuk said on television. 

(All times CET)

Russian Sanctions Will Take Years to Bare Teeth, EBRD Says (4:24 p.m.) 

EBRD’s chief economist Javorcik said predictions that a barrage of punitive measures against the Kremlin in response to its invasion of Ukraine would trigger an economic shock were misplaced. 

“That was unrealistic,” Javorcik said in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “Sanctions work through this invisible channel – productivity. It is not something palpable unless you are a data cruncher. Sanctions are working — but the effect will be long term.” 

Sweden Wants EU To Do More On Sanctions Circumvention, Frozen Assets (4:06 p.m.) 

Swedish Foreign Minister Tobias Billstrom said doing more on the circumvention of sanctions could be part of the bloc’s next package of restrictions.

“The number of sanctions have risen with every new package, but it’s still also the question of circumvention or the attempts to circumvent,” he said. “What are we to do with those who try to circumvent or all these attempts,” he added. “I think that’s something which the Commission also should be looking into.”

Serbia Calls on Russia to Stop Recruiting Among Its Citizens for War (2:50 p.m.)

Serbian President Aleksandar Vucic criticized an advertisement by Russian state-backed mercenary Wagner Group that sought to hire Serbs to fight in Ukraine.

The nation’s legislation bans Serbs from joining forces abroad, Vucic said on a private television network late Monday, urging Wagner to stop such calls. 

Putin’s Cash Flood From Exports Slows Amid Curbs on Oil, Gas (2:39 p.m.) 

Russia had its smallest current-account surplus in more than a year as new restrictions on its oil exports endanger what’s become a critical source of hard currency for the Kremlin since the invasion of Ukraine.

The surplus in the current account — roughly the difference between exports and imports — decreased to $31.4 billion in the fourth quarter, down from $48 billion in the previous three months, according to preliminary central bank data published on Tuesday. 

Ukraine Sells Sea Port for $5.5 Million to Boost Cargo Turnover (1:46 p.m.) 

Ukraine sold the sea trade port of Ust-Dunaysk on the Danube river for $5.5 million as the government banks on private investors to ramp up cargo turnover. Odesa-based fertilizer trader Eliksir Ukraina purchased the port at an auction after outbidding eight competitors, the public procurement platform Prozorro said. 

Ust-Dunaysk resumed operations in April, one of the Ukrainian ports to do so after Russia’s February invasion of Ukraine, which is a leading exporter of wheat, corn and vegetable oil. 

Blackrock’s Fink Says Building Ukraine Reconstruction Fund (1:20 p.m.) 

The Ukrainian government hired BlackRock Inc. to help build a reconstruction fund for the war-battered country and the fund has “the whole team tasked,” Chief Executive Officer Larry Fink said in an interview with Bloomberg TV at the World Economic Forum in Davos.

“Our job is to make sure that the opportunities for private capital can come to Ukraine and we will have a fair and just return on that,” Fink said, adding that BlackRock is also helping Ukraine to hire the right team. “Our job is to make sure that the new Ukraine is an open society, open economy and capital will be there.”

President Zelenskiy last year discussed having BlackRock provide free consultations to his government on both a fund and support for the country’s economy.

Putin Says Defense Industry Boosting Russian Economy (12:43 p.m.)

Russia’s defense industry has boosted output sharply in the last year amid the war in Ukraine, with some factories working nearly around the clock, helping support overall economic growth, Vladimir Putin said. 

The Russian president told a televised video-conference with officials that the economy contracted 2.1% in the first 11 months of last year and will report a drop of 2.5% for the full year, less than many forecasters had expected. Government spending has surged amid the war, widening the deficit as revenues fall short amid sanctions and other restrictions on Russia. 

Ukraine’s First Lady Addresses World Economic Forum (12:11 a.m.)

Zelenska called for the release of Ukrainians and urged participants at the World Economic Forum in Davos to unite efforts to contain Russian aggression to ensure existing challenges don’t become a full-blown global crisis. 

Russia to Boost Troops in West With Army Expansion (10:49 a.m.)

New structures in the regions around Moscow, St. Petersburg and Karelia on the border with Finland will be created under the program, Defense Minister Sergei Shoigu told commanders. The major changes will start this year and continue through 2026, while “self-sufficient” units will be set up on the Ukrainian territories that Russia has illegally annexed, he said. 

Putin last month approved a plan to boost the size of Russia’s military from the current target level of 1.15 million but the Kremlin hasn’t said how fast that will take place. 

Russian Intelligence Chief Sees Possible New Meeting With CIA Head (10:34 a.m.)

Sergei Naryshkin, the head of Russia’s foreign intelligence service, said a new meeting with the US’s Central Intelligence Agency chief William Burns is possible, Tass reported.

Dates will be determined by agreement between the two sides, he said, according to the state-run news service. Naryshkin said his November talks with the CIA director in the Turkish capital were informative and both parties managed to clarify their positions. Tass also cited the Russian intelligence chief as saying that he discussed Ukraine on a periodic basis with European counterparts, though declined to name them.

Scholz Nominates Pistorius as Germany’s Next Defense Minister (10 a.m.) 

Chancellor Olaf Scholz has put forth Boris Pistorius to be Germany’s new defense minister, filling a critical role in his cabinet after Christine Lambrecht resigned on Monday following a series of missteps.

In a statement, Scholz praised Pistorius’s “strength and calmness,” and singled out his experience with defense policy.  The 62-year-old is a veteran Social Democrat who has served as the interior minister for the state of Lower Saxony since 2013.

Ukraine Extends Power Cuts to Six Regions, Ukrenergo Says (9:55 a.m.)

Ukraine extended emergency power cuts to six regions as they surpass consumption limits amid a continuing electricity deficit in the country, Ukrenergo said on Telegram.

The significant shortfall has been caused by missile and drone attacks on energy infrastructure as well as windy weather, and it’s especially acute in morning and evening peak hours, the grid operator said. 

Poland Sees Potential New Chapter (9:25 a.m.)

Polish President Duda said pressure is growing on the German government to give the green light to send German-made Leopard battle tanks to Ukraine.

Poland has pledged to supply about 14 Leopard battle tanks and the country is talking to “a few allies” to ensure additional vehicles, Duda said during a panel discussion at the World Economic Forum’s annual meeting. 

Shipping them has the potential to start “a new chapter” of the war, he said. Poland already supplied more than 260 of its Soviet-model battle tanks last year, he said.

Ukraine Seeks to Add Repaired Nuclear Generator to Grid Next Month (7:44 a.m.)

Ukrainian nuclear power operator Energoatom plans to turn on one nuclear generating block early next month, Interfax reported, citing the company’s president, Petro Kotin. It was put into repair in early January and is now being loaded with fuel, Kotin said. After Russian troops seized the Zaporizhzhia plant with its six generators, which are currently idle, Ukraine controls nine nuclear power blocks.

Rescue Operations Continue in Dnipro (7:00 a.m.)

The rescue operations in Dnipro after the missile strike on a nine-story apartment building have been going on for more than 63 hours, and 90% of the rubble has been removed, Dnipropetrovsk region Governor Valentyn Reznichenko said on Telegram. 

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