Russian Operations In Ukraine ‘Masterly;’ Eyes Paying For Trade In Renminbi

June 8, 2014

Russian Operations In Ukraine ‘Masterly’

By Sam Jones in London

The running theme of NATO’s criticism of Russia is that when it comes to Ukraine, the Kremlin has slipped back into a cold war mentality.

But while Russia’s strategic thinking might recall the ruthless geopolitics of the past century, its tactics for military analysts have been a model of warfare in the 21st, employing everything from small groups of unidentifiable specialist personnel to cyber warfare.

In more than a dozen interviews, planners, security officials and members of the intelligence community have spoken of Moscow with universal, if grudging, praise.

Tactically, they say, Russia has waged a dexterous and comprehensive campaign, and has been one step ahead at every turn. The Kremlin’s operations on the ground have been “masterly”, said one.

“I have been impressed. The eminent deniability of it all – this has been an exactly and beautifully calibrated operation . . . silent but deadly effective,” said Jonathan Eyal, international director of the Royal United Services Institute in London. The west “has been off-guard from day one”.

Last week, the north Atlantic military alliance ramped up its efforts to put a lid on matters. On Thursday, while at the summit of the Group of Seven industrialized powers, NATO members outlined plans to toughen sanctions if Russia’s alleged meddling east of the river Dnieper did not stop.

Russia has continued to be strident in its denial of involvement. The foreign ministry said accusations of Russian arms making their way over the border were “the work of the devil”.

Proving that Moscow is entangled in eastern Ukraine may be key to any NATO attempt to reach a diplomatic resolution to the crisis – but Russia’s actions there have been even more difficult to pin down than its involvement in Crimea.

“In Crimea, there was an obvious concentration of forces,” said one senior NATO military officer. “In eastern Ukraine, it’s much more specialist troops. It’s a small number – a very small number. These sort of characters do their work and then disappear very quickly, leaving things to the militias to take over.”

He points to examples where six-man groups, armed with expensive Russian kit such as VSS Vintorez sniper rifles and wearing special forces camouflage, have been observed aiding rebels.

Other figures are of even more interest to NATO intelligence chiefs. In one dossier of photographs seen by the Financial Times, another senior officer from a NATO state pointed not to armed men but to seemingly innocuous individuals among them in civilian garb. These were the men in charge, he said, judging by their positioning, body language and behavior. They were almost certainly agents of the SVR or the FSB, Russia’s sprawling foreign and domestic intelligence services.

While the evidence is circumstantial at best, the FSB, in particular, has an undoubted long-running involvement in Ukraine – a position it has clung to since the end of the cold war isolated its regional security apparatus there.
“When it comes to near abroad, it is the FSB and not the SVR that is doing the work,” said Nigel Inkster, who was until 2006 director of operations and intelligence for the British agency MI6 and is now director of transnational threats at the International Institute for Strategic Studies, a London think-tank. “For Russia, [Ukraine] is still regarded as an internal issue.

“Everybody looks at what is happening in east Ukraine and they think in terms of tanks and conventional military capabilities, but the Russian state has always invested heavily in the special services and the intelligence agencies. They are the ones involved here.”

The tactics being used are “classic techniques” of the FSB, Mr Inkster says. He adds that such actions – “planning, incitement, organization of local forces, and intelligence” – can take place without using large numbers of personnel.

A senior NATO bureaucrat said the sequencing of separatist attacks suggested a guiding hand. Militias first targeted government buildings and communications centers, followed by key supply points and then harder targets such as military installations.

Ukrainian forces have been outwitted several times. In Konstantinovka last month, during an attempted ambush of Russian paramilitaries, the pro-Kiev Donbas militia was ambushed. This week, separatists seized control of two Ukrainian military bases in Luhansk.

Behind these successes lies a well-resourced intelligence machine, according to the NATO narrative. Indeed, this is perhaps what has most impressed Nato strategists.

In classic “HUMINT” – human intelligence – terms, Russia has a longstanding advantage over Kiev. Ukrainian intelligence officials say the government of the ousted president Viktor Yanukovich planted so many spooks within their ranks that they now comprise up to a third of all Ukrainian senior security, counter-intelligence and military intelligence officers.

Then there is cyber space. Russia is widely believed to be the author of a virulent form of malware known as “Snake” that has infected hundreds – possibly thousands – of Ukrainian IT systems, giving operators unfettered access to data.

NATO has yet to develop a suitable response to Russia’s covert activities.
“We would describe it as an influence operation,” said a senior NATO officer. “Russia has very effectively employed all of the tools of power: information, diplomacy, politics, military might – both overt and unconventional – and economic.”

With that in mind, it is ironic that for all of its accusations against Russia, it is NATO that is looking like it is stuck in the Iron Curtain era, as it tries to fly more planes, exercise more troops and sail more ships ever closer to Russia.

Additional reporting by Roman Olearchyk in Kiev and Courtney Weaver in Donetsk

June 8, 2014

Russia Eyes Paying For Trade in Renminbi

By Jack Farchy and Kathrin Hille

Russian companies are preparing to switch contracts to renminbi and other Asian currencies amid fears that western sanctions may freeze them out of the US dollar market, according to two top bankers.

“Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies and to set up accounts in Asian locations,” Pavel Teplukhin, head of Deutsche Bank in Russia, told the Financial Times.
Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”.

“Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

The move to open accounts to trade in renminbi, Hong Kong dollars or Singapore dollars highlights Russia’s attempt to pivot towards Asia as its relations with Europe become strained.

Sanctions are pushing Russian companies to reduce their dependence on western financial markets while US and European banks have dramatically slowed their lending activity in Russia since the annexation of Crimea in March.

The central bank is working to create a national payment system to reduce the country’s dependence on western companies such as Visa and MasterCard.

“There is nothing wrong with Russia trying to reduce its dependency on the dollar, actually it is an entirely reasonable thing to do,” said the Russia head of another large European bank. He added that Russia’s large exposure to the dollar subjects it to more market volatility in times of crisis. “There is no reason why you have to settle trade you do with Japan in dollars,” he said.

The chief executive of a Russian manufacturer that derives 70 per cent of its revenues from export in US dollars said his company had done the groundwork to move its contract settlements to different currencies in the event of further sanctions. “If something happens, we are ready to switch to other currencies, for example to the Chinese yuan or the Hong Kong dollar,” he said.

Alexander Dyukov, chief executive of Gazprom’s oil division, has said that the company has discussed with its customers the possibility of shifting contracts out of dollars, while Norilsk Nickel told the FT that it was discussing denominating long-term contracts with Chinese consumers in renminbi.

“It looks like this is not just a blip, this is a trend,” said Mr Teplukhin of Deutsche Bank. He added that Russian companies were able to hedge the risk of further US sanctions by “changing the letter of their contracts to allow them to change currency if it is necessary”.

Some politicians have suggested Moscow should respond to western sanctions by entirely “de-dollarising” its economy.

But while in recent discussions with big business about how to make the economy less vulnerable the government has advocated listing back home and settling more trade in currencies other than the dollar, it has rejected more extreme measures.

“As long as Russia is not subject to systemic sanctions, which could bring an artificial limit to our economy’s access to dollars . . . then I don’t think Russia will take any steps in order to bring about artificial de-dollarisation,” said Andrei Belousov, economic adviser to Mr Putin.

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