Vintage Kremlin

While Putin Toasts Crimean Takeover, Average Russians Brace for Shortages

Mission accomplished? Russia's President Vladimir Putin (R) and Prime Minister Dmitry Medvedev attend a meeting in Yalta, Crimea on August 14, 2014. Source: Reuters
Riesling or a nice Bordeaux, Dmitry? Russia's President Vladimir Putin (r) and Prime Minister Dmitry Medvedev attend a meeting in Yalta, Crimea, on August 14, 2014.
  • Why it matters

    Why it matters

    While the Kremlin keeps itself stocked with pinot noir, average Russians are facing skyrocketing prices for basic foodstuffs.

  • Facts

    Facts

    • Sanctions imposed by the West are already being felt by Russian consumers as food costs soar.
    • Putin said Russia is considering leaving the jurisdiction of the European Court of Human Rights, which recently declared the country liable for €1.9 billion to shareholders of the defunct Yukos oil.
    • The Russian president will not tap the billions in surplus to help Russian companies damaged by the sanctions.
  • Audio

    Audio

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As usual, the Kremlin took very good care of itself.

Before Russia slapped extensive agricultural ban on goods from the European Union, United States, Canada, Australia and Norway in response to the West’s sanctions on Moscow for its actions in Ukraine, officials for President Vladimir Putin’s office imported almost 1.1 million bottles of wine. That’s nearly a quarter more than in the first half of 2013 and a record amount overall. According to Russian customs officials, the imports included 294,400 bottles of German wine and 488,100 bottles of French wine.

So the Kremlin’s connoisseurs of fine Western vintages will continue to enjoy a steady supply. They will proudly be able to display the private wine cellars in their luxury villas along the affluent stretches of Moscow’s Rublyovskoye Shosse, where glossy magazines celebrate the good life in Russia.

But average Russians won’t likely be raising a glass in toast.

Prices are already soaring on many staples of the Russian diet. Salmon prices, for example, have risen 20 percent since the prohibition of imports from Norway with little hope that costs will drop in the foreseeable future. The €1.5 million ($2 million) in Norwegian fingerlings ordered by Russkoye More, a large-scale Russian fish trader, can’t be delivered in time for release in August, which will complicate their cultivation. Those with food allergies are sounding an alarm, too. Anyone requiring gluten-free food or other special foodstuffs will soon have difficulty finding them on supermarket shelves since most of those products are imported.

Yet in a keynote speech delivered to both houses of the Russian parliament at Yalta on the Crimean peninsula, Mr. Putin reveled in his defiance and again celebrated the conquest of territory. In remarks clearly directed at the West, he announced Russia might soon leave the jurisdiction of the European Court of Human Rights, which in July ordered the country to pay shareholders of the now, defunct oil company Yukos a total of €1.9 billion after finding Mr. Putin’s government forced its liquidation through bogus taxes and an auction of its assets. Exiting the court’s jurisdiction would represent a further turning-away from the West.

Mr. Putin emphasized that the commercial conflict with the West does not mean the end of all connections, but said: “We cannot allow them to treat us with disdain.”

To make Russia more independent from the West, but primarily to shield it from a potential decoupling of trade based on the dollar, the Mr. Putin announced his intention of increasingly calculating his country’s exports of oil and gas in rubles and other currencies. He views the dominance of the American dollar as damaging to the Russian economy. Moscow is “working at the moment on an agreement with several countries to conduct trade in our respective national currencies,” he said.

While Mr. Putin was using his speech to pat himself on the back and celebrate his victory in Crimea, the mere mortals back in Russia are having an increasingly difficult time.

Mr. Putin also expressed opposition to raising taxes to meet the growing menace of a budgetary deficit. The president said he is against “sitting foolishly on a sack of money,” but added a state surplus of hundreds of billions of dollars should not be touched. This statement sounds like a complete rejection of a plea from his friend and political ally Igor Setschin, the chief executive officer of Russian oil giant Rosneft, who is seeking government subsidies of €31.4 billion for lost revenues due to the sanctions.

“The financial mobilization is strongly reminiscent of the Soviet Union,” groaned the Russian edition of the financial magazine Forbes, lamenting that Russia’s economy was teetering on the edge of recession.

While in Yalta, where he announced Russia will invest more than €13 billion up to 2020 in Crimea, Mr. Putin sent mixed signals to Ukraine. He demanded a halt to the conflict between government troops and pro-Russian separatists in the eastern portion of the country and promised “Russia will do everything in is power to end the fighting as soon as possible.” But as Ukrainian commentators were quick to note, the Russian leader offered no details on how he intends to achieve that goal and Kiev still fears a march of Russian troops into its territory.

While Mr. Putin was using his speech to pat himself on the back and celebrate his victory in Crimea, the mere mortals back in Russia are having an increasingly difficult time. Western sanctions against the country at the height of the holiday season in the Black Sea have grounded Russia’s Dobrolet Airlines since August 4 because the contracts for the Boeing 737’s used by the low-fare airline have been canceled. Russian media reports Aeroflot and other large air carriers fear similar consequences.

Dmitri Rogosin, deputy prime minister in charge of defense industries and a political hardliner who is one of the individual Russian leaders targeted by U.S. sanctions, is offering a solution. On his Twitter account, he proposed creating a national airline to fly passengers to and from Crimea using the Russian-built Ilyushin II-114, a twin-engine turboprop designed for short flights.

He did not say whether German and French wines would be served on any flights.

The author is Handelsblatt’s former Moscow correspondent. He can be reached at: brueggmann@handelsblatt.com

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