Article / 31 August 2016 at 12:00 GMT

August curse hits Russia's political credibility

Russia oil and gas expert
United Kingdom
  • Tension rises as Putin accuses Ukraine of terror tactics
  • Ordinary Russians not convinced border incursion actually happened
  • Unexplained delay of oil company Bashneft's privatisation
  • Rouble jolted by sudden dismissal of key Putin aide
 Postponement of the Bashneft privatisation robs the Kremlin of badly needed funds. Pic:

By Nadia Kazakova

August is not just another month in Russia. The end of summer in Russia has its own Wikipedia entry, called the August curse. The coup of 1991, default and devaluation of 1998 as well as many other wretched events happened in Russia in August. Russians do learn from their mistakes (eventually) and, as a result, August of this year has seen only some near misses rather than full blown disasters. 

The most troubling event of the month was an escalation of the Crimea situation. On August 10, Russian security services announced that there had been an attempted infiltration by a terror group from Ukraine into Crimea on August 7 and 8. A Russian serviceman and a Federal Security Service officer died. Several alleged infiltrators were arrested (and one gave a televised confession that the group was sent to destroy large infrastructure targets).

Russian president Putin called it an attempt by Kiev to provoke a conflict and to move to terror tactics. Therefore, he said, there would be no point in continuing with the Normandy format (four-way talks between Ukrainian, Russian and French presidents as well as the German chancellor) on the sidelines of the G20 summit in China on September 4 and 5.

The Ukrainian president said that the Russian terrorist accusations against Kiev were fantasies and a pretext for military threats. 

Given the gravity of the Russian accusations, one would have expected at least a tough diplomatic reaction from Moscow. Instead, after a couple of days the Russian prime minister Dmitry Medvedev seemed to have downgraded the event to an attempted sabotage, which he said was regrettable. 

One week on, the Russian foreign minister, Sergey Lavrov, had to insist that Russia had proof of sabotage in Crimea among widespread doubt that there had been a border attack at all. 

There were media speculation that Russian casualties might have been a result of friendly fire. If true, it would mean that the terror story was concocted, at best, as a cover up. At worst it might have been an attempt to use casualties to Russia's political ends.  

It is perhaps telling that an opinion poll conducted by a state-friendly VTSiOM (results published on August 22) found that around three quarters of the Russians were aware of the Crimean episode. Some 37% of them blamed the Ukrainian authorities, 12% saw the United States behind the attack and 47% could not decide what actually happened. It seemed just a bit too improbable an event even for an average Russian news consumer. 

It might also be telling that president Putin felt confident enough of his own security to travel to Crimea on August 19, only a couple of weeks after the alleged Ukrainian terror group was apprehended. 

As if to call the Russian bluff, German chancellor Angela Merkel and French president François Hollande have refused to have a trilateral meeting with Putin on Ukraine (excluding the Ukrainian president) during the G20 summit. The Russian president might have to stick to the rules (and the Normandy format) rather than continue making his own.  

Musical chairs in the Kremlin

On August 12, probably to keep up with the flair for the improbable (and faintly ridiculous), Putin sacked his long-serving head of presidential administration. Sergei Ivanov, once considered to be president-in-waiting, had apparently asked to be transferred to a different post. 

He was duly appointed special envoy of the Russian president on issues relating to nature protection, ecology and transport. Judging by the relaxed smiles all around (during the televised handover meeting), the new post might be some sort of an in joke and it is not the last we'll hear of Ivanov.

Late on August 16, the flagship privatisation of the oil company Bashneft was postponed with not as much of an explanation. Some three hundred billion roubles of expected budget revenues to plug the deficit evaporated overnight, and company's shares duly tanked the next day (but then recovered most of the losses over a couple of weeks). 

All these shenanigans failed to cause much of a stir in the broader Russian markets. 

Table. USD:RUB rate, Brent 1-month futures and MSCI Indices
Source:,, Note: Data as of close August 30, 2016

The rouble did not move much against the US dollar on August 10 on the Crimean events, but did bolt slightly on August 12, when Ivanov was sacked. The oil price, however, remained the key driver for the Russian currency (with the adjustment for Russia's central bank efforts to keep down the rouble volatility). 

The Russian blue chips (as reflected by MSCI Russia Index) have hardly reacted to politics in August and they are on the way to outperform MSCI EM Index for the month. If nothing else, there was a surge of cash inflow into Russian funds during the first two weeks of August – a total of $232 million – and only a small $24.5m outflow for the week ending August 24.

The Russian administration must be counting their blessings now that August is nearly over, even if with some loss of much needed political credibility.

– Edited by Clare MacCarthy


Nadia Kazakova is a specialist on Russia, particularly the oil and gas sector

ka26 ka26
Last time(in Crimea) Russian secret service attempted to mislead the world community, but what worked before, now is not working. The world does not believe Putin, but he continues to work in the old-fashion-KGB-style. Unfortunately, the Russians, like their leader, do not learn from their mistakes. Soon,we`ll see another "North Korea variant".
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