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May 12, 2023
Russia & Europe
Russian foreign minister Sergey Lavrov last week said the billions of rupees that his country has accumulated as a result of skyrocketing trade with India in 2022 is “a problem.” With few available options to convert them into other currencies, the funds remain essentially frozen. The comment came after negotiations between the two countries on trading in rupees reached an impasse.
Moscow prefers to be paid in Chinese yuan—the most-used foreign currency in Russia. It is hesitant to use the rupee, fearing exchange-rate volatility. In turn, Delhi will not pay Russia in US dollars for fear of secondary sanctions, and refuses to pay in rubles, fearing inability to fetch a fair value for them on the global market.
India has a huge and widening trade deficit with Russia. Its imports from Russia over the last fiscal year have grown nearly 15 times the size of its shipments thereto, according to India’s trade ministry data. Meanwhile, an all-rupee bilateral trading regime would reportedly leave Moscow with an undesirable annual reserve of the currency worth over $40 billion.
Technology / Cyber
The US Federal Bureau of Investigation (FBI) this week announced an operation to hack and disrupt a long-running cyberespionage effort, run by its Russian counterpart, the Federal Security Service (FSB):
The FSB-run group had been using malware known as “Snake” since as early as 2004 to steal and exfiltrate sensitive documents across hundreds of computers and networks in least 50 countries. The FBI developed a countermeasure allowing it to hack and decode Snake malware and decrypt its traffic. Alongside domestic and global partners, the FBI issued a joint 48-page advisory detailing the operation and mitigations.
The FSB’s Center 16, the group responsible for the Snake malware known by the cybersecurity industry as “Turla,” oversees the FSB's signals intelligence (SIGINT) capabilities, including intercepting communications, decryption, and data processing.
Incumbent Turkish president Recep Tayyip Erdogan’s chief rival in the 14 May presidential election race, Kemal Kilicdaroglu, received a potential boost this week as candidate Muharrem Ince pulled out of the race. Polls show Ince supporters would likely flock to Kilicdaroglu, who is now polling neck and neck with Erdogan.
Erdogan’s popular support has flagged as he and his party are blamed for unrelenting economic crises and criticism over the government’s response to massive earthquakes in February.
Kilicdaroglu is campaigning on promises to smooth over often tense relations with the West—including jump-starting stalled talks to join the European Union and reversing what many world leaders view as Ankara’s slide into authoritarianism over the past several years.
Kilicdaroglu oversees a fractious coalition of six political parties that nevertheless converged around a joint platform aimed at greater power-sharing between the presidency and the parliament, and more judiciary independence.
As both Russian and Ukrainian military analysts assess Kyiv’s long-planned counter-offensive has begun, the UK confirmed this week that it has supplied Ukraine with long-range “Storm Shadow” missiles—capable of hitting targets at triple the distance of the US-provided HIMARS system.
UK defense secretary Ben Wallace confirmed that the decision was taken after Russia “continued down a dark path” of targeting civilian infrastructure in Ukraine—which he had warned his Russian counterpart Sergey Shoygu against last December.
The aircraft-launched missiles have been retrofitted to work with Ukraine’s Soviet-era planes. Meanwhile, “Ukraine is ready to provide any guarantees that your weapons will not be involved in attacks on the Russian territory,” its defense minister Oleksiy Reznikov pledged to European leaders earlier this year.
Russian President Vladimir Putin this week lifted a ban on direct commercial flights to Georgia—in place since 2019—and suspended the requirement for Georgian citizens to obtain a visa for travel across the border. Russia has occupied 20 percent of Georgian territory since invading the neighboring country in 2008.
Tbilisi has thus far abstained from directly supporting Ukraine against the Russian invasion, and its previously reform-oriented leadership has been accused of backsliding on democratic norms. The European Union warned Georgia earlier this year that resumed flights could subject it to secondary sanctions. Tbilisi claims it will only allow unsanctioned airliners to land.
According to Georgia’s National Statistics Service, in 2022 over 62,000 Russian citizens emigrated to Russia, while tens of thousands more Georgian citizens living in Russia returned home. Over that same period, the Georgian economy grew by 10 percent.
The Public Company Accounting Oversight Board (PCAOB) that had to fight for access to auditors books last year in China found significant issues in 7 of the 8 audits it reviewed.
Chinese companies will not be impacted by the review, and auditors will be have a year to make amends before penalties apply.
The PCAOB made clear that such discrepancies are common during the first review of accountancies’ work and that they are often repaired without incident.
Despite all the rules and regulations China has put up around foreign access to sensitive data, this is one area where they could not hold the line. Access to US capital markets is still critical to the global aspirations of PRC firms, so China had to allow the PCAOB access to auditors books.
Technology / Cyber
Intrusion Truth, an anonymous blog that outs hackers for China’s civilian intelligence agency, has resumed publication this week. Based on the content of two posts released this week, KSG assesses the blog is out members of the Wuhan MSS office and APT31/Judgement Panda.
PRC state media is likely to respond with accusations of US hacking against Chinese targets, without presenting evidence or IOCs to backup their claims.
Italy is considering withdrawing from China’s Belt and Road Initiative. The PRC is pleading for the EU nation to stay.
Domestic politics of Italy’s Prime Minister is mostly at play here. Leaving China’s initiative would only reduce the ease of PRC infrastructure investments in Italy, but would not otherwise alter the trade relationship.
China may choose to respond to a withdrawal of Italy by slowing the place of imports of Italian-made luxury goods.
The much vaunted PRC negotiated rapprochement between Iran and Saudi Arabia is, to no one’s surprise, not working out as planned.
Under the agreement brokered by China, neither Saudi Arabia nor Iran has re-opened embassies in the other’s territory within the negotiated two month period.
The two nations have been fighting proxy wars for the last decade in at least three different locations, and Iran has even struck oil infrastructure inside Saudi Arabia.
As with much of diplomacy in the middle east, getting political elites to buy-in is only 30% of the problem. 70% of diplomacy is getting the citizens of these countries on-board for a change in regional dynamics. The countries are wise to delay the reopening of embassies, as they would have been targets of violence in either respective country.
US National Security Advisor Sullivan spoke by phone with PRC Director of Foreign Affairs Commission.
The meeting of the “number 2s” presages a breakthrough in the recent period without communication between the PRC and the US, which began after the US shot down a PRC spy balloon.
China blames the US for overreacting to the “civilian airship” that “accidentally” navigated over sensitive US nuclear sites. China isn’t doing itself any favors by insisting the object was not for military reconnaissance. But, blaming the other party for Beijing’s mistakes is the standard playbook to induce concessions.
China’s Foreign Affairs spokesperson accused the US Department of Defense of creating “genetically engineered weapons,” and implied that the DOD was collecting genetic data of “Asian Chinese, European Aryans, and Middle Eastern Arabs” to create weapons specifically targeting these ethnic groups.
The unhinged claims read like something from the last Daniel Craig 007 movie.
More realistically, the claims mirror Russian propaganda language regarding US “labs” in Ukraine and play into overtures of “race war” emanating from Russian state media.
And now to Pakistan. Pakistan has never in its history had a Prime Minister complete a full term in office—that includes the most recent one to be removed, Imran Khan. Khan is a former national cricket star and was actually popular as a PM, unlike most of his predecessors. He was detained for two days this week until Pakistan’s supreme court ruled his arrest illegal.
Khan has survived two assassination attempts in the last year since his removal from office, both likely carried out by the military and intelligence services, since he has refused to leave public life quietly.
Violent political protests around the country prompted Khan’s release this week.
Poor economic conditions in Pakistan, elite corruption, and state capture of goods and services has led to unrest over the last four years. Khan had channeled the people’s energy against those who made him head of government, the military and intelligence services.
China has invested heavily in Pakistan and suffered for it. Bombings have killed dozens of Chinese laborers or foreign language teachers across Pakistan in the last 6 years. China began investing heavily in the relationship during the US wars in Iraq and neighboring Afghanistan.
China has attempted to use its relationship with the security services to control the Afghan and Pakistan Taliban, both of which pose a threat to China’s western region. Unfortunately, the cruel rule of the security services that were so keen to win China’s favor have little control over the groups—as repeated attacks on Chinese civilians in Pakistan have shown. Now it appears China’s investment may be crumbling further.
The societal turbulence in Pakistan is concerning for the entire international community, not just China. As a nuclear armed state with poor governance, no other nation presents as big a threat of accidental nuclear use than Pakistan. If political chaos ensues for much longer China might, responsibly, move military assets towards its boarder area with Pakistan to improve security.