Thursday, October 23, 2014


The Power Vertical

Russia's Next Crisis

Former Finance Minister Aleksei Kudrin
Former Finance Minister Aleksei Kudrin
What would happen if Russia's current political turmoil were compounded by an economic crisis?
 
Last week, a think tank associated with former Finance Minister Aleksei Kudrin raised that question, and the answers were -- to say the least -- not pretty for the Kremlin. And today, the ruble fell to a three-year low on falling oil prices, which dropped by 4.5 percent over the past week.
 
The government insists there is no cause for alarm. Deputy Prime Minister Arkady Dvorkovich told RIA-Novosti that the authorities are "prepared for any scenario" and "have the reserves necessary for dealing with a crisis, if there is one."
 
Nevertheless, whether Russia's $513 billion in foreign reserves will be enough to weather an economic downturn sparked by contagion from the eurozone and falling oil prices must be causing a lot of sleepless nights in the Kremlin.
 
A report released on May 24 by the highly respected Center for Strategic Research commissioned by Kudrin's newly formed Committee of Civic Initiatives warned that Russia could descend into violence and chaos if the authorities continued to crack down on opposition protesters or if the economy slides:
 
Our research shows that the crisis has become irreversible. regardless of the scenarios of its further development. Maintaining political stability, let alone a return to the pre-crisis status quo, is no longer possible ... At this stage we view the probability of such a scenario as high because the escalation of violence has already started. As it spreads, the return of the protests to a peaceful course is becoming less and less likely.           
 
The report noted that "the middle class in the largest cities is de facto lost for the authorities." An economic downturn would undoubtedly cause them to lose the working class as well, leading to rural and industrial unrest.
 
At a press conference presenting the report, Kudrin -- who won accolades for steering Russia through the 2008 financial crisis -- said a recession in Russia is "possible and even likely," adding that there was a 50 percent chance that this would be "a destabilizing factor for political problems."
 
An economic downturn would, indeed, land the second half of a one-two punch against President Vladimir Putin and his ruling circle.
 
As I have blogged in the past, rising living standards in Russia over the past decade led to the creation of an embryonic middle class that once made up the bedrock of the regime's support. But once that class became secure in its wealth -- as was the case in South Korea, Indonesia, and elsewhere -- it began to seek political freedoms, causing it to lose patience with Putin's authoritarian rule.
 
Having lost the middle class, which has taken to the streets against him, Putin turned to the working class, which is now the backbone of the Kremlin's social base. A deep recession risks turning them against him as well.
 
"In connection with the problems in the countries of the eurozone, notably in Greece, the world economy can expect a new strong shock. In the meantime, in Moscow, they are busy with everything under the sun except preparations for a new wave of crisis," a May 25 editorial in Gazeta.ru opined.
 
"Of course, fears do not always come true, but if they do come true, it certainly does not have to be in full. But the atmosphere is heating up before our eyes. The flight of capital from Russia is speeding up. Oil has become cheaper," the editorial continued.

"The Russian budget, half of whose income is provided by selling energy, will encounter real difficulties yet this year if the oil price simply stays fixed at today's level. And if it so happens that it stays below $100 for quite a long time, it will simply become impossible to describe what is happening other than with the words 'economic crisis.'"
 
If the worst-case scenario does come to pass, the results could be nasty. The opposition to Putin is comprised as much of nationalists and radical leftists as it is of pro-Western liberals.

(Note to readers: Tune into "The Power Vertical Podcast" on June 1, where I will discuss this issue at length with my regular co-host Kirill Kobrin, managing editor of RFE/RL's Russian Service.)

-- Brian Whitmore

Tags: Russian economy,Russian opposition

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Comment Sorting
Comments
     
by: Eugenio from: Vienna
June 01, 2012 07:18
"Russia's Next Crisis", "Russia's current political turmoil" :-))))). Ah, the RFE/RL clowns are really desperate in trying to divert people's attention from the fact that their "wonderful" country is going towards a financial bankrupcy at home and (one more) military defeat abroad :-)). And yes, please do continue asking me for "proofs" that you, US-made Beavuses and Buttheads, are just a nation of useless inept bankrupt losers :-)).
In Response

by: M from: M
June 01, 2012 14:38
Is it all what you are able to say.
As your Marx said: you are on the history garbage tip, unfortunately comrade you didn't notice it, yet.
In Response

by: Eugenio from: Vienna
June 02, 2012 08:52
No, M, unfortunately for you, this is not all I am able to say. Just a little bit more data on the REAL CRISIS which is happening right here in the EU right now (and not the imaginary one in Russia):
(a) yesterday (Friday) the Central Bank of Spain (this country blessed by god to be a member of the EU) annonced that the capital flight from SPAIN during the month of APRIL only constituted more than € 66,000,000,000!
(b) and following this news - and demonstrating once again what a great system is that of free capitalist market economy - ALL the major stock exchange indicators in the "advanced" "industrial" "democracies" collapsed: the German DAX by 3,20 % in one day (and Germany, as we know, is the industrial motor of Europe), the US Dow by 2,22 % in one day, the French CAC 40 by 2,21 % in one day etc.
And while the roof is already falling on your heads, you continue talking about the "Russia's Next Crisis" :-)).
All this RFE/RL promoted discourse really reminds me of the stories that Joseph Goebbels was telling the Germans in January of 1945 about the "Wunderwaffe" with which the Deutsche Reich was going to destroy all of its adversaries in one night. And then - 6 months later - there was no Wunderwaffe, no Joseph Goebbels and no Deutsche Reich. There was only a bunch of ruins. That's what happened to those who did not want to face the reality back in Jan. 1945 and that's what will happen to you, guys, for this very same reason a couple of months from now.

by: Aibek
June 01, 2012 12:58
Rising living standards in the middle class also preceded the fall of the Soviet Union. However, Putin is unlikely to repeat Gorbachev's "mistake" of allowing greater freedoms. And despite what we read in the news, the numbers of people protesting still represent only a tiny percentage of the population.

Still, the continuing massive outflows of cash from Russia show that the moneyed elites agree with this article.
In Response

by: Jack from: US
June 01, 2012 14:57
money outflow from Russia is similar to money outflow from EU and from Middle East. With EU is heading toward collapse, with US-instigated wars in Middle East, money flee EU, Middle East for safe heaven in US. As EU is the largest trading partner of Russia, Russia is also affected, i.e. money flee Russia for US. Have you watched euro and ruble going down against dollar in recent months? US government makes troubles abroad so as to attract foreign buyers into US treasury bonds, which otherwise would have gone down the drain long time ago, with US economy collapsing as a result. So US government is instigating wars for a reason - to force foreign investors to pile money into US. That's how US is parasiting on world's financial system.
In Response

by: William from: Aragon
June 02, 2012 23:41
Certainly the price of oil is being manipulated in this manner, Jack. Have you noticed how the price of oil goes up due to "instability in the Middle East" when nothing has really changed, apart from the issue of a strongly-worded press release from the White House about Iran, Yemen or some other Middle Eastern country?

by: Dragomir from: Australia
June 01, 2012 14:49
Russia as undemocratic country should be prohibited to sale of oil,gas , minerals and any commodities because all of them by mistake were placed in to soil of undemocratic country.Full unrestricted exploration shall be given to western more democratic country for a 1oo years at least.Al Jazeera should be appointed to educate Russia in all aspects of democracy.I am hoping you do agree with me.By the way you will be free to set out price list . Hopefully once exploration is over Russia will be full
democracy to take care of environmental recovery.

by: Mark from: Victoria
June 01, 2012 16:46
What would happen if Russia's current political turmoil - largely in the minds of the handful of protesters, the perennially dissatisfied elite and their western supporters - were to be compounded by its being struck by a piece of deorbiting space junk roughly the same size and shape, which removed Russia from the map as efficiently as a giant surgeon might? Seriously; if we're going to play "what if?" based on nothing more than a temporary drop in oil prices, which are constantly fluctuating, why not go apocalyptic? Last August the spot oil price was $85.06. Did Russia collapse? Did Medvedev weakly beckon the liberal elite to take the leadership of the country from his failing hands? Was Kudrin - never so popular with the west when he was the actual Finance Minister as he apparently is now that he's a political dissident - carried through the streets on the shoulders of his cheering countrymen? Are we going to be treated to a flutter of seditionist excitement every time the world oil price hiccups?

What would happen to Russia if there were an economic crisis right now? Perhaps Kudrin's think tank found that the answers were not pretty, but you should have asked him how pretty the situation looked for countries that did not have a $500 Billion reserve fund to fall back on. And if the prospect causes a lot of sleepless nights in the Kremlin, what must it be causing in Washington, mortgaged to the hilt to China?

If there is an economic crisis, and there is an excellent chance there will be considering Western Europe is teetering on the brink of the abyss, development will slow or stop, and energy prices will fall steeply. Will they stay low for years? Well, what do you think? Does the west loathe Russia so deeply that it is prepared to undergo years of deprivation and economic contraction in order to bring it to heel or destroy it?

Better ask the voters.

by: Mike from: Prague
June 02, 2012 15:35
This is an interesting post. But I don't see the direct connection between the economic crisis (lower ruble and oil/gas demand) directly translates into a loss of support by the working classes. Unemployment is now at 5.8%, real wages are increasing 10% y/y. Increasing domestic demand can maintain the political support of the working class and can offset part of the headwinds of the European crisis. The only way Putin can lose the support of the working class is by a sharp increase in unemployment and inflation.

What the political opposition really needs at the moment is not the working class, but a set of credible charismatic leaders. But for that to even happen, we need to see greater signs of division among the Kremlin elite (resignation of politicians who then join the opposition). I don't see a way for the Kremlin to start censuring the Internet - they are way behind the curve in that - and so I agree that it is a matter of time until the 'power horizontal' begins to take hold.

The Power Vertical Feed

In this space, I will regularly comment on events in Russia, repost content and tweets I find interesting and informative, and shamelessly promote myself (and others, whose work I like). The traditional Power Vertical Blog remains for larger and more developed items. The Podcast, of course, will continue to appear every Friday. I hope you find the new Power Vertical Feed to be a useful resource and welcome your feedback. More

11:11

THERE IS NO RUSSIA WITHOUT PUTIN?

According to a report in the pro-Kremlin daily "Izvestia," deputy Kremlin chief of staff Vyacheslav Volodin told a meeting of the Valdai Discussion Club in Sochi that Western politicians "do not understand the essence of Russia."

"Volodin stated the key thesis about the current state of our country: As long as there is Putin there is Russia. If there is no Putin, there is no Russia," Konstantin Kostin, head of the Foundation for the Development of Civil Society, told "Izvestia."

11:01

MORNING NEWS ROUNDUP

From RFE/RL's News Desk:

MOSCOW AIRPORT MANAGERS RESIGNED, MORE SUSPECTS DETAINED OVER CRASH

Top managers at a Moscow airport have resigned and four more airport workers have been detained over a plane crash that killed the chief executive of French oil giant Total.

Christophe de Margerie and three French crew members died when a corporate jet collided with a snow-removal machine at Vnukovo Airport late on October 20.

The Investigative Committee said on October 23 that prosecutors had detained an air-traffic controller intern, her supervisor, the head of air-traffic controllers, and the chief of runway cleaning.

Meanwhile, the airport announced the resigntion of its director-general, Andrei Dyakov, and his deputy, Sergei Solntsev.

And a Moscow court ordered that the snowplough driver remain in custody until December 21.

The driver says that he has lost his bearings before the collision.

(Based on reporting by Reuters, AFP, Interfax, and TASS)

And these items from Reuters:

COURT POSTPONES RULING ON BASHNEFT SHARES

By Denis Pinchuk

MOSCOW, Oct 23 (Reuters) - A Russian court decided on Thursday to postpone to next week a hearing on a move to wrest control of an oil company from oligarch Vladimir Yevtushenkov, a case that has deepened investors' fears the Kremlin wants to reclaim prized assets.

Russian prosecutors filed the suit last month to regain state ownership of Bashneft, saying there had been alleged violations in the privatisation and subsequent sale of the oil producer to Russian oil-to-telecoms conglomerate Sistema in 2009.

On Thursday, the judge at the Moscow Arbitration Court ruled in favour of the prosecutors who had requested more time to prepare their case and said the next hearing would take place on Oct. 30.

Sistema's shares, which lost 70 percent after it reached a peak this year in July, traded down nearly 5 percent in early trading in Moscow. Bashneft's shares were down 1.3 percent on the day.

In September, a Moscow court ordered the seizure of Sistema's majority stake in Bashneft a day after a judge refused to release Yevtushenkov, who is under house arrest on suspicion of money laundering during the firm's acquisition.

The case centres on the privatisation of oil production and refining assets in the Russian republic of Bashkortostan in the Ural mountains in the early 2000s and Bashneft's subsequent sale to Sistema.

The Russian investigators say the privatisation and the sale was illegal.

Sistema, which directly owns almost 72 percent of Bashneft's voting rights and has a stake of 86.7 percent, including 12.6 percent which it owns through its subsidiary Sistema-Invest, has denied the allegations.

Yevtushenkov is ranked Russia's 15th richest man by U.S. magazine Forbes, with an estimated fortune of $9 billion.

Some analysts have said that state-controlled Rosneft , Russia's biggest oil producer run by an ally of President Vladimir Putin, was interested in buying Bashneft.

The company, Russia's sixth largest crude oil producer, extracted more than 16 million tonnes (320,000 barrels per day) of crude oil last year, increasing output by more than 4 percent - the best results among domestic majors after launching production at new deposits in the Arctic.

Its oil refining capacity stands at 24.1 million tonnes a year. (Reporting by Denis Pinchuk; writing by Katya Golubkova and Vladimir Soldatkin, editing by Elizabeth Piper and William Hardy)

NATO, SWEDISH FIGHTERS SCRAMBLE TO INTERCEPT RUSSIAN PLANE

BRUSSELS, Oct 22 (Reuters) - NATO and Swedish fighter jets were scrambled to intercept a Russian intelligence-gathering plane that briefly entered Estonian airspace on Tuesday, the alliance said on Wednesday.

The Estonian Foreign Ministry called the Russian ambassador to the ministry and gave him a protest note over the incursion, the Estonian defence forces said.

Fighters from Denmark as well as Portuguese F-16s from NATO's air policing mission in the Baltics took off after radar detected an unidentified aircraft flying close to NATO airspace in the Baltic Sea, NATO said.

The plane was identified as a Russian IL-20 intelligence-gathering aircraft that had taken off from Russia's Baltic enclave of Kaliningrad, heading towards Denmark.

The Russian aircraft was first intercepted by Danish F-16s and later, as it headed further north, by fighters from Sweden, which is not a NATO member.

The Russian aircraft turned south again, entering Estonian airspace for less than one minute, a NATO statement said.

Portuguese F-16s, which had been scrambled from their base in Lithuania, escorted the Russian plane away from NATO airspace.

Interceptions of Russian military aircraft by NATO planes over the Baltic region have increased since Moscow annexed Ukraine's Crimea region in March, but usually Russian planes only approach NATO airspace and do not enter it, a NATO source said.

At a time when tension between Russia and the West is running high over Ukraine, Swedish forces have been scouring the sea off Stockholm following reports of activity by foreign submarines or divers using an underwater vehicle. (Reporting by Adrian Croft in Brussels and David Mardiste in Tallinn; Editing by Tom Heneghan)

11:12 October 22, 2014

THE BEGINNING OF THE END OF RUSSIA'S 'GAS WEAPON'

In less than a week, on October 27, Lithuania is scheduled to open its first Liquified Natural Gas (LNG) import terminal at the port of Klaipeda. The terminal, which will begin receiving deliveries in early 2015, is a significant step toward changing the energy equation in Lithuania, the Baltic states, and ultimately in Europe as a whole.

Initially, Lithuania plans to buy enough LNG to cover about a quarter of its domestic needs. But once the terminal is operating at full capacity, and once Lithuania's pipelines to Latvia are upgraded, it will be able to supply 90 percent of the three Baltic states' natural gas demand.

Oh, and by the way, Lithuania's current supply contract with Gazprom expires at the end of next year.

And this is just one of the ways the gas game is changing. Poland is also building a LNG import terminal, which is scheduled to go online in mid-2015.

And as energy analyst  Wenyuan Qiu writes in "The Moscow Times" today, a steep rise in U.S. production has made it "functionally independent of offshore suppliers." As a result, "the closure of the U.S. LNG import market is forcing producers in the Middle East and Africa to look for customers elsewhere" leading to "downward pressure on prices" in Europe.

"Russia will remain an important European energy provider because its gas is relatively economic. But Russia's ability to leverage this resource as an instrument of foreign policy is diminishing," Qiu writes.

 

08:27 October 22, 2014

MORNING NEWS ROUNDUP

Some items from RFE/RL's News Desk:

RUSSIA-UKRAINE GAS DEAL REPORTEDLY CLOSER

European Energy Commissioner Guenther Oettinger has announced substantial progress was reached in October 21 talks between representatives of Ukraine and Russia on gas supplies, but a final deal has yet to be agreed.

A summit held in Milan October 17 had produced hopes for a breakthrough, after Ukraine's President Petro Poroshenko met Russian counterpart Vladimir Putin and said they had reached a preliminary agreement on a gas price until March 31.

Oettinger said as part of tentative deals, Ukraine planned to purchase some 4 billion cubic meters of gas from Russia before the end of this year.

Oettinger also said Ukraine would pay $1.4 billion of its debt to Russia for gas supplies already received before the end of October and another $1.6 billion by the end of this year.

The head of Russia's delegation to the talks, Energy Minister Aleksandr Novak, said the price of gas for Ukraine would be $385 per 1,000 cubic meters, much lower than the $485 that Russia's state-controlled Gazprom was demanding just weeks ago.

However, the price, which was first announced by Poroshenko following his meeting with Putin on October 17, is still higher than the average of some $350 that Gazprom charges EU companies

Novak said that price would be in force from October 2014 until late March 2015 -- provided Ukraine pays in advance.

However, Novak added the EU should take responsibility for guaranteeing Ukraine pay its $5.3-billion debt for gas to Russia before the end of 2014.

Kyiv has asked the EU for an additional loan of $2.6 billion, but a spokesman stressed on October 21 that the request was not made in connection with the ongoing gas talks.

The EU has so far offered Kyiv loans totalling more than $2 billion.

Russia cut off gas deliveries tro Ukraine in mid-June, citing the $5.3-billion debt. However, Gazprom has not halted supplies transiting Ukraine en route to EU member states.

But Novak again ruled out Gazprom's agreeing to let EU states re-export its gas to Ukraine.

Oettinger announced another meeting would be held in Brussels on October 29.

Separately, the Kremlin said Putin and Poroshenko discussed Russian gas supplies to Ukraine among other issues during a telephone conversation October 21.

It didn't provide further details.

(Based on reporting by Reuters, TASS, and Interfax)

PROSECUTORS TARGET EKHO MOSKVY

The independent Russian radio station "Ekho Moskvy" said it has been informed of an unscheduled inspection by the prosecutor's office.

The station's deputy chief editor Sergei Buntman said on October 21, "We received a document dated from yesterday (October 20) that said the main directorate of the Emergency Situation's Ministry" had requested the prosecutor's office to conduct an inspection of the radio station.

Buntman said according to the document, the inspection would start on October 22 and last for 20 working days.

"Taking into consideration days off, that means almost a month," Buntman said, and he added that the inspection should not affect the activities of the station.

Buntman said, "Of course questions arise about why this decision is taken so suddenly."

"Echo Moskvy" posted a copy of the document the radio station received that indicated the inspection was meant to determine if the station was in compliance with fire safety laws.

(Based on reporting by "Ekho Moskvy" and Interfax)

PUTIN, POROSHENKO DISCUSS CEASEFIRE AND GAS SUPPLIES

The Kremlin said the Russian and Ukrainian presidents stressed the importance of supporting the peace process in Ukraine and observing the ceasefire the country's south-east during a phone conversation on October 21.

President Vladimir Putin and Petro Poroshenko also discussed Russian gas supplies to Ukraine after a tentative agreement reached in Milan last week on the basic terms of future supplies, the statement said.

It didn't provide further details.

Russia raised the price it charges Kyiv for natural gas after Ukraine's pro-Russia President Viktor Yanukovych was ousted in February, then halted gas supplies to Ukraine in June when Kyiv failed to pay the higher price.

Some progress was reportedly made toward resolving the issue of Russian gas supplies to Ukraine during last week's talks in Milan.

Poroshenko said a preliminary agreement had been reached on a price of $385 per 1,000 cubic meters until the end of March -- $100 less than Russia had originally demanded.

(Based on reporting by Reuters, TASS, and kremlin.ru)

RUSSIAN INVESTIGATORS SAY 'CRIMINAL NEGLIGENCE' BEHIND TOTAL AIR CRASH

Russian investigators say the air crash that has killed the chief executive of French oil giant Total was caused “criminal negligence” by airport officials.

Christophe de Margerie and three French crew members died when his corporate jet collided with a snow-removal machine at Moscow's Vnukovo Airport late on October 20.

The Investigative Committee warned that several senior airport officials would be suspended, adding that investigators will assess the "actions and non-action" of management.

The snow plough driver has already been detained.

Investigators have said the man was drunk at the time of the accident, which his lawyer denied.

Total is one of the top foreign investors in Russia.

The Kremlin said President Vladimir Putin "highly esteemed" Margerie's business qualities and his "consistent devotion" to developing bilateral Russia-French relations.

(Based on reporting by AFP, Interfax, and TASS)

 

16:08 October 17, 2014

NEW POWER VERTICAL BLOG

I just posted a new piece on the Power Vertical blog: Putin's Class of 2014.

The iPhone-toting hipsters hanging out in their trendy downtown Moscow office are just the high-profile part of the Kremlin's new youth strategy.

Founded in November 2013, the youth group Set -- which means "Network" in Russian -- has organized patriotic fashion shows and film festivals, created an alphabet for schoolchildren that highlights the regime's accomplishments, and painted murals in seven cities on October 7 to mark Russian President Vladimir Putin's 62nd birthday....

But the rise of Set is just one side of the story. The other aspect of the Kremlin's youth strategy is stealthier -- and much more consequential.

Over the past 18 months, Putin has been quietly bringing a new cadre of officials to Moscow, reshaping the rank-and-file bureaucracy in his own image.

You can read it all here.

AND A NEW POWER VERTICAL PODCAST COMING SOON

We're in post-production for the new Power Vertical Podcast: Ukraine's Loyal Russians

A country divided between a Ukrainian-speaking west and a Russian-speaking east. An irreconcilable schism forged in history and set in stone. Lviv vs. Luhansk; Orange vs. Blue.

It's long been a truism that Ukraine was hopelessly split. It's a truism repeated endlessly by the Kremlin's propaganda machine -- and one used by Vladimir Putin to justify his Novorossiya project.

But it's a truism that the majority of Ukraine's ethnic Russians -- in cities like Odesa and Mariupol in the south to Dnipropetrovsk and Zaporizhia in the east to Kharkiv in the north  -- are proving false. Most of Ukraine's ethnic Russians, it turns out, are loyal Ukrainian citizens.

Joining me are Andreas Umland, a professor of Russian and Ukrainian history at Kyiv Mohyla University and Natalya Churikova, Senior Editor of RFE/RL's Ukrainian Service. It's in post-production now and will be up soon.

 

13:25 October 17, 2014

AFTERNOON NEWS ROUNDUP

Some items from RFE/RL's News Desk:

RUSSIA-WEST RIFT PERSIST AFTER DIFFICULT UKRAINE CRISIS TALKS

By RFE/RL

Italy's prime minister said he was "really positive" about the prospects for a solution to the Ukraine conflict after a meeting attended by Russian President Vladimir Putin, Ukrainian President Petro Poroshenko and European leaders, but the Kremlin suggested deep rifts remained after the "difficult" talks and accused Western officials of inflexibility.

"In general, I am really positive after this meeting," Italian Prime Minister Matteo Renzi said after the talks over breakfast during a Europe-Asia summit that was overshadowed by the crisis in Ukraine, where deadly fighting persists in the east despite a cease-fire between government forces and pro-Russian separatists.

Putin, in the spotlight and under pressure from the West to do more to bring peace to Ukraine, said the meeting -- attended by Putin and Poroshenko as well as German Chancellor Angela Merkel, French President Francois Hollande, British Prime Minister David Cameron, Italian Prime Minister Matteo Renzi, and outgoing EU leaders Herman Van Rompuy and Jose Manuel Barroso -- was "good, positive".

But his spokesman, Dmitry Peskov, gave a grimmer account.

"The talks are indeed difficult, full of misunderstandings, disagreements, but they are nevertheless ongoing, an exchange of opinion is in progress," Peskov told reporters.

He said some participants displayed "a complete lack of desire to take an objective approach" to the Ukraine crisis, which Russia blames on the European Union, the United States, and the pro-Western government that gained power in Ukraine after the ouster of a president sympathetic to Russia, Viktor Yanukovych, In February.

Kyiv, NATO, and Western governments say Russia has supported the rebels with troops, weaponry, and propaganda after illegally annexing the Black Sea peninsula from Ukraine in March.

The conflict in eastern Ukraine has killed more than 3,660 combatants and civilians since April and driven Moscow's ties with the West to post-Cold War lows, prompting punitive sanctions against Moscow and a Russian ban on many foods from the EU, its biggest trading partner for years.

The breakfast-table talks came hours after lengthy Putin-Merkel meeting that stretched past midnight and failed to resolve what the Kremlin said were "serious differences of opinion about the genesis of the internal Ukrainian conflict as well as about the causes of what is happening there now."

Western leaders have rejected Russia's denials of involvement and said Moscow must see to it that a cease-fire and steps toward peace agreed on September 5 in Minsk, the capital of Belarus, are implemented.

"It is obviously above all Russia's task to make clear that the Minsk plan is adhered to," Merkel told reporters on October 16. "Unfortunately, there are still a lot of shortcomings but it will be important to look for a dialogue here."

British Prime Minister David Cameron said Putin assured the other leaders at the breakfast that Russia does not want a divided Ukraine or a frozen crisis.

Kremlin critics say Russia has supported the cease-fire and plans for peace because the September 5 agreement followed rebel gains that left the separatists in control over large portions of Ukraine's Donetsk and Luhansk regions, giving Moscow a lever to influence its France-sized neighbor and keep it destabilized - and out of NATO - for years to come.

Putin and Poroshenko were to meet with Merkel and Hollande later on October 17.

Putin, who basked in attention at a military parade in mostly Slavic, Orthodox Christian Serbia on October 16, set the stage for tense talks in Milan by warning in Belgrade that a dispute with Kyiv over natural gas could jeopardize Russian supplies to Europe via transit nation Ukraine this winter.

He said Europe faces "major transit risks" to gas supplies from Russia.

Blaming Kyiv in advance for any possible cuts in supplies to Europe, Putin said that if Ukraine siphons gas from transit pipelines to the European Union, Russia will reduce supplies in the amount of the "stolen" gas.

Russia raised the price it charges Kyiv for natural gas after Yanukovych was ousted by street protests he had touched off last November by scrapping plans for a deal tightening ties with the EU and turning toward Russia instead.

In June, Russia halted gas supplies meant for domestic consumption in Ukraine when Kyiv failed to pay the higher price.

Russia is the EU's biggest external gas supplier, providing about one-third of the gas consumed there, and previous price disputes between Moscow and Kyiv have led to supply cuts that have chilled Europeans in wintertime.

Some government officials said the Western leaders would ask Putin to explain the threat of gas supply cuts.

Merkel and Poroshenko held talks earlier on October 16, and Poroshenko said he received "a great demonstration of support for Ukraine" from the German leader.

Kremlin spokesman Dmitry Peskov said Putin also met with former Italian Premier Silvio Berlusconi, whom he referred to as Putin's "old friend."

Dutch Prime Minister Mark Rutte said he spoke briefly to Putin and asked him for "maximum cooperation" over the downing of a Malaysian Airlines passenger jet in the conflict zone in eastern Ukraine in July.

More than half of the 298 people killed were Dutch citizens, and many in the West suspect the plane was shot down by the separatists with a missile system provided by Russia.

Hundreds of people have been killed since the cease-fire, with fierce fighting focusing on the devastated Donetsk international airport and shelling reported in the city of Donetsk and elsewhere almost daily.

Ukrainian military officials said three soldiers were killed and nine wounded on October 16.

NATO said it has not yet detected "significant" movements of Russian troops in a region near the border with Ukraine back to their home bases, as the Kremlin said Putin ordered last week.

A NATO spokesperson said "there is still a large and capable force sitting on the border of Ukraine, and heavy equipment still has to be pulled back [from the border]."

(With reporting by Reuters, AP, TASS, Interfax, and AFP)

GEORGIAN PM SAYS NO PROGRESS NORMALIZING RELATIONS WITH MOSCOW

Georgian Prime Minister Irakly Garibashvili says attempts by Tbilisi to normalize political relations with Russia have thus far been unsuccessful.

Garibashvili said in Tbilisi on October 16 that the Georgian government had done "all it could" to improve bilateral relations with Moscow has only achieved progress in the economic sector.

The premier's Georgian Dream party took power two years ago pledging to engage with Moscow.

Garibashvili made his comments one day after Russia announced it would sign an "alliance and integration" treaty with the breakaway Georgian region of Abkhazia.

The treaty would create a "common defense infrastructure" between Abkhazia and Russia while forming joint law-enforcement structures and a more integrated economic space.

Georgian President Giorgi Margvelashvili issued an "emergency statement" on the treaty on October 15.

Moscow recognized Abkhazia as an independent state after a brief war between Russia and Georgia in 2008.

(Based on reporting by Interfax, AFP, and TASS)

RUSSIA DETAINS TWO JOURNALISTS OVER WORKSHOP

Russian officials temporarily detained and then banned two American journalists from conducting an investigative-journalism workshop in St. Petersburg.

The men were found by a court on October 16 of violating Russian visa regulations and released after several hours.

Randy Covington, a professor at the University of South Carolina, and Joe Bergantino of the New England Center for Investigative Reporting were detained by immigration authorities while conducting the first of a two-day workshop for 14 Russian journalists.

St. Petersburg's branch of the Federal Migration Service said the men's activities "did not correspond" to the purpose of their trip to Russia.

Officials said they could no longer teach the workshop but were free to leave Russia as scheduled.

The New England Center for Investigative Journalism said the men had tourist visas and had already held a workshop in Moscow.

(Based on reporting by AP and "The Boston Globe")

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The Power Vertical is a blog written especially for Russia wonks and obsessive Kremlin watchers by Brian Whitmore. It covers emerging and developing trends in Russian politics, shining a spotlight on the high-stakes power struggles, machinations, and clashing interests that shape Kremlin policy today. Check out The Power Vertical Facebook page or