Russia’s missile arsenal

Hello! This week our top story is the rain of rockets and drones Russia has been using to strike Ukrainian electricity infrastructure and what the Kremlin is trying to achieve. We also look at how the Kremlin did not get its way when it came to the buyer of top internet marketplace Avito and Putin’s plan for a new “gas hub” in Turkey.

Can the Russian Armed Forces destroy Ukraine’s electricity infrastructure?

After the explosion on the bridge linking Russia and annexed-Crimea and the appointment of General Sergei Surovikin as commander of the Russian forces in Ukraine, Russia’s Armed Forces last week resumed large-scale missile strikes on Ukraine. The main aim was to destroy the country’s energy infrastructure. However, over a week of bombing showed that this goal will not be easy for Russia’s military to achieve with its current resources.

What’s going on?

Russian rockets targeted several Ukrainian cities, including Kyiv, throughout last week, inflicting serious damage on Ukraine’s energy infrastructure. And they continued the barrage of missiles Monday with strikes on targets all over the country. Civilian deaths have been reported since the beginning of this military escalation (the official figures on Oct. 10 alone suggested that 23 people were killed and injured).

Disabling Ukraine’s energy grid was always seen as an option for Moscow if it wanted to step up the pressure. Another option was to hit bridges and logistics centers to disrupt the flow of Western military aid, but Moscow has yet to attempt this. The recent missile strikes are clearly intended to sap Ukraine’s will to fight by causing a winter energy crisis.

The most significant results came in the first couple of days, when the Russian army did not spare its missiles. In two days — Oct. 10 and Oct. 11 — Russian strikes damaged 30 percent of Ukraine’s power infrastructure, Energy Minister German Galushchenko told CNN. As a result, more than 3,500 settlements were left without electricity. On those days, all of Ukraine’s major cities, including Kyiv, experienced rolling black-outs and the government urged people not to use energy-intensive appliances in the evenings.

The Ukrainian military responded by attacking Russian targets in border regions within range of its artillery, but they had less impact. The biggest attack was on Belgorod, where a missile fragment hit an apartment block Thursday and a nearby munitions dump exploded. On Friday, an electricity sub-station caught fire after a second raid.

Could Russia turn out the lights in Ukraine?

Russia is “launching attacks that inflict maximum damage to our energy system,” Alexander Kharchenko, an advisor to Ukraine’s Energy Ministry, told Ukrainian Forbes last week. He said the main aim of the strikes was to “break the power grid into disconnected pieces” and pointed out that it is not power plants that are being targeted — more the key substations that connect the grid and enable power to be diverted to where it is needed. It’s a sensible tactic because transformers are easier to destroy with a single strike and they are so numerous that air defenses cannot hope to protect them all, according to Kharchenko.

However, for this tactic to succeed, it’s necessary to maintain regular attacks over a long period of time. This makes urgent repairs impossible and prevents back-up systems from being implemented. It seems that, in the first week of bombing, Russian forces failed to achieve this. Figures from the Ukrainian general staff suggest that, on Oct. 10, Russia launched 61 missiles at Ukrainian territory; on Oct. 11 it launched 29; three on Oct. 12; two on Oct. 13; and three more on Oct. 14. While Russian President Vladimir Putin said Friday that there was “no longer any need” for further such strikes on Ukraine, reports suggested that, in addition to Kyiv, missiles were launched Monday at targets in Chernihiv, Zhytomyr, Donetsk, Sumy, Dnipro, Mykolaiv, Odesa, and Khmelnytskyi regions.

Western analysts agree that Russia does not have the capacity to maintain attacks on Ukraine at this sort of level for very long. Russia’s forces have limited stocks of precision weapons and cruise missiles. An indirect piece of evidence for this is the reliance on unsuitable weapons: on both Oct. 10 and Oct. 11, Ukrainian cities were attacked with S-300 anti-aircraft missiles. These can be used to hit ground targets, but they are relatively inaccurate. Ian Williams, an expert at the Washington-based Center for Strategic and International Studies, told The Associated Press that using S-300s at ground targets “is like you just fired a rocket into the sky, after which you can only watch and see where it lands.”

Experts admit that there is no reliable data about the number of cruise missiles and drones owned by the Russian military, nor about the current rate of their production. At the start of the war, Ukrainian Forbes reported that Russia had about 7,000 short and medium-range missiles. Reuters calculated that by mid-August Russia had used more than half its resources (3,650 missiles at a rate of 22 per day). We should be cautious about relying on these figures, but the real state of affairs is unlikely to differ wildly.

Meanwhile, Russia is trying to replenish its stocks from Iran. Iranian drones were used to attack Kyiv on Monday and, the day before, The Washington Post cited U.S. military sources suggesting Tehran might sell Moscow Fateh-110 and Zolfaghar surface-to-surface missiles.

Why the world should care

Even assuming Russia’s strikes on Ukraine’s energy grid are effective and Iran’s rockets can restock the Russian arsenal, this will not have an immediate effect. Moscow sees missile strikes as a way to drag Kyiv to the negotiating table, not change the situation on the battlefield. But talks will not happen in the foreseeable future. In the coming months, both sides will attempt to get in the best position possible to sit out the winter.

Kremlin-backed VK fails to buy Russia’s most wanted internet company

Despite support from the Kremlin, internet giant VK was unable to purchase Russia’s biggest ad service, Avito. The service’s South African owner, internet group Naspers, flatly refused to sell to such a toxic buyer. As a result, a rival bidder acquired Avito – Russian businessman Ivan Tavrin, who is close to billionaire Alisher Usmanov. He bought a company valued at $8 billion before the war for a mere $2 billion. However, that is twice what VK was offering.

• Late last week, The Bell was the first to report on a major transaction on the Russian internet market: Ivan Tavrin’s Kismet Capital Group reached an agreement with Naspers to purchase 100% of its shares in Avito. Within a few hours, Prosus, the Dutch subsidiary that operated Avito, confirmed the deal.
• Avito has been up for grabs since Naspers officially put the company up for sale in the spring. Among the suitors were billionaire Vladimir Potanin, who aggressively hoovered up cut-price shares after the war started. But the frontrunner to buy Avito was VK, Russia’s biggest internet company. Since the end of last year, VK has been owned by Gazprom and Yuri Kovalchuk, a friend of Putin’s. Since the deal, VK has been led by Vladimir Kiriyenko, son of top Kremlin official Sergei Kiriyenko.
• Avito is the market leader in Russian classified ads and one of the country’s most profitable internet companies. However, VK, which owns Russia’s biggest social network, VKontakte, wanted Avito as a source of traffic, market sources told The Bell. Vladimir Kiriyenko has been given an order to halt the decline in VK’s audience (last month, Avito had 92 million active users, almost the same as VK).
• There were more than a dozen potential buyers for Avito, but almost all of them backed out over the summer. Two sources told The Bell that the Kremlin was active in the deal behind the scenes. “We were led to believe that there was no merit in bidding for Avito because it was already sold to the right candidate, that is to say VK,” one of them said. Shortly after the tender, Duma deputy Anton Gorelkin, who previously helped establish state control over internet company Yandex, proposed a ban on foreign companies owning online classified ads services. The market interpreted this as a direct warning that Avito’s sellers should favor VK.
• Naspers, though, was categorically opposed to such a deal, six different sources told The Bell. “They took the position that they would not sell to VK even on pain of death,” said one of them. And it worked. “They are from a friendly country. We gave them a chance to choose a buyer," a government source told The Bell, referring to a government list of “unfriendly countries.” South Africa is not on that list.
• As a result, Naspers not only got its preferred buyer, but also a good price. Tavrin paid 151 billion rubles (just over $2 billion) for the company, which is twice what sources claim VK was going to offer. Even so, that’s far less than the pre-war valuation of the company, which in 2019 was estimated to be worth $3.85 billion and, in early 2022, was placed in the $6.5-8 billion bracket by analysts.
• Tavrin made his fortune in the early 2000s by buying regional TV channels and flipping them to market leaders. And, in 2009, he joined forces with Usmanov in the TV business. Their biggest joint project was the purchase of STS, one of Russia’s leading channels. It was later sold to Kovalchuk’s National Media Group.
• In the 2010s, Tavrin was head of one of Usmanov’s biggest operations, cell phone company MegaFon. At the same time, he helped the billionaire in delicate transactions. In 2014, it was Tavrin who bought 12% of VKontakte from founder Pavel Durov during a corporate battle over the social network. Within a couple of months, those shares were resold to Usmanov’s Mail.Ru Group.
• Unsurprisingly, many suspect that Tavrin had purchased Avito in order to sell it on to VK. However, this seems not to be the case. Two sources told The Bell that the deal includes a two-year lock up period when Avito cannot be passed to a third party. The announcement from Prosus is light on detail, but states that the sale includes “transaction protection mechanisms for the seller.” Tavrin told The Bell that he didn’t buy Avito to sell it on. Instead, he wants to see it as a public company.

Why the world should care

The story of a stubborn Naspers ultimately getting its own way proves once again that, despite the war and the collapse of relations with the West, the Kremlin does not want to quarrel with foreign companies. Putin is clearly assuming that the cynicism of big Western corporations will come to his aid and foreign companies will eventually return to Russia.

Putin offers Europe a new gas deal

Despite the sabotage of the Nord Stream pipelines and Europe’s determination to wean itself off Russian fossil fuels, Putin is still counting on a “new gas world.” Last week, he set out his plan: apparently, the European Union should either just launch the remaining Nord Stream 2, or switch gas supplies to a Black Sea route via the TurkStream pipeline.

• “We could replace Nord Stream’s lost volumes of transit along the Baltic Sea bed via the Black Sea region, thus making the main supply route for our natural gas to Europe via Turkey. We could make Turkey into Europe’s largest gas hub, if our partners are interested in this,” Putin said at Russian Energy Week in Moscow.
• The EU already gets gas from TurkStream. However, at 14 billion cubic meters a year, TurkStream has only half the volume of any of the Nord Stream lines. There is also Blue Stream, with a further 16 billion cubic meters, but that is almost entirely used to supply Turkey.
• At the same forum, Gazprom head Alexei Miller said his company was ready to increase capacity and build a new gas hub on the border between Turkey and the EU. Turkey’s Energy Minister said that it was the first he had heard of the idea, but admitted that “taking into account the existing cooperation between our countries,” laying new pipelines was possible. On Thursday, Putin discussed a gas hub with his Turkish counterpart Recep Erdogan.
• The proposed TurkStream 2 is an ideological replacement for Nord Stream 2. While it is not as direct, it offers access to the same European market via a “friendly” nation. However, it may face the same fate because the EU has a principled opposition to buying Russian gas. “Regardless of any sabotage on gas pipelines, Russia has shown itself to be an unreliable energy partner,” German government spokeswoman Christiane Hoffmann said last week. The EU has already reduced its reliance on Russian gas from 40% of total imports to under 10%.

Why the world should care

Putin is making every effort to preserve Gazprom’s place in the lucrative European market, and wants to persuade the EU to negotiate with Russia and lift some sanctions. He again highlighted last week that Europe's switch to spot prices for gas had already cost the continent €300 billion ($292 billion). Gazprom chief Alexei Miller added that it would take more than a year to repair and relaunch the Nord Stream pipelines. Intense cold in Europe this winter could end up freezing “entire cities, entire lands,” Miller claimed.