US House Speaker Nancy Pelosi's visit to Taiwan leads to a deterioration in US-China relations. But any direct military clash between China and the United States is unlikely due to the parties' deep financial and economic interdependence. But China may increase its involvement in hybrid forms of confrontation with the US. In particular, an escalation of Russian-Western relations and, accordingly, a war in Ukraine is likely to have more active informal participation of China in these events. In connection with the aggravation of the conflict with the West, the ties between China and Russia will be strengthened. For Ukraine, the competition in Taiwan is mainly unprofitable since the West will switch part of the flow of weapons to Taiwan, and Ukraine may lose part of its support.
Turkey is creating an international precedent for dealing with the Russian Federation and pursuing its national interests. Turkey not only did not follow the path of a collective sanctions policy but also defiantly maintains relations with Moscow - it is turning into a trade hub between the West and the Russian Federation, the primary mediator in negotiations. They are concerned that Turkey could become one of Russia's leading partners in circumventing sanctions in Ukraine.
After the signing of the "food deal,” the export of grain from Ukrainian ports continues to work; in particular, the process of inspecting ships has been launched. The conclusion and functioning of the food deal demonstrate an essential precedent that, if there is an international consensus, the parties to the conflict (Western countries, Ukraine, and the Russian Federation) can negotiate. Therefore, proposals are beginning to sound that it is possible to agree on other issues concerning the economy (export of metal ore, chemical industry products, unblocking imports, and so on) and peace negotiations.
For a week at the front in the Donetsk region, Russian troops were on the offensive in the area of the cities. Donetsk, Horlivka, Seversk, in the direction of the city of Bakhmut, the town of Avdeevka, the city of Maryinka, They went to the outskirts of the town of Seversk and the city of Bakhmut, the municipality of Mariinka, and the town of Soledar; completely capture settlement of Pisky has not yet succeeded.
At the same time, from the information and political point of view of the Russian Federation, the offensive in the area of the city of Avdiivka, the town of Maryinka, and the settlement Pisky is an attempt to stop the ongoing shelling of the city of Donetsk. And from a military point of view, this is an attempt to maximally tie up the Ukrainian armed forces in the region of Donetsk.
From the side of the captured city of Izyum, the Russian Federation tried to resume the offensive against the town of Sloviansk and also carried out a local offensive in the north of the Kherson region.
The Armed Forces of Ukraine counterattacked in the Kherson direction and advanced in the direction of the city of Izyum (they liberated several small settlements).
Ukraine and Russia are preparing to start a new military phase in the country’s south. Russia pulled together a 25,000th strike force to the south of Ukraine. It is assumed that Russia may be preparing an offensive to encircle the city of Mykolaiv or capture the city of Kryvyi Rih. However, there is still a risk of an attack on the city of Zaporizhzhia or in the rear of the Donbas grouping of the Armed Forces of Ukraine.
The Ukrainian side is making every effort to ensure that the situation in the occupied territories is unstable and does not allow the so-called. "referendum" in the occupied territories. In particular, they continue to strike with Western missile systems on communications and weapons depots of the RF Armed Forces in the occupied south and the Donetsk region.
For their part, the Russian and occupation "authorities" in the occupied territories are accelerating preparations for the so-called. "referendum" on joining the Russian Federation. Voting can partially take place online. The Russian Federation may also introduce voting "from home,” which will last for a week. Also, the Russian leadership is preparing public opinion for the adoption of the results of the so-called. "referendum" through the publication of the results of polls in which the overwhelming majority of the population is allegedly in favor of joining the Russian Federation. In general, the situation is also used by the Russian Federation as an instrument of pressure on the Ukrainian leadership to resume negotiations and accept Russian peace conditions.
A paradoxical situation has developed at the Zaporizhzhia NPP when Russia controls the plant, but its Ukrainian personnel continues to manage the facility. Visit IAEA Zaporizhzhya NPP Ukraine considers the legitimization of the occupiers. According to the Ukrainian side, the IAEA and the UN should strongly demand that Russia withdraw from the nuclear power plant and transfer it under the control of a special commission. It is possible that the Russian Federation can also use the shelling of the WNAE as a pretext for a new round of military escalation - strikes against a government institution in Kyiv or nuclear blackmail. Also, the confrontation around the Zaporizhzhya NPP is connected with the discussion regarding the declaration of the Russian Federation as a "country-sponsor of terrorism."
The Cabinet of Ministers accelerates the process of preparation for the heating season. Due to the war with Russia, gas use has been reduced by 40%. Ukraine should have enough energy reserves to pass the heating season. If the primary power plants (thermal power plants, hydroelectric power plants, pumped storage power plants, and nuclear power plants) are not destroyed due to hostilities in the country, then. But a humanitarian catastrophe may also await if the country's infrastructure is destroyed in winter.
In July, there was a reduction in the state budget deficit, but the government increased spending by UAH 270.2 billion. As a result, Ukraine needs to receive an additional $7.3 billion by the end of the year. In general, Ukraine will need from 3 to 4.5 billion dollars a month from international donors.
In the Slobozhansky direction: Kharkiv continued to be shelled. The Armed Forces of the Russian Federation were attacking the village of Udy. In the south - to the village of Gusarivka from the village side of Bayrak. In the Izyum direction, the Armed Forces of the Russian Federation launched an offensive in the area of Bogorodichny and the settlement of Dolina towards the city of Sloviansk. AFU carried out a local counterattack and released the settlement of Mazanovka.
In the Donbas: the fighting took place near the city of Seversk, in the area settlement Verkhnekamensky. The RF Armed Forces launched an offensive in the areas of the town of Soledar and the city of Bakhmut. There were battles in the area of settlement Zaitsevo, settlement Vershyny, settlement Kodemy, and settlement Yakovlevka. In the Avdeevka direction, the Armed Forces of the Russian Federation tried to move forward with settlement Krasnogorovka, settlement Avdeevka, and settlement Pisky. In West Donetsk, the Armed Forces of Ukraine repelled the attack in the direction of Maryinka. Russian Armed Forces stormed settlement Shevchenko near the city of Pokrovsk. South of the settlement of Pisky, there was an attack from the territory of Lozovyi to the region of Nevelske. Full capture settlement Pisky not confirmed.
In the South direction: In the Kherson region, the troops of the Russian Federation attempted an offensive in the direction of the settlement of Lozove. The city of Mykolaiv was subjected to heavy shelling.
Black Sea-Azov direction: no significant changes. The Coast of the Odessa region was subjected to regular Russian rocket and artillery attacks.
Ukrainian forces increasingly focus their strikes on bridges, ammunition depots, and railroad tracks in the southern regions. The targets included a strategically important railway line to influence Russia's ability to replenish logistics resources.
Explosions thundered at the military airfield in Novofedorovka in the Saki region of the annexed Crimea. Russian planes flew from this air base to the Zaporizhzhia, Mykolaiv, and Kherson regions. The causes of a series of powerful explosions are still not fully understood. The Ministry of Defense of the Russian Federation claims that "there was no fire impact" - that is, shelling - was not, and the detonation occurred due to a violation of safety regulations. More than 200 km from Novofedorovka in Crimea to the nearest positions of the Armed Forces of Ukraine in the Kherson region. The Ukrainian authorities did not officially take responsibility for the strike but only joked about the dangers of smoking in public places. Deliveries of missiles of the corresponding range (up to 300 km) from Western countries were not publicly reported. But there is a high probability that the attack on the airfield in Novofedorovka was still delivered precisely from the side of Ukraine.
At the same time, the reaction of the Russian Federation, which writes off everything as a violation of fire safety rules, can be explained. In particular, the Russian leadership does not want to provoke a general panic on the peninsula and does not want to disrupt the holiday season. It is also essential for the Russian Federation not to drive oneself into a "blind corner" regarding the answer. Since if the territory of Crimea, which the Russian Federation considers its own, is already being attacked by Ukraine, then an appropriate response is also needed. At a minimum, to save face in the eyes of their society, the Russian leadership needs to deliver a “ strike at the decision-making center.”
On August 7, the Russian Federation used Kh-47M Kinzhal air-launched hypersonic missiles at military facilities in the Vinnytsia region. Since the beginning of the war, only a few combat uses of missiles of this type have been recorded, which the Russian Federation is trying to use on critical targets. The properties of the Kinzhal rocket do not allow Ukraine’s existing air defense systems to detect and destroy it effectively.
The situation in the occupied regions
The Russian and occupying "authorities" continue preparing the occupied territories of Zaporizhzhia, Kherson, and Kharkiv regions for their inclusion in the Russian Federation. The President of Ukraine, V. Zelensky, said that if Russia holds a so-called. "referendum,” it will close any possibility of negotiations with Ukraine.
Even though the date of the event is still uncertain, the so-called. "referendum" can already take place in the first half of September in all the occupied territories.
The Russian-appointed "head of administration" of the Zaporizhzhia region, E. Balitsky, signed an order to hold a "referendum" on the entry of the occupied territory into the Russian Federation. Active preparations for the "referendum" are also observed in the Kherson region. A search for employees, premises and brigades of propagandists is being formed. Houses and apartments located within a radius of one kilometer from the venues of the "referendum" are being actively checked. "Authorities" began to distribute 20,000 rubles to pensioners. Under this pretext, personal data is collected from the population. Specialists of various profiles are being brought in from Russia. In particular, 100 doctors are expected to arrive. The Russian Federation also publishes the results of polls, which allegedly indicate that in the Zaporizhzhia region, residents support joining Russia. Results are shown from 63% in June to 84% in August. It is difficult to trust the results of such polls. Still, in this way, the Russian Federation is preparing public opinion to accept the results of the so-called. "referendum.”
Voting can partially take place online. The Russian Federation may also introduce voting "from home,” which will last for a week. When Russian soldiers will go from apartment to house and conduct a “survey.” By such actions, the Russian Federation will expand the possibilities for intimidating residents and make it impossible for any independent control over the vote.
Such a “referendum” format will additionally complicate the activities of the Ukrainian special services.
Despite strengthening the police regime, the Ukrainian special services continue to attack the pro-Russian leaders of the occupied territories effectively. They have already made several successful assassination attempts on them. In particular, Vitaliy Gura, the "deputy head of the administration" of Nova Kakhovka, was killed in the Kherson region. He was shot in the yard of his own house. Also appointed by the Russian Federation as "head of administration" of the Kherson region Vladimir Saldo was in serious condition and transported to Moscow for treatment. Doctors suspect poisoning. He was put into a medically induced coma and connected to a ventilator.
The situation at the Zaporizhzhia nuclear power plant, which the invaders captured, got out of control. Director General of the International Atomic Energy Agency (IAEA) Rafael Grossi called on Ukraine and Russia to allow experts to visit nuclear power plants as soon as possible to stabilize the situation and avoid a nuclear accident. There is a "paradoxical situation" where Russia controls the station, but its Ukrainian personnel continues to manage atomic operations.
Russia is in favor of the IAEA specialists visiting the station. In particular, Mikhail Ulyanov, permanent representative of the Russian Federation to international organizations in Vienna, also says that Russia is ready to assist the IAEA leadership in organizing a visit to the Zaporizhzhia NPP.
The Ukrainian side refused R. Grossi a visit to the station - since it would be possible to visit the station only after it returned under the control of Ukraine. The Ukrainian side considers any other visit to the Zaporizhzhia NPP to legitimize the occupiers. According to the Ukrainian side, the IAEA and the UN should strongly demand that Russia withdraw from the nuclear power plant and transfer it under the control of a special commission.
Shelling in the area of the Zaporizhzhya nuclear power plant is becoming more frequent, in which Ukraine and the Russian Federation blame each other. The Insider reported that Russian troops deployed their weapons on the territory of the Zaporizhzhia nuclear power plant. It is said that about 500 Russian soldiers and military equipment are on the part of the station, and Russian troops mine the area around it.
It is possible that the Russian Federation can also use the shelling of the WNAE as a pretext for a new round of military escalation - strikes against a government institution in Kyiv or nuclear blackmail.
The internal situation in Ukraine
The state budget deficit in July decreased by about 30%, and the total state budget expenditures amounted to about UAH 170 billion.
Taxes and customs, other revenues amounted to 89.1 billion
External assistance - UAH 80.4 billion of international aid (grants) and 0.1 billion of international loans
NBU -30 billion UAH
Government bonds −22.4 billion UAH
That is, the state budget was replenished by UAH 221.9 billion. For July. Of these, about UAH 10 billion of unrecovered VAT, the debt of ministries, especially the Ministry of Defense. Military spending is over UAH 130 billion. Per month. Regarding external assistance to Ukraine, it cannot be allocated for military expenditures. Therefore, having enough income in July, the NBU issues hryvnia for another UAH 30 billion.
In the future, the government of Ukraine plans to increase budget spending by UAH 270.2 billion. ($7.3 billion).
The main expenses will go to military needs:
UAH 145.3 billion for wages
• GUR -2.2 billion UAH.
• SBU -2.4 billion UAH.
• Department of State Protection - UAH 197 million.
• foreign intelligence service - UAH 139 million.
• State Special Communications Service - UAH 425 million.
• It is planned to increase the “Reserve Fund” of the Ministry of Finance by UAH 715 mln.
Thus, the total expenditures of the 2022 Budget will increase to UAH 2,633 billion. 75% (or +1,136 billion) more than planned before the war.
Additional borrowing will act as a source of increased costs.
In general, the expenditures of the Ukrainian budget are now in the range of UAH 250-170 billion, at least UAH 130 billion. Of which is military spending, covered only by domestic revenues. And the necessary assistance from international donors to Ukraine could be from 1.5 to 3 billion dollars a month. But given the increase in state budget spending, Ukraine needs to receive an additional $7.3 billion by the end of the year. Taking this into account, Ukraine will need from 3 to 4.5 billion dollars annually from international donors. Earlier it was stated that Ukraine needs 5-9 billion dollars a month.
In July, Ukraine expects about 6 billion euros from Western partners, which is necessary to cover the state budget deficit.
The European Commission has developed a new project of the already promised financial assistance for 8 billion euros: 5 billion euros will be given as loans, 3 billion euros as non-repayable grants. President Volodymyr Zelensky called the EU's delay of 8 billion euros in aid to Ukraine a "crime or mistake.” Germany, blocking EU financial assistance to Ukraine, is trying to reduce its share of the loan, as it previously provided Ukraine with non-repayable grants. Berlin argued that the grants were better suited to help Kyiv, which is already "deeply in debt,” and recalled its grant of 1 billion euros.
The European Commission aims to get approval from the European Parliament and EU countries in September so that payments can begin in October.
Ukraine and the World Bank also signed an agreement to provide a grant for $4.5 billion. The United States allocated the funds.
The Cabinet of Ministers accelerates the process of preparation for the heating season.
According to the government, the heating season in Ukraine will traditionally start after October 15, subject to weather conditions. The government has decided not to raise heat tariffs. Gas for the population will be supplied for UAH 7,420 per thousand cubic meters. Due to the war with Russia, gas use has been reduced by 40%. In general, gas reserves with a decrease in consumption will be enough for Ukraine for the autumn-winter period. And if, as a result of hostilities in the country, the central power plants (thermal power plants, hydroelectric power plants, pumped storage power plants, and nuclear power plants) are not destroyed, then Ukraine should have enough energy resources to go through the heating season. But a humanitarian catastrophe may also await if the country's infrastructure is destroyed in winter.
As the Prime Minister of Ukraine, Denys Shmygal, stated, Ukraine is currently 60% ready for the next heating season.“ This is in line with the preparation plan developed by the government. We will accelerate in this direction to steadily pass the heating season,” D. Shmygal said. Earlier, the government of Ukraine decided to apply to the United States for a "gas lend-lease" for a stable heating season.
Now gas reserves have exceeded 11.8 billion cubic meters, with a plan of 19 billion for imports. Naftogaz intends to purchase about 2.7 billion cubic meters and 1.8 billion from the domestic market. It is noted that due to the growth of world gas prices, the deficit of Naftogaz during the preparation for the heating season may amount to 219 billion hryvnias. The head of the Ministry of Energy reports that part of the gas can be used to generate electricity since, due to the war, there may be problems with the delivery of coal to thermal workers. By October 15, coal reserves are expected to reach 2.5 million tons. According to Minister of Energy German Galushchenko, at present, 1.8 million tons of coal are stored in the warehouses of thermal power plants and thermal power plants, and the process is moving according to schedule.
The situation around Ukraine
In the public plane, the topic of the possible “smuggling of weapons” supplied to Ukraine resurfaces again. The American television channel CBS News released an extensive investigation into whether the weapons that the West provides to Ukraine fell into the right hands. The film cites the calculations of the Lithuanian volunteer Jonas Ohman, who believes that only 30-40% of supplies from the West reach the needs of the front. The publication also recalls that Ukraine, with its stocks of Soviet weapons, was one of the significant "black markets" for firearms. The situation may hurt the supply of weapons to Ukraine and call into question the planned counteroffensive in the country’s south.
In parallel, there is a growing concern in the Western media about whether the West will be able to prevent the turning point of the war in the coming month. We are talking about the annexation of the territories occupied in Ukraine, which, presumably, can take place as early as September. The British newspaper Financial Times wrote that Ukraine does not even have 30% of the weapons needed for a large-scale counteroffensive, so it will only be next year.
For its part, the United States continues to provide significant military assistance to Ukraine and will allocate a new package worth about $1 billion.
The new military aid package will include:
- Ammunition for NASAMS
- 1 thousand Javelin anti-tank systems.
- Ammunition for HIMARS
- 75 thousand 155-mm artillery ammunition;
Also, US President D. Biden approved a $550 million assistance package to Ukraine.
US House Speaker Nancy Pelosi's visit to Taiwan. Despite threats from China, Speaker of the US House of Representatives Nancy Pelosi arrived in Taiwan last week and became the highest-ranking US official to visit the island in 25 years. The Chinese Ministry of Defense announced a series of "pinpoint military operations" in response to Pelosi's visit to Taipei. The Chinese Defense Ministry explained that the exercises aim to "resolutely protect the national sovereignty and territorial integrity of China."
In general, the visit of Speaker of the US House of Representatives Nancy Pelosi to Taiwan leads to a deterioration in US-China relations. But any direct military clash between China and the United States is unlikely due to the parties' deep financial and economic interdependence. China is the largest trading partner of the United States. Trade turnover between China and the United States in 2021 grew by 28.7% and amounted to -$755.6 billion.
But China may increase its involvement in hybrid forms of confrontation with the US. In connection with the aggravation of the conflict with the West, the ties between China and Russia will be strengthened. And not only economic ones (bypassing sanctions) but also, possibly, military-technical ones (supplies of weapons). It can also exert influence through the DPRK (recognized as "LDNR"), which is 96% economically dependent on China. For Ukraine, the conflict in Taiwan is mainly unprofitable since the West will switch part of the flow of weapons to Taiwan, and Ukraine may lose part of its support. In addition, China is the leading trading partner for Ukraine.
Negotiations of Turkish Presidents Recep Tayyip Erdogan and Vladimir Putin's Russia in Sochi.
The talks that took place in Sochi can be considered significant, both in Turkish-Russian relations and in the context of relations between Moscow and the West. R. Erdogan became the first and only leader of the NATO member countries who visited Russia after the start of the war in Ukraine.
According to a joint statement, agreements were reached on the export of Russian grain, the continuation of cooperation in the energy sector, and an increase in the volume of bilateral trade. The situation in Syria was also touched upon, where there are severe contradictions between Moscow and Ankara. V. Putin and R. Erdogan did not touch upon the prospect of possible production in Russia or the purchase of Bayraktar drones from Turkey.
An essential aspect of the negotiations between R. Erdogan and V. Putin was the trade and economic ties between Turkey and the Russian Federation and Russia with the West through Turkey. The parties agreed on a partial payment by Turkey for Russian gas in rubles. R. Erdogan said that Moscow and Ankara want to increase their trade turnover to $100 billion (last year, it was $33 billion). "Serious progress" is also planned for using Russian Mir cards in Turkey.
Syria remains one of the central issues in Russian-Turkish relations in the light of the possible start of a new Turkish military operation there. Most likely, there is a lot of bargaining going on behind the scenes, and both sides have some room for maneuver. In particular, this also applies to the conflict between Azerbaijan and Armenia, the potential sale of Turkish drones to Russia, the war in Ukraine, and the fate of the Russian-Ukrainian peace talks that Turkey seeks to mediate. R. Erdogan suggested that V. Putin hold a meeting in Turkey with the President of Ukraine, V. Zelensky. Later, Putin's press secretary Dmitry Peskov will say that there are no necessary prerequisites for a meeting between the Russian Federation and Ukraine presidents.
Western countries are concerned that Turkey could become one of Russia's leading partners in circumventing sanctions. Western media report that V. Putin in Sochi asked R. Erdogan to help with the circumvention of sanctions. In particular, the Russian Federation calls on Turkey to allow it to buy shares in Turkish refineries, oil terminals, and reservoirs. This solution may help hide the oil’s origin and circumvent sanctions, including the oil embargo. The declared increase in Russian-Turkish trade turnover by three times will likely occur at this expense.
The situation around grain exports
After the “food deal” signing, the export of grain from Ukrainian ports continued to work, and the process of inspecting ships was also launched. Over the past nine days, 12 boats have left Ukrainian ports. They exported more than 370 thousand tons of agricultural products. In particular, the ships went to Turkey, China, Italy, South Korea, and other countries.
It is expected that the export from Ukrainian ports will amount to about 3.5 million tons of grain per month (previously, the figure was 5 million tons). According to the Minister of Infrastructure of Ukraine, Oleksandr Kubrakov, Ukraine plans to ensure the ability of ports to handle more than 100 ships per month.
The Ministry of Agrarian Policy predicted a profit of more than $1 billion per month from grain exports through ports. According to Deputy Minister of Agrarian Policy Taras Vysotsky, Ukraine expects to receive about $20 billion from grain exports. Also, Ukraine can start exporting the new wheat crop through the ports in September. Ukrainian agrarians harvested early grains and legumes from 4.8 million hectares, i.e., 41% of the sown area, and threshed 17.5 million tons of new crop grain.
Deputy Minister of Economy of Ukraine Taras Kachka notes that the food agreement concluded in Istanbul (between the Russian Federation, Turkey, and Ukraine with the participation of the UN) could be extended to the supply of other goods, including metals.
The production level of all metallurgical enterprises in Ukraine is only 10% of what it was before the war. But even such volumes of products cannot be taken out of the country. The Russian Federation exports rolled metal products from Mariupol by sea. So, at the end of May, 2.5 thousand tons of Ukrainian rolled metal were sent from Mariupol to Rostov.
Ambassador of Ukraine to Lebanon Igor Ostash said 87 ships transported Ukrainian grain stolen by the Russians. A criminal scheme to export the grain involves the Russian occupation troops and mainly Syrian and Russian vessels.
In general, the conclusion and functioning of the food deal demonstrate an essential precedent that, if there is an international consensus, the parties to the conflict (Western countries, Ukraine, and the Russian Federation) can negotiate. Therefore, proposals are beginning to sound that the parties can agree on other issues concerning the economy (export of metal ore, chemical industry products, unblocking imports, and so on) and peace negotiations.
Ruslan Bortnik, Oksana Krasovska, Andrii Timchenko
For the Ukrainian Institute of Politics.