The Kremlin’s priority is to get full control of Donbas. The military action and statements by senior Russian officials suggest that Moscow is now entirely focused on gaining full control of the Donbas region as quickly as possible. The fate of the Donbas will be the most difficult part of peace talks.

Ceasefire is possible/probable after this. Moscow officials say that a ceasefire is possible/probable when control is established. They say there is no longer any intent to expand the fighting beyond the Donbas region.

Playing the “food-card”. Officials say that Russia is not attacking the port of Odesa to use this food export route as a bargaining chip when peace talks start. This is also confirmed by President Putin. President Zelenskiy is also pushing the threat of global food shortages as part of the pressure on the US and the EU to maximise pressure on Moscow to end the fighting and start talks.

The EU agrees the sixth sanctions package. EU leaders managed to reach a compromise which will allow the import of Russian oil via the Druzhba pipeline (to Slovakia, Hungary, and Czechia), but which will phase out all other oil and product imports by year end. The total potential loss to Russia is $20bn but Moscow now has six months to find alternative buyers for this oil in Asia and Africa. In recent weeks, Asia has become the biggest buyer of Russian oil, with volumes shipped more than three times the volume shipped in February. The sixth sanctions package also bans trade with Sberbank (SWIFT exclusion) and adds more individuals to the EU sanctions list.

Ruble is too strong. The ruble traded in the mid-50s versus the US dollar early last week before the CBR took action to pull it back to the mid-60s. The Finance and Economy Ministers are complaining about the excessive strength of the ruble. The Economy Ministry forecasts a year-end rate at RUB77/$.

CBR starts to ease. Exporters now have 120 days to convert 50% of FX earnings (it was 80% within 3 days) and other easing is expected. Last weekend, the “street rate” in Moscow was RUB71-76/$.

First evidence of deflation. RosStat reported the first drop in prices since August 2021 – due to a decline in food prices as Russians switch to domestic grown produce.

$125bn economic support package. The finance minister announced a RUB8 trillion support package for the economy for this year.

Technical default clock is again ticking. The government will be able to pay euro and sterling commitments but no longer US dollar payments. There is a question mark over payments made ahead of the May 25th deadline or otherwise; the next dollar payment date is late June.

Question marks over LNG 2 ... There are reports (unconfirmed) in Chinese media that China suppliers are unable to complete equipment orders for LNG-2. If that happens, this project will stall until either sanctions ease or Novatek can find a new supplier.

.... and delivery of icebreakers. Korean shipyards are reported to have stopped supplying some equipment for the icebreaker programme. This will delay the plans for operating the Northern Sea Route (NSR) on a 12-month basis.

Novy-McDonalds to re-open on Russia Day. The new owners of the McDonald’s franchise say they will re-open the Pushkin Square outlet on June 12th with a yet-to-be-announced new trading name. The symbolism is important, as this was the very first McDonald’s outlet opened in the Soviet Union and June 12 is the Russia Day national holiday.

Chinese people have a very positive view of Russia. An extensive survey carried on in Russia shows that people have an increasingly positive attitude towards Russia and an increasingly negative attitude towards the US. This undoubtedly reflects the messaging carried in official state media.