In Moscow's Shadows

In Moscow's Shadows 238: Bangers and Mish

• Mark Galeotti • Episode 238

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First, as the USA, Israel and Iran trade drone and missile strikes, how the war  may play out for Russia: my sense is that on balance it will give Moscow more opportunities than headaches. 

Then, from bangers to Mish: decoding Prime Minister Mikhail Mishustin’s annual report to the State Duma. Think of a head butler in a grand house: no say in the party upstairs, every burden downstairs. The technocrats may plan to edge Russia from “gas station” to “supermarket,” but is this viable?

The Sunday Times article I mention is here, Ben Aris's BNE Intellinews piece here, and the signup page for Thursday's crisis exercise here.

The podcast's corporate partner and sponsor is Conducttr, which provides software for innovative and immersive crisis exercises in hybrid warfare, counter-terrorism, civil affairs and similar situations.

You can also follow my blog, In Moscow's Shadows, and become one of the podcast's supporting Patrons and gain question-asking rights and access to exclusive extra materials including the (almost-) weekly Govorit Moskva news briefing right here. 

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Opening And Housekeeping

MG

Mangles and Mish. Well to put it in another slightly more comprehensible way, I'm going to be covering two very different topics today. The US Israeli attack on Iran and Prime Minister Houston's report to the state doom. Hello, I'm Mark Galeotti, and welcome to my view of Russia in Moscow Shadows. This podcast of varying length, frequency and format, yet always reassuringly low production values, is supported by generous and perspicacious patrons like you, and also by the Crisis Exercise software company Conductor. Before I get started properly, last week I went in depth into the Siege of Kazan, obviously hooked to the emergence of my book on Ivan the Terrible's Great Campaign, and then I discovered that courtesy of a shipping mismatch, all the books intended for the UK had also gone to the United States and will have to be shipped laboriously back. So, the book is out everywhere as an e-book, it is out in the United States as a physical book, and now apparently it won't be out in the UK in hard copy until probably May. Boo. Which includes the start, the fact that I still haven't seen it, which is rather peeving. I mean, I've seen a PDF obviously. But anyway, so if people are wondering if anyone actually cares, that's what's going on with that. Anyway, in the first half of this podcast, I'm going to be talking about what's going on in Iran. But let me just stress, I'm not going to join that throng of commentators who have suddenly discovered a deep, deep expertise in all matters Iranian. Rather, I want to actually talk about specifically what this means for Russia. And I should stress, look, I have absolutely no enthusiasm for a ghastly regime which makes Putin look humane and moderate, quite frankly. And we're going to have to wait and see what happens. But with Trump explicitly framing this as a regime change operation, and with the killing of the Ayatollah Khamanyi, this has very much become a kind of all or nothing type operation. And there's usually a sharp limit to what you can do by missiles and air power alone. To put it very bluntly, it can break, but it cannot build. Regime change is one thing. Ensuring the emergence of the kind of regime you might like, well, that's somewhat harder. There's going to be, if nothing else, even if the regime falls, still a sizable minority supportive of the old regime, embedded within it, deeply compromised. I mean, for all Trump was talking about total amnesty. One can't help but think that if this regime falls, there's going to be a lot of people with revenge on their minds, given the terrible casualties, especially of the recent crackdown. And there's going to be the heavily armed remnants of the regime, particularly the Revolutionary Guard and its besieged militia volunteer corps, who also are probably not going to want to go down quietly. So it's hard to know whether, assuming there is any kind of a model and a sense of how this works out, whether the model for this war, and it is a war, is Syria, Libya, Iraq, I'm not sure if any of those are particularly comfortable ones. But anyway, to Russia. And on balance, and I would stress that on balance, I think it's probably good for Russia. But clearly though there are downsides. First of all, it once again is essentially having to sit back as one of its allies is hit. Now I'm not convinced that that's really such a big deal. First of all, there is no formal commitment on Russia's part to defend Iran. They were always very pragmatic allies rather than anything else. And I'm not necessarily convinced that anyone really would have expected Russia that could or would do anything. In some ways it's a little bit like what happened in Venezuela. And as I say, in any case, Iran was always something of a strategic frenemy. Sure, they were both agreed in their opposition to the United States, to the sort of Western-led so-called rules-based order, more of that anon, and indeed to the mechanisms of sanctions. But at the same time, it was Iran that in many ways dragged Russia into having to support the awful attacks on Israel, which had meant that basically Russo-Israeli relations, which had been very good, had been well, frankly, poisoned. And also Iran is a rival for authority in the Middle East and indeed within the South Caucasus. If this regime doesn't actually fall but has its wings clipped, from Russia's point of view, that actually might make it a rather more amenable temporary strategic partner. And besides, look, Russia does not rely on Iranian war material in Ukraine anymore. Yes, it's using similar drones, but frankly, it took the Iranian Shahed design, it has put it into mass industrial production at home, and indeed has improved it rather more than the Iranians seem to have done so. So again, the direct impact there is probably going to be minimal. Secondly, Russia can't anymore position itself as a kind of balancing power in the Middle East between Israel, the United States, the Saudis, the Gulf states, Iran, etc. But again, I'm wondering how far it really could before. To be honest, Russia has actually been quite an effective operator within the Middle East. It has a lot of expertise, it has a lot of ex fairly experienced hands. Putin is generally willing to let the foreign ministry have its way much more than in many other parts of the world, which is no bad thing. And also the Russians are able to play on all kinds of current and historical enities and issues. But again, that's very much leveraging what's already there rather than actually really being able to maintain much authority in the region. And, you know, at the very least, the United States will be probably rather preoccupied for some time with what happens in Iran. And more to the point, other regional frenemies may also have reason to look a little bit more to Moscow. Ironically, if the United States looks less reliable as a partner, and look, I very much doubt there's much naivete about Washington in the Middle East. But nonetheless, maybe the options of at least maintaining some lines to Moscow may well look more tempting. And in particular, I would say we have to think about how Turkey is going to react to this. Turkey's got almost 500 kilometres, sorry, over 500 kilometres border with Iran. It certainly is worried about a potential overspill of refugees if everything goes catastrophically badly inside Iran. And also it is deeply worried about a resurgence of Kurdish militancy. Remember, the Turks, although they currently have a peace process going on, I mean they are very worried about Kurds because they have Kurds of their own. There are Kurds just over the border in Syria. And also there are substantial numbers of Kurds within Iran. And the Kurdistan Free Life Party, which is the kind of Iranian affiliate of the Kurdistan Workers' Party, the PKK, with which Turkey had been warring for so long but is now actually sort of talking, well, the Free Life Party is still active. And it's also worth noting, also just on a very pragmatic basis, that Iran is still Turkey's second most important source of gas after Russia. If anything happens to disrupt that, then the Turks might feel the need to buy more Russian gas. And if we're speaking of hydrocarbons, the third basic point is that this almost certainly will have an effect in driving up oil prices, particularly if Iran widens the war. Now look, the Iranians are talking about, you know, they're closing the Straits of Hormuz, which is a crucial artery for tankers carrying oil. Now, it's going to be easier said than done on one level because the United States Navy has just orders of magnitude, greater capacity and firepower in the region, and quite frankly, it would probably love the opportunity to get more directly involved and to have an excuse and the opportunity to basically wipe out what is left of the Iranian Navy. However, remember the Iranians just have to disrupt, not control. So long as they maintain the capacity to lob missiles into those waterways, then actually that's going to have quite a chilling effect on the trade through there. In particular because, and this is always a I think an underplayed element of modern statecraft, because it's it's a dull topic, insurance. If insurers suddenly jack up their premiums for anything going through these waters precisely because they're worried about them being hit and blowing up, then again that affects prices. And well, obviously, the the higher the overall oil prices, the better it is for Moscow. Now, that said, this is not in that immortal and so-so irritating and inaccurate phrase, a gas station, a petrol station with rockets. Oil is no longer absolutely critical to the Russian state budget. Remember, oil and gas now account for no more than about 20% of the state income. And I'll be talking more about the exciting topic of the Russian budget later. But the point is that actually if one looks at Russian budget calculations for 2026, they seem to have been predicated on what seemed to be unrealistically high global oil prices. Now, if this war actually closes that gap, again, that that's good for Moscow. Fourth broad point is this may, again, depending on how the war goes, how long it goes, directly and indirectly deplete US magazines of crucial missiles. Now look, they're mainly relying at the moment on launching Tomahawk cruise missiles at Iran along with a certain number of Lucas drones. These are not things that they're anyway handing or planning or likely to plan to hand to the Ukrainians. But on the other hand, we certainly have to see what kind of air defense assets get used up. We've already seen, for example, within the Gulf states, in whose territory are US military facilities that the Iranians are trying to hit, well, they have fired patriots. Patriot interceptors have also been launched in Iraq against ballistic missiles, quite possibly elsewhere. And the more patriots that get used up in this conflict, well then the fewer available to the Americans generally, and the more uncomfortable they will feel about passing or selling any along to the Ukrainians. So although these look two may look like two very unconnected wars, nonetheless the finite supply of these very, very expensive high-end, and not always, actually, as we've seen, always effective, interceptors, nonetheless do have an impact. Then, fifth, I can't help but feel this is yet another nail in the coffin of that so-called rules-based order. Now, this was always something of a self-serving and hypocritical myth. Um, rules-based order was one, you know, and this god, it's awful, I end up feeling slightly like I'm actually endorsing Putin and his propagandists, but nonetheless, it is hard not to agree that first and foremost this is a system which was created by the West and in the West's interests. But the point is, every time it gets flouted by Western powers, and other Western powers feel the need to go along with it, well then it looks all the more threadbare. And not just Russian, but Chinese and other propagandists can use that very much to their advantage in essentially saying that no one should trust the West, and most importantly, and this is where it fits into the Russia calculation: the appeals to this order, which are used to try and justify efforts to make other countries, particularly in the global south, apply sanctions and not go for cheap Russian oil, cheap Russian mercenaries, whatever else. Well, those tend to, as I say, to be framed in terms of the rules-based order. And well, that might be a harder sell. Because we've had Kaya Kalas, the head of the European External Action Service, saying the latest developments across the Middle East are perilous. Iran's regime has killed thousands, which is true. Its ballistic missile and nuclear programs, along with support for terror groups, pose a serious threat to global security. Well, there's more than little truth there. The EU has adopted strong sanctions against Iran and supported diplomatic solutions, including on the nuclear issue. I have spoken to Israel's foreign minister Saar and other ministers in the region. The EU is also coordinating closely with Arab partners to explore diplomatic paths. Protection of civilians and international humanitarian law is a priority. Our consular network is fully engaged in facilitating departures for EU citizens. Nonessential EU personnel are being withdrawn from the region. Our Aspide's naval mission remains on high alert in the Red Sea and stands ready to keep the maritime corridor open. Okay. That's it. Absolutely nothing about the fact what this actually is. I mean just saying the latest developments are perilous. Essentially, you know, let's let's be absolutely clear about this. This is an illegal war. Now, on one level, whoop-de-doo, there are many illegal wars. But nonetheless, it is a breach of international law. This is a military operation which neither has UN sanctions nor, despite the claim that it was a preemptive strike, is there any evidence that has been presented yet that can make the claim credibly in any way that this was an act of self-defense? So in that context, that is being ignored. And of course we know why. The Iranian regime is a hateful one, and Europe doesn't want to either undermine Israel yet further, but far, far, far more to the point, it doesn't want to annoy the United States. So this is basically, you know, an act of cowardice. But even worse, in my opinion, was a tweet from Roberta Mitsola, the president of the European Parliament, who seems to think that Iran should just simply sit back and take whatever is sent at it. She said, and don't worry, I won't have too many quotes, there's only one more after this. The European Parliament has long called for the regime in Iran to dismantle its state instruments of oppression and its support for proxies of terror, abandon its nuclear ambitions, and finally allow its people to be free and choose their own destiny. Well that is lovely, though that last one, um I'd be happier if you also mention it to the Chinese and to the Saudis and to many other regimes. The events unfolding in Iran must not lead to a spiral of escalation that could threaten the Middle East, Europe and beyond. The Iranian regime's attacks this morning on GCC, Gulf Coordination Council countries are inexcusable and unjustifiable. The regime in Iran must refrain from any further escalation in any targeting of the Gulf states, Israel, or European or United States nationals. We are in close contact with partners in the region to try to find ways forward that protect innocent lives, international law, and regional stability. So in other words, nothing about the fact that Iran has been hit by the United States and Israel, but rather that Iran must refrain from striking back. I mean, this is astonishing stuff. And finally, though, from the Russian point of view, it's awkward because to a degree it is forced to take a side. It can't just simply pretend that this isn't going on. And it's quite noteworthy that Russia did respond rather more quickly on this than it did with Venezuela. And it responded with a what was a statement by the Russian Foreign Ministry regarding the armed aggression of the United States and Israel against Iran. And let me just give one again, I I know someone reading quotes to you isn't the most exciting thing, but nonetheless, let me just read you a short clip from it. The scale and nature of the military, political and propaganda preparations preceding this reckless move, including the deployment of a large US military force to the region, leave no doubt that this was a pre-planned and unprovoked act of armed aggression against a sovereign and independent UN member state in violation of the fundamental principles and norms of international law. Then later, Washington and Tel Aviv have once again embarked on a dangerous adventure that is rapidly bringing the region closer to a humanitarian, economic, and quite possibly a radiological catastrophe. Now look, let's for the moment set aside the evident hypocrisy of the Russians calling out a reckless pre-planned and unprovoked act of armed aggression while its forces are still engaged in its four plus year war in Ukraine. Look, the job of a foreign ministry is to be the state-sanctioned hypocrites. But nonetheless, I mean this is a lot stronger than one might have expected in terms of the language. The interesting thing though is so far, at least as of recording morning of Sunday the first of March, Putin himself, although he had a video meeting with members of his Security Council yesterday, has said nothing at all. So it's been the foreign ministry, as ever, which is rolled out to be what we could almost think of in this context the bad cop, and I can't help but wonder if we're gonna see if Putin may be reaching out with some more quietly emollient words to Trump. Because this is the usual kind of pattern. But nonetheless, look, there's no way of getting around it. This is a much more uncomfortable situation for Moscow than past crises, and it's gonna take a lot of very fancy footwork and some some sweet nothings being whiskered whispered in Trump's shell-like his ear, to try and get round this. So, on balance from Russia's point of view, as I say, I think that although clearly any such massive demonstration of US firepower is always going to be a rather sobering uh matter, because it reminds them of the capacity gap between them and and the Americans, nonetheless, I think from the Russians' point of view, they have some reasons to be cautiously optimistic that although this is not a good crisis for them, some good may well come out of it, and ultimately they might end up feeling that it advances their cause more than brings it back. And a final point before we go to the break. I think it's also just worth dwelling for a moment on the fact that already some people, including they should know better, some Russian emigres, are saying, look, what this shows is just what the Americans could have done in support of Ukraine, and it shows that essentially America can and should be much more muscular with Russia. I would note though, first of all, Russian air defences are not the same as Iran's. Secondly, that much more to the point, Russia's capacity to respond is orders of magnitude greater than Iran's. I mean, be careful what kind of escalation you're sucking yourself in for. Thirdly, the possibility, fairly good possibility, is that this will lead to chaos in Iran. And that will have all kinds of implications for the region, and it will be, frankly, a serious problem. However, and look, I know this would be extraordinarily unlikely, a Russia in chaos though, is much more than a regional problem. It would be a geopolitical disaster for the world, with everything from what would happen to its nuclear arsenals onwards. So, you know, again, be careful what you wish for. And finally, you've got to make your mind up. Do you believe in international law? Or do you believe that might makes right? Sure, Iran is a baddy. Or at least the current Iranian regime, rather, not not the poor Iranians who've actually suffered under it. But without that UN sanction or evidence of self-defense, this is an illegal war. And either wars have to be kept within the rules, or they haven't. Anyway, that's a little bit of soapboxing, which is always a good indication that it's time for me to stop. So I'll leave Iran and I'll pivot to a topic that may not sound quite as fierily pyrotechnic. No, okay, let me be honest. Yeah, it's not quite as exciting. But nonetheless, I think it is quite important. So I do hope you'll stay with me as I talk about Prime Minister Mikhail Mushustin's. Annual report to the State Duma. After the break. Just the usual mid-episode reminder that you're listening to the In Moscow Shadows podcast. Its corporate partner and sponsor is Conductor, which provides software for crisis exercises in hybrid warfare, counterterrorism, civil affairs, and the like. But you can also support the podcast yourself by going to patreon.com slash inMoscow Shadows. And remember that patrons get a variety of additional perks depending on their tier, as well as knowing that they're supporting this peerless source on all things Russian. And you can also follow me on Twitter at MarkGaleotti or on Facebook, MarkGaleotti on Russia. Now back to the episode. Now before I get started, just a quick announcement. Which looks at a situation which is likely to be something of a challenge for the European Union, well for Europe as a whole, after the end of the Ukraine war, whenever that happens, which is precisely the likely bleed out of weapons from the conflict. We see this time and time again, whether it's in the Balkan conflicts or wherever, is that when the shooting stops, guns start getting smuggled out. And this is, as I say, going to pose a political as well as security challenge for the EU. And that's going to be the topic of the exercise. I will put a link to the sign-up page in the programme notes. I've also mentioned it on social media beforehand. And if you're interested, as I say, it's free, it's just two hours of your time on this coming Thursday. And these things tend to be very interesting, both because conductor are exceedingly good at creating these immersive exercises, and also because we tend to get a fascinatingly devious bunch of players. So just flagging that up. Anyway, on Wednesday, Michustin delivered, as is the necessary duty, his government's annual report to the State Duma, covering the work of the cabinet last year and outlining its key priorities for 2026. It was a barnstorming performance. Deputies, they laughed, they cried, they ultimately led a 20-minute standing event No, okay, I I can't quite actually sustain that. No, it was not an exciting event. But bear with me though, in that it does highlight some interesting developments and insights into quite what the system is going for. So trust me. Stay with me. First of all, I mean just the obvious point, it really did for me hammer home the extent to which the Prime Minister is just he's just the major domo of of the estate. I've mentioned in the past that I I can't help thinking as one of my ways of uh contemplating how the Putin system operates, is thinking of this sort of classic old English country house, the sort of Downton Abbey, um upstairs, downstairs, whichever sort of TV series you might you might be thinking of, in which you have the Lord of the Manor and his friends partying upstairs while there is a huge staff scurrying around downstairs, even though, frankly, the pantry is is beginning to be denuded and the wine cellar's stocks are running down and there are bills that haven't been paid, but nonetheless their job is to keep the party running so long as as the Lord wants it. And in that context, the Prime Minister is essentially the head butler. He is a figure of power and authority and a sort of a terror over all the the the downstairs crew of footmen and maidservants and cooks and such like. But on the other hand, he is also just an employee of the Lord. The Lord may treat him kindly, may treat him with sort of certain respect, so long as he knows his place. But his place is to ensure that whatever the Lord wants, the Lord gets. And that's basically where the Prime Minister is in this particular bizarre mix of neoliberalism and neo-feudalism that is late Putinism. And that's why Msustin could not and did not talk at all about the really big picture politics which in some ways frame everything that his cabinet has to do. And clearly, first and foremost, that's about the special military operation, the war in Ukraine, and all the consequent economic, geopolitical, and similar implications. He can't even really talk in more than the most general terms about, for example, issues of defence and security, because they are very much a presidential pro prerogative. Instead, it's just simply about how he can facilitate Putin's priorities. And in that context, well, clearly a key element was the economy. And well, much like uh Prince and Tsar Ivan's, the economy is not great and not terrible. I mean he said despite the extremely challenging situation, and again, he has to rely on euphemism. He can't talk about exactly what makes the situation challenging, positive economic momentum has been maintained. Russia's gross domestic product increased by 1% last year, and over the past three years its growth has exceeded 10%, which is in line with and even exceeds the global average. Well, yeah, but the point is exactly 9% of that growth was in 23 and 2024. 2025 just saw 1% at best, and the 2026 forecast is under 1% growth. Nonetheless, it is growth. Inflation is down to 5.6%, and interestingly, he name-checked there the work of the central bank. Now that's significant because there is a lot of tension over Elvira Nabulina, the chair of the central bank's very hard line policy of essentially keeping the base rate high to try and bring inflation under control. Business does not like that. There is a lot of hatred towards her. I'm sure there are many Nabulina voodoo dolls in boardrooms around Moscow, festooned with pins from every direction. But still, Mishustin was signalling that he's he still backs the two. And he said that, well, the labour market remains stable at 2.2% unemployment rate. The irony is that is a bad stability. That is a low level of unemployment, and you'd think, look, unemployment is bad, obviously. However, a certain level of unemployment is necessary for a system. First of all, to keep wage levels moderate. Secondly, to allow there to be some kind of flexibility so that you can actually afford and find new workers to expand various sectors. The point is 2.2%, that's pretty much what is known as fractional unemployment, the kind of level of unemployment that is inevitable as people are in the middle of changing jobs, or just some people cannot or will not be employed at all. So actually, this kind of notion that it's remaining stable, trying to spin it as a positive thing, when actually it's not. And then he mentioned that even under the sanctions challenges, industrial production grew by 1.3%. Well, yeah, it grew, but this is a primarily from the manufacturing industries, which they themselves grew 3.6% last year, which was higher than the forecast. But the point is again, this is because of war. And a lot of this manufacturing is manufacturing things which are immediately going to be destroyed, whether because they are drones that are about to slam into a Ukrainian power station, or whether they are military material that is otherwise going to be expended or indeed destroyed by the Ukrainians. So that's kind of the empty calories of GDP growth, rather than actually stuff that is genuinely, I would suggest, supportive of the Russian economy. But no, no crisis, but nonetheless not a particularly good situation. And this leads to, as the third point I'd make, a sense that there is a desire and there is a strategy on the part of the technocrats to actually, this is an ambitious move, reshape the Russian economy. I mean he says that despite sanctions, Russia continues to develop its foreign trade, yeah, yeah, sure. But he says the main goal in this area is to shift from simple raw material exports to high value added goods. So in other words, not just simply to be, you know, selling oil and gas around the world, but also to be producing goods which people both at home and abroad will want to buy. And he actually said that non-resource, non-energy exports, so in other words, you know, not oil, gas, not timber, not coal, grew by almost 9.5% by the end of the year, approaching 13 trillion rubles. Well that's that's that's no small matter. And it does speak to this wider issue that there does seem to be this emerging strategy within the government. There was an interesting piece by Ben Arris in BNE in Tellenews, and again I'll provide a link in the programme notes, in which the headline was Russia is a supermarket dressed up as a country. So in other words, away from being the gas station, but instead a supermarket. And Arris looks at what finance minister Anton Silwanov is doing, because he had a parallel announcement, of what Aris calls a pretty radical new direction. What he's proposing to do is move the government, the budget, away from its traditional addiction to oil and gas export revenue and make Russia a consumption-based economy with a useful but not essential raw materials export subsidy. So the idea is precisely to move away from this dependence and in some ways, under the pressure of war, and indeed under the pressure of sanctions, do something that Russia should have done in the 1990s, but couldn't for obvious reasons, because of the chaos that was ensuing, and then should have done in the 2000s when the money was there, but didn't because frankly Putin wasn't interested and didn't really know he had to do it, which is to diversify. Now, a lot of this is about budgetary stuff, so bear with me for a moment while I just talk about budgetary revenue in the National Welfare Fund. We get past this. At the moment, any revenue that is earned when oil reaches$60 per barrel doesn't go straight into the budget, so it's not just normal taxation. Instead, it goes into the National Welfare Bund Fund, which is this sort of rainy day fund to cover budget deficits in bad years, particular strategic investments and the like. Now, after the start of the war, this budget rule was suspended simply because it was necessary to cover the sharp increase in military spending. So in other words, all oil and gas tax revenue, sorry, all oil revenue went into the regular budget. However, the rule was reinstated in 2025, although the cutoff price was actually far higher. I mean, before the war it was at uh$48 roughly a barrel, at which point the revenue went into the welfare fund. Now it is, as I say,$60. Now the idea is that this threshold is from$60, it's going to go down by a dollar a year. So bit by bit, slowly it'll mean less money from oil into the regular budget and more going into the National Welfare Fund. Which after all has been pretty much, well, not you know fairly drained, shall we say, by the extra spending for the war. It's gone down at the beginning of the war, it was at 8.8 trillion rubles in its liquid assets. And now it's around about half that. So it's gone down from something like$85 billion. Sorry, 85 billion pounds in current money or$114 billion to about half that. Still not inconsiderable though. But the idea is not only to replenish that, but also further to wean the state budget off oil and gas, and in the process provide structural reasons to encourage other kinds of consumption and production. So it's a way of trying to use the budget to nudge the overall national economy. And look, to a degree it's already happening. As I mentioned, I mean, for people who are still clinging to this idea that the Russian budget depends on hydrocarbons, well, now it accounts for only about 20% of the budget income from that. 40% of the budget comes from VAT, which remember is being increased by 2% this year. And most of the rest comes from personal and corporate income tax. So it's it's actually already a budget structure that looks a lot more, as we would think of it, normal. We'll have to wait and see if this is at all successful. I mean, a lot of it will depend on whether or not the Russians can can master their budget deficit. I mean, the end of last year the Treasury deficit was 5.64 trillion rubles, when it had been projected to be 1.17. So massively higher. Now, according to the budget, in 2026, this deficit is going to shrink down to 3.8 trillion rubles and then 3.2 trillion rubles. Well, that's fine, but you know, everyone can create favorable budget documents. It's what happens when reality hits that we'll have to wait and see. And the idea is that they're going to sort of basically cover this deficit through, well, the National Welfare Fund, but also through borrowing, though that's harder because it's much harder to borrow abroad these days, and indeed tax increases. But there is a tension here. So the technocrats understand that in the long term they need to make tough decisions to try and diversify the economy, and that they can slightly help do that through the budget. But at the same time, it is absolutely clear that one of the priorities that has been placed upon the head butler by the Lord of the Manor is to keep the peasants quiet. And to that end, Ms. Schustin had to announce a whole bunch of other measures, which are precisely about pacifying the population. New benefits, particularly for everyone having children. There's a great drive at the moment to address the demographic crisis facing Russia, well, facing so many other countries indeed, essentially, pretty much every Western country. So we have benefits. Well, I mean, particularly for women who are awarded the title of heroine mother. I mean, to get that, this is an old Soviet practice, which was then revived under Putin. You have to bear and raise ten kids. And in return, if you do that, you get the title of heroine mother, you get a million rubles, you get a medal, and you get enhanced social benefits equivalent to a hero of labor, which pun intended, um, seems rather appropriate. But to be perfectly honest, if you're bearing and raising ten kids, I think you deserve all that and more. In addition, there's an increase in the kind of tax and insurance-free payment that employers can provide to employees upon the birth of a child. It's gone up from 50,000 rubles to 1 million rubles. So, in other words, it's trying to put the burden on employers to also encourage childbirth. The minimum wage is being increased yet further. I mean, in 2025 it went up by 16.5%, and now it's going even further, so it's reaching 27,000 rubles. And they're also addressing the housing issue. Apparently, last year, 108 million new square meters of housing were built, and almost 100,000 people moved from dilapidated and dangerous old apartments to modern ones. So generally, you know, a lot is being done to try and make Russians not feel quite so sharply the pain of the current economic situation. Fifth broad point, though, is about the veterans of the Special Military Operation. And frankly, for me, is an example of proving that talk is cheap, quite frankly. So Mishustin gave the official line that since the start of the special military operation, supporting its veterans, participants, and their families has become the government's most important task. The president has made this, again, Lord of the Manor steps in here, the president has made this a duty and responsibility of both the state and Russian society as a whole. So what does that mean? Well, he claims that this comprehensive system of assistance has been sort of established for veterans and their families with priority access to medical care and so forth. The thing is, though, this is not now being tested on any scale. On the whole, veterans who, after all, you know, if you if you're fighting there, you're a volunteer, you signed a contract, and that contract is for the duration of the special military operation, not a finite period. So most people who are coming back, frankly, are coming back in boxes or coming back because they have been very badly injured. There's not many people who are actually coming back generally, with, shall we say, sort of more minor physical or psychosocial problems. So this is not really being tested, and we'll have to see how it works out in practice. Because first of all, I think there's going to be massive issues with efficiency of the system. It's all very well to decree things, but actually, are there the resources on the ground? Secondly, cost. This is going to be vastly expensive once it's about not just a relative handful, but hundreds of thousands. There's about 700,000 Russian soldiers currently on the front, more being recruited regularly. But also it's about just sort of nuts and bolts issues like location. I mean at the moment, so fine. You know, you you can say that veterans have the right to priority access to medical care, but do they live in places where the medical care is actually available? I mean, at the moment they can undergo comprehensive rehabilitation, any one of the 12 what are called social fund centers, and their travel expenses are reimbursed. Fine. But what if you are three trains away from a social care centre and your problem is that your legs were blown off? You know, are there the facilities to actually ensure that you can get there? There's all sorts of nuts and bolts issues. And certainly if I think of what happened for the Afghan veterans, inadmittedly a much, much more problematic economic and political circumstance. But nonetheless, you know, it really was catastrophic just how shabbily they were treated. I can't help but think, and I've mentioned this in the past, that this is going to be the case then. What we're going to see is as ever, that a lot of Russian specialists know what the problems are, but they can't do anything about it. Then the war will end, hundreds of thousands of veterans will come home, it'll be a catastrophe, then they will scramble to actually deal with it properly. And sometimes they'll succeed and sometimes they'll fail. But the point is the burden will not necessarily be on Mishustin and the cabinet. It is clear that the burden is being shifted downwards to the regions, to local governors, and to employers. And on that point, just one last thing before I move on. Veterans keep their jobs while they're serving. So in other words, if you have a job and then you decide to sign up, your employer has to guarantee you your job. Now that is another burden on the employer. So really what is emerging is the lack of a comprehensive programme. It is both conceptually lacking, but more to the point, there is no budgetary mechanism to actually ensure that everyone has the resources they need to do what they are meant to be doing for the veterans when they come home. So that's going to be a big crisis awaiting. Final point from the report is really about how the opposition is still so so painfully toothless. The main opposition parties all got to raise a series of pressing topics, and according to State Duma speaker Veshislav Valodin, the State Duma actually collected approximately 12,000 petitions through various channels also from society. But if we focus specifically on the points that were raised by the various parties, well the biggest issue is clearly increasing housing and utilities tariffs for ordinary Russians, which are going up at a really quite a fast rate, without any sense that service is improving. I mean Volodin himself noted that inflation by the end of 2025 was 5.6%, but tariff increases at local levels had in some cases, and clearly these are the worst cases, reached 30%. Now, Mishustin said that it had been decided to cap utility bills at 22% of regional family incomes. But the Communist Party pushed hard for this to be not just 22%, but just town to 10%, and also for the elimination of private providers from the housing and utilities sector. And the Prime Minister said, oh, these ideas will be considered. Yeah, yeah, of course they're not going to be considered. But even so, you know, what we are talking about is again pushing responsibilities down to the regional level. They're now going to be expected to police maintain and if need be subsidize utilities bills in order to keep them to these government set targets, precisely to minimize the pain on ordinary Russians. And again, the question comes where where are the governors going to find this money? But anyway, so Communist Party is saying keep bills down. The Just Russia Party proposed that the more children people have, the lower the family mortgage rate ought to be. Ms. That, oh, in principle, he supports this. But again, what we're talking about is further subsidies. United Russia. Well, their big thing was migration control. And Mishustin announced various plans to introduce a sort of more organized, structured recruitment process for foreign workers, which will happen in the largely in their home countries, they'll be fingerprinted, and indeed that there will be medical examinations and such like. So, yes, talking about making it a little bit more regularized, which is not necessarily a bad thing for the migrants themselves as well as for Russia, but it's going to involve more hurdles, more burdens on the recruitment of migrant labourers, who frankly are still pretty much crucial to the Russian economy, especially in a time of very low unemployment. So, in other words, once again, this is going to be a cost on the system. The LDPR, well, the Liberal Democrats, I mean, they came up with one of the sort of key issues of the age. Kids have too much homework. And the Prime Minister agreed. It's good that they really wanted to focus on what matters. And speaking of that, well, I mean, for the for the real sort of topic, the New People faction, which is this kind of slightly weird, hey, we're young, we're entrepreneurs, we believe in technology kind of party. Well, what do they talk about? They wanted to talk about parking fines and how to avoid fines for unpaid parking because of internet outages. They proposed a day's grace on them. And and Michustin said, yeah, he thought that was a good idea. So the point is you have the opposition either playing the silliest of political games or looking for pretty low-hanging fruit, you know, things like, oh, tariffs, utility bills are too high, or we should control migrants. And all in the name of making populist points. This is again, as I've mentioned in the past, them starting to gear up for the autumn elections. But doing so earlier than they have in the past, and in some ways, in a dangerous way for the for the Kremlin, in that they all depend on spending more money. Now again, you know, what political party does not, on the whole, come up with a platform that involves spending money on what they think are their causes or their potential electorate's causes. But at least the one thing is Mishustin was not presented with anything that he needs to push back against. So in other words, no one, with the possible exception of the utilities issue, no one really was giving him any kind of a hard time. So again, we had the uh whole Patemkin politics continuing. So overall, what can I conclude? Well, the first of all, the interesting thing is precisely the way that the technocrats, and that includes Finance Minister Silvanov, who is a fiscal conservative and a generally a cautious operator, but nonetheless that they are all thinking about the future, about trying to build some kind of Russia that they think will work better and that has a more balanced and manageable economy. Now, I'm not sure if this is because they think the war is going to end soon enough, so that they can begin to start thinking about rebuilding, or because they think that somehow they're gonna have to try and manage both so that if the war rumbles on, after a certain point they can't just simply maintain emergency measures but actually have to think in these more systemic terms, or whether they're just playing self-soothing games of fantasy macroeconomics, and none of this is really gonna happen anyway, but it it helps them feel relevant. Any of those, quite frankly, are entirely plausible. Because after all, it really has demonstrated again and again that the technocrats are not in charge, that however powerful and sophisticated they may be, they are not powerful and sophisticated enough to run the country. They are still below stairs operators. It reminds us that from Putin's point of view, maintaining the war effort and pacifying the population are the two absolutely crucial issues. So long as there is the wealth fund into which to dip, then at some level the war can be maintained. Yes, there may well have to be changes, they may well after the end of this year not be able to afford to recruit in the current way by offering volunteers huge sums of money, but you know, essentially there is no evidence at the moment that the Russian state is going to run out of money to the point where it just has to withdraw from the war by default. And likewise, though, the pressure on pacification is is quite striking. It does suggest that maybe only in a limited way, Putin and the Kremlin are aware of the rising pressures because it does fit in with other indications. We've got the increasing stridency of the propaganda. I talk about this in an article in today's Sunday Times, that's the British Sunday Times, in which I take this truly surreal story that was being put out on the anniversary of the invasion from the Foreign Intelligence Service that Britain and France were looking to give Ukraine an atomic bomb. Absolute nonsense, and frankly one that even within the Russian expert community they seem rather embarrassed by. But again, it suggests an increasing desperation to try and get through and convince a jaded and disillusioned population that this war is necessary. You know, you may not want it, but way, what happens if the Ukrainians nuke you? So we have increasing propaganda. We have increasing efforts of controlling social media with the throttling of telegram, the attempt to push Max, the sort of government-controlled alternative. Again, these are all the kind of measures you do if you are concerned that you either are A, losing currently the narrative struggle with your population, or B, you might be doing something in the future that you think is going to be problematic. And that could be reaching some kind of a peace deal. I mean, if one wants to look for the more optimistic angle. But wide broadly speaking, though, what this says is precisely that the Kremlin is aware that it does not have the wholehearted, whole throated support of the Russian people. And that, therefore, is, I would suggest, the silver lining. Putin seems to have been convinced that he has to reduce budget spending. Now, while the war is on, there's no scope for cutting defence spending really. So it has to come from elsewhere, which means social spending, and that means more public unhappiness. And if Putin is aware of the political pressures, of the risks in that public unhappiness, it may, underlined, stressed, in bold, perhaps in a nice big font, incline him a little bit more towards some kind of a deal. But I don't want to go too far along that line, because there isn't really that much room for optimism, try as I might to look for it. But that is what I can gather from Mishustin's annual report to the State Duma. And if you're still listening, may I thank you for your perseverance. It was, I know, much less exciting than Fire and Fury in Iran, but frankly, probably a lot more important. For Russia, at least. Thanks for listening. Well, that's the end of another episode of the In Moscow Shadow Podcast. Just as a reminder, beyond this, you can follow my blog, also called In Moscow Shadows. Follow me on Twitter at MarkGaleotti or Facebook, MarkGaleotti on Russia. This podcast is made possible by generous and enlightened patrons, and you too can be one. Just go along to my Patreon page, that's patreon.com slash in Moscow Shadows, and decide which tier you want to join, getting access to exclusive materials and other perks. However, whether or not you contribute, thank you very much indeed for listening. Until next time, keep well.