India's advantages over Association of Southeast Asian Nations (ASEAN) and other regions from a reshoring perspective range from a large domestic market to government support for long-term export growth, demography and wage costs, and lower operational risks in some categories.
On top of a significant domestic market, the Indian government has been focused on building the country's manufacturing base to support long-term growth. That's included a wide range of sectors including electronics and pharmaceuticals.
Political stability and leadership
India's recent parliamentary elections have resulted in Prime Minister Narendra Modi's continued leadership, although the Bharatiya Janata Party (BJP) has lost its majority and now relies on coalition parties for stability and policy passage.
An assessment of initial vote share and seat share data following the parliamentary elections indicates employment availability has been a voter consideration. The impact of this issue on voter outcomes is likely to further drive government intent to promote policies that would help with employment generation, particularly via manufacturing initiatives and to transition labor away from agriculture.
From a supply chain perspective, key roles including ministers for industry, trade and infrastructure are unchanged. Still, the necessities of maintaining a coalition means cabinet reshuffles remain likely to accommodate coalition partners. Implementation of policies related to supply chain objectives will involve greater need for consensus-building with coalition parties and more prominent role of state governments, whose parties are crucial to maintaining central-level political stability.
India's supply chain policies have been designed to deliver manufacturing growth driven by both domestic market and export market considerations. While the election results are likely to affect the pace of domestic reform, there is broad cross-party consensus to prioritize manufacturing initiatives, and there is little to no change in India's attraction as a center for supply chain investments.
The Production-Linked Incentive Scheme
India's Production-Linked Incentive Scheme (PLIS) provides subsidies to 13 sectors over a five-year period from 2020 to 2025. Covered sectors include electronics (including semiconductors and telecoms equipment), pharmaceuticals, autos (both conventional and EV), home appliances, steel and apparel. Payments are made as a percentage of incremental sales above the base year, designed to encourage investment in new manufacturing facilities.
One outstanding question is whether further tranches of incentives will be made available after 2025. The system's success — measured by increased exports in key sectors — will likely mean its continuation, though the needs of coalition government could mean a shift in implementation on a state-by-state basis
The incentives-led growth has also allowed Indian phone producers to outperform the global peer group more recently, with total exports rising by 46% year over year in the past three months. The assembly of phones has led to a surge in imports of parts for phone production, too, with imports of phone parts having increased by 73% in the 12 months to April 30, 2024 versus 2021, according to our data. It's likely that future government policy will look to encourage the onshoring of components.
Domestic semiconductor development has been identified as a strategic objective in India. Indian manufacturers face competition for equipment from those in other countries which have significant state-backed investment programs including the US, EU, Japan and South Korea. There's also few choices available for the latest chip-making machines in terms of suppliers.
Trade policy and tariffs
The previous Modi administration was an active user of trade policy but had signed only limited free trade agreements (FTAs) in the past five years. This is likely to change in the new term with the government aiming to expedite FTAs with several countries, primarily in Asia-Pacific, the Middle East, and advanced economies like the US, the UK and the EU.
The prior government signed a free trade agreement with the European Free Trade Association (EFTA) members in March 2024, including Iceland, Liechtenstein, Norway and Switzerland. That includes removing duties on imports of industrial goods over the next 15 years; it took 16 years to negotiate.
The Indian government previously withdrew from negotiations to join the Regional Comprehensive Economic Partnership (RCEP) in 2019. The country cited concerns about its merchandise trade deficit with the other members — including mainland China — but could join the area at a later stage.
Indian wariness toward multilateral trade agreements is likely to continue, prioritizing bilateral agreements instead where Indian negotiators assess they have greater clout over details pertaining to trade in services, exporting India's digital infrastructure, and negotiating environmental and labor standards.
The active use of tariffs to support industrial policy has been prevalent during the last Modi administration, sometimes with mixed effects. Laptop computer tariffs had to be withdrawn, electric vehicle tariffs may need to be increased and food export controls' future will depend on the monsoon season. Losses for the BJP among farming constituencies probably indicate dissatisfaction with export restrictions.
Drivers of investment in infrastructure
Logistics networks globally have been disrupted over the past year by a mixture of economic and geopolitical factors. Shipping rates for Indian exporters to Europe and the US have been disrupted by shipping via the Red Sea. These disruptions contributed to shipping rates from India to the US east coast to rise to a peak $5,200 per forty-foot equivalent unit (FEU) in February 2024 versus $1,850 per FEU in September 2023, according to S&P Global Commodity Insights data.
The addition of new shipping services, noted by Journal of Commerce, more recently has subsequently led rates to slump to $1,900 per FEU as of June 17, 2024, while those on North Asia to US East Coast routes have surged. That may give exporters from India a competitive advantage — albeit short-lived given shipping lines tend to trim services when rates dip — versus those in mainland China. The reallocation of services, however, has led to a surge in intra-Asia rates, with shipments from North Asia to India having risen, greatly increasing costs for Indian importers.
On top of volatility, Indian exports of containerized freight are forecast to grow by 4.3% annually between 2024 and 2034, our forecasts show. The need to support ultra long-haul growth increases the need for investment in deep water ports and requires the availability of more shipping liners to India-outbound routes on a consistent basis.
Investments in ports have been a consistent policy for the prior Modi administration and appear unlikely to change given Sarbananda Sonowal remains Minister of Ports, Shipping and Waterways — and that coalition partners remain in favor of port expansion to support supply chain ambitions. Tangible outputs can be seen with new facilities at Kerala port reported to be close to opening, but coalition partners — especially from Andhra Pradesh — are likely to demand greater investments along their respective coastlines.
A newer policy comes in reports that the Indian government wants to support the building of 1,000 new container and other cargo vessels over the next 10 years under the auspices of a new, state-owned shipping firm. The existing container lines will provide stiff competition for India's nascent shipping firm, not least through their shipping alliances.
INDIA IPPON DESU
Tuesday, July 30, 2024
State of the Economy : Jun 24
State of the Economy:
How macroeconomic indicators performed in June 2024? Retail Inflation and Wholesale Price Inflation increased to 5.08 per cent and 3.36 percent respectively snapping months long record; Unemployment rose to 8-month high at 9.2 per cent. Industrial production grew 5.9 per cent, UPI transactions saw a dip, while FPIs witnessed net inflows in June 2024. Read here for the detailed analysis: n June 2024, the Reserve Bank of India announced its bi-monthly monetary policy review, maintaining the repo rate at 6.5 per cent to manage inflation while supporting economic growth. Concurrently, the Ministry of Statistics and Programme Implementation (MoSPI) released GDP growth figures for Q1 FY25, showing 7.2 per cent year-on-year growth.
However, the Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange (NSE) Nifty indices showed mixed performance throughout June. Technology and pharmaceutical stocks led gains, while banking and real estate sectors faced selling pressure due to regulatory concerns and profit-booking. Two key data figures in June 2024 caught significant attention: Retail inflation broke a five-month record of moderation, increasing to 5.08 per cent, with food inflation marking another high at 9.36 per cent. At the same time, unemployment increased to 9.2 per cent. Despite these challenges, there was optimism from international organizations, with the IMF raising India’s growth projections to 7 per cent and the Asian Development Bank maintaining its forecast at 7 per cent.
Here is a detailed analysis of the high-frequency indicators of the Indian economy for June.
Inflation
The annual inflation rate based on the all-India Consumer Price Index (CPI) snaps five month record of moderation and increases to 5.08% in June 2024, up from 4.75% in May. This rate varied between rural (5.66%) and urban (4.39%) areas.
According to the Ministry of Statistics and Programme Implementation, The Consumer Food Price Index (CFPI), which measures changes in food prices, shows a significant increase with a combined inflation rate of 9.36%. The rural CFPI is at 9.15%, while the urban CFPI is slightly higher at 9.55%. Notably, inflation for sub-groups like 'Eggs', 'Spices', 'Meat & Fish', and 'Pulses & Products' has decreased compared to May 2024.
The annual rate of inflation based on all India Wholesale Price Index (WPI) number is 3.36%.
Unexpected and prolonged heatwaves have driven food prices up across many parts of India, potentially creating challenges for policymakers.
Inflation Rates (Jan-Jun 2024) Month
CPI (%)
WPI(%) Provisional
January 2024
5.10
0.27
February 2024 5.09 0.20
March 2024 4.85 0.53
April 2024 4.83 1.2
May 2024 4.75 2.61
June 2024 5.08 3.36
Unemployment
In June 2024, India's unemployment rate experienced a sharp increase, reaching 9.2 per cent from 7 per cent in May, as reported by CMIE’s Consumer Pyramids Household Survey. Both urban and rural areas saw rises in unemployment, with rural unemployment jumping from 6.3 per cent to 9.3 per cent and urban unemployment edging up from 8.6 per cent to 8.9 per cent.
This surge in unemployment coincided with a rise in the labour participation rate (LPR), which increased to 41.4 per cent from 40.8 per cent the previous month, and a decline in the employment rate, which dropped from 38 per cent to 37.6 per cent.
Unemployment Rates (Jan-Jun 2024)
Month Unemployment Rate January 2024 6.8
February 2024 8
March 2024 7.6
April 2024 8.1
May 2024 7
June 2024 9.2
Purchasing Manager’s Index (Manufacturing and Services)
In June 2024, the Indian manufacturing sector demonstrated growth, with the HSBC India Manufacturing PMI rising to 58.3 from 57.5 in May. This marked a sharp improvement in business conditions, driven by strong demand that boosted new orders and output.
Consequently, firms increased their hiring at the fastest pace recorded in over 19 years. Input cost pressures eased slightly from May, yet remained elevated, leading manufacturers to raise selling prices significantly.
Similarly, the Indian services sector exhibited robust growth, with the HSBC India Services PMI climbing to 60.5 from 60.2 in May. This increase was driven by a sharp rise in new business and an unprecedented surge in international sales.
The sector saw the fastest pace of job creation since August 2022, as firms hired both short-term and permanent staff to meet the growing demand. Input cost pressures remained moderate, with a slight increase in selling prices. Despite some concerns about market competition, service providers remained optimistic about future business prospects
Month
PMI (Manufacturing) PMI (Services) March 2024 59.1 61.2
April 2024 58.8 60.8
May 2024 57.5 60.2
June 2024 58.3 60.5
India’s Index for Industrial Production
The Index of Industrial Production (IIP) for May 2024, released in June, indicated a growth rate of 5.9 per cent year-on-year.
The Quick Estimates of IIP with base 2011-12 stands at 154.2 against 145.6 in June 2023. The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of May 2024 stand at 136.5, 149.7 and 229.3 respectively.
Within the manufacturing sector, the growth rate of the top three positive contributors to the growth of IIP for the month of April 2024 are – “Manufacture of basic metals” (7.8%), “Manufacture of pharmaceuticals, medicinal chemical and botanical products” (7.5%), and “Manufacture of electrical equipment” (14.7%).
Sector Growth Rate (%) Mining 6.6
Manufacturing 4.6
Electricity 13.7
Trade Merchandise
Total exports increased by 2.55 per cent year-on-year, reaching USD 35.20 billion compared to USD 34.32 billion in June 2023. The cumulative exports for April-June 2024 stood at USD 109.96 billion, marking an 8.60 per cent growth from the same period last year.
Non-petroleum and non-gems & jewellery sectors were particularly strong, growing by 8.48 per cent to USD 27.43 billion in June 2024. Key drivers of this growth included significant expansions in engineering goods, electronic goods, drugs & pharmaceuticals, coffee, and organic & inorganic chemicals.
Engineering goods saw a notable increase of 10.27 per cent, reaching USD 9.39 billion, while electronic goods surged by 16.91 per cent to USD 2.82 billion. The pharmaceutical sector also showed robust growth, with exports up by 9.93 per cent to USD 2.47 billion. Moreover, coffee exports soared by an impressive 70.02 per cent, reaching USD 0.20 billion, indicating diversified strength across multiple export segments in June 2024.
Merchandise Export Growth Drivers (May 2024) Category Growth (%) May 2024 (USD Billion) Electronic Goods 16.91 2.82
Engineering Goods 10.27 9.39
Drugs & Pharmaceuticals 9.93 2.47
FII and DII Statistics
Foreign portfolio investors (FPIs) recorded net inflows of Rs. 41,157 crore in May 2024. Conversely, domestic institutional investors (DIIs) reported net investments of Rs. 28,633.15 crore. The equity markets ended the month with the NSE Nifty 50 and the BSE Sensex closing at 24,010.60 and 80,716.55, respectively.
Indicator Amount (Rs. Crore) FPI Net Investments 41,157
DII Net Investments 28,633.15
NSE Nifty 50 (closing) 24,010.60
BSE Sensex (closing) 80,716.55
UPI Transactions
The Unified Payments Interface (UPI) took a dip in June 2024, with 602 banks participating, compared to 598 in May 2024. The volume of transactions reached 13,885.14 million, and the value hit Rs.20,07,081.16 crore. UPI Transactions (June 2024) Indicator June 2024 May 2024 No of Banks live on UPI 602 598
Volume of Transactions 13,885.14 Million 14,035.84 million
Value of Transactions Rs.20,07,081.16 crore Rs. 20,44,937.05 crore
By Shrishti Sharma , ETBFSI
How macroeconomic indicators performed in June 2024? Retail Inflation and Wholesale Price Inflation increased to 5.08 per cent and 3.36 percent respectively snapping months long record; Unemployment rose to 8-month high at 9.2 per cent. Industrial production grew 5.9 per cent, UPI transactions saw a dip, while FPIs witnessed net inflows in June 2024. Read here for the detailed analysis: n June 2024, the Reserve Bank of India announced its bi-monthly monetary policy review, maintaining the repo rate at 6.5 per cent to manage inflation while supporting economic growth. Concurrently, the Ministry of Statistics and Programme Implementation (MoSPI) released GDP growth figures for Q1 FY25, showing 7.2 per cent year-on-year growth.
However, the Bombay Stock Exchange (BSE) Sensex and the National Stock Exchange (NSE) Nifty indices showed mixed performance throughout June. Technology and pharmaceutical stocks led gains, while banking and real estate sectors faced selling pressure due to regulatory concerns and profit-booking. Two key data figures in June 2024 caught significant attention: Retail inflation broke a five-month record of moderation, increasing to 5.08 per cent, with food inflation marking another high at 9.36 per cent. At the same time, unemployment increased to 9.2 per cent. Despite these challenges, there was optimism from international organizations, with the IMF raising India’s growth projections to 7 per cent and the Asian Development Bank maintaining its forecast at 7 per cent.
Here is a detailed analysis of the high-frequency indicators of the Indian economy for June.
Inflation
The annual inflation rate based on the all-India Consumer Price Index (CPI) snaps five month record of moderation and increases to 5.08% in June 2024, up from 4.75% in May. This rate varied between rural (5.66%) and urban (4.39%) areas.
According to the Ministry of Statistics and Programme Implementation, The Consumer Food Price Index (CFPI), which measures changes in food prices, shows a significant increase with a combined inflation rate of 9.36%. The rural CFPI is at 9.15%, while the urban CFPI is slightly higher at 9.55%. Notably, inflation for sub-groups like 'Eggs', 'Spices', 'Meat & Fish', and 'Pulses & Products' has decreased compared to May 2024.
The annual rate of inflation based on all India Wholesale Price Index (WPI) number is 3.36%.
Unexpected and prolonged heatwaves have driven food prices up across many parts of India, potentially creating challenges for policymakers.
Inflation Rates (Jan-Jun 2024) Month
CPI (%)
WPI(%) Provisional
January 2024
5.10
0.27
February 2024 5.09 0.20
March 2024 4.85 0.53
April 2024 4.83 1.2
May 2024 4.75 2.61
June 2024 5.08 3.36
Unemployment
In June 2024, India's unemployment rate experienced a sharp increase, reaching 9.2 per cent from 7 per cent in May, as reported by CMIE’s Consumer Pyramids Household Survey. Both urban and rural areas saw rises in unemployment, with rural unemployment jumping from 6.3 per cent to 9.3 per cent and urban unemployment edging up from 8.6 per cent to 8.9 per cent.
This surge in unemployment coincided with a rise in the labour participation rate (LPR), which increased to 41.4 per cent from 40.8 per cent the previous month, and a decline in the employment rate, which dropped from 38 per cent to 37.6 per cent.
Unemployment Rates (Jan-Jun 2024)
Month Unemployment Rate January 2024 6.8
February 2024 8
March 2024 7.6
April 2024 8.1
May 2024 7
June 2024 9.2
Purchasing Manager’s Index (Manufacturing and Services)
In June 2024, the Indian manufacturing sector demonstrated growth, with the HSBC India Manufacturing PMI rising to 58.3 from 57.5 in May. This marked a sharp improvement in business conditions, driven by strong demand that boosted new orders and output.
Consequently, firms increased their hiring at the fastest pace recorded in over 19 years. Input cost pressures eased slightly from May, yet remained elevated, leading manufacturers to raise selling prices significantly.
Similarly, the Indian services sector exhibited robust growth, with the HSBC India Services PMI climbing to 60.5 from 60.2 in May. This increase was driven by a sharp rise in new business and an unprecedented surge in international sales.
The sector saw the fastest pace of job creation since August 2022, as firms hired both short-term and permanent staff to meet the growing demand. Input cost pressures remained moderate, with a slight increase in selling prices. Despite some concerns about market competition, service providers remained optimistic about future business prospects
Month
PMI (Manufacturing) PMI (Services) March 2024 59.1 61.2
April 2024 58.8 60.8
May 2024 57.5 60.2
June 2024 58.3 60.5
India’s Index for Industrial Production
The Index of Industrial Production (IIP) for May 2024, released in June, indicated a growth rate of 5.9 per cent year-on-year.
The Quick Estimates of IIP with base 2011-12 stands at 154.2 against 145.6 in June 2023. The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of May 2024 stand at 136.5, 149.7 and 229.3 respectively.
Within the manufacturing sector, the growth rate of the top three positive contributors to the growth of IIP for the month of April 2024 are – “Manufacture of basic metals” (7.8%), “Manufacture of pharmaceuticals, medicinal chemical and botanical products” (7.5%), and “Manufacture of electrical equipment” (14.7%).
Sector Growth Rate (%) Mining 6.6
Manufacturing 4.6
Electricity 13.7
Trade Merchandise
Total exports increased by 2.55 per cent year-on-year, reaching USD 35.20 billion compared to USD 34.32 billion in June 2023. The cumulative exports for April-June 2024 stood at USD 109.96 billion, marking an 8.60 per cent growth from the same period last year.
Non-petroleum and non-gems & jewellery sectors were particularly strong, growing by 8.48 per cent to USD 27.43 billion in June 2024. Key drivers of this growth included significant expansions in engineering goods, electronic goods, drugs & pharmaceuticals, coffee, and organic & inorganic chemicals.
Engineering goods saw a notable increase of 10.27 per cent, reaching USD 9.39 billion, while electronic goods surged by 16.91 per cent to USD 2.82 billion. The pharmaceutical sector also showed robust growth, with exports up by 9.93 per cent to USD 2.47 billion. Moreover, coffee exports soared by an impressive 70.02 per cent, reaching USD 0.20 billion, indicating diversified strength across multiple export segments in June 2024.
Merchandise Export Growth Drivers (May 2024) Category Growth (%) May 2024 (USD Billion) Electronic Goods 16.91 2.82
Engineering Goods 10.27 9.39
Drugs & Pharmaceuticals 9.93 2.47
FII and DII Statistics
Foreign portfolio investors (FPIs) recorded net inflows of Rs. 41,157 crore in May 2024. Conversely, domestic institutional investors (DIIs) reported net investments of Rs. 28,633.15 crore. The equity markets ended the month with the NSE Nifty 50 and the BSE Sensex closing at 24,010.60 and 80,716.55, respectively.
Indicator Amount (Rs. Crore) FPI Net Investments 41,157
DII Net Investments 28,633.15
NSE Nifty 50 (closing) 24,010.60
BSE Sensex (closing) 80,716.55
UPI Transactions
The Unified Payments Interface (UPI) took a dip in June 2024, with 602 banks participating, compared to 598 in May 2024. The volume of transactions reached 13,885.14 million, and the value hit Rs.20,07,081.16 crore. UPI Transactions (June 2024) Indicator June 2024 May 2024 No of Banks live on UPI 602 598
Volume of Transactions 13,885.14 Million 14,035.84 million
Value of Transactions Rs.20,07,081.16 crore Rs. 20,44,937.05 crore
By Shrishti Sharma , ETBFSI
Friday, July 12, 2024
Sunday, July 07, 2024
To catch a Lab Leak
In April and May 1979, between 66 and 300 people died from anthrax in the Russian city of Sverdlovsk, now called Yekaterinburg. The Soviet authorities seized doctors’ records and quickly rolled out an explanation: the deaths were an accident caused by contaminated meat.
But American intelligence agencies suspected a more nefarious explanation: the Soviets were secretly developing biological weapons.
Last week, we interviewed Matthew Meselson about his key role in convincing Henry Kissinger and Richard Nixon to ban biological weapons research in the early 1970s. After the Sverdlovsk incident, Meselson was brought in by the CIA to help assess the potential explanations. For more than a decade, he led scientific investigations into the incident. In 1992, after the fall of the Soviet Union, the truth finally came out: the Sverdlovsk incident was a bioweapons lab leak, the most deadly confirmed lab leak in history.
Meselson’s paper confirming the lab leak is an epidemiological classic. For the first time on Statecraft, we’ve doubled up on a guest: the 94-year-old Meselson is back for round two.
What You’ll Learn
How closely does the Sverdlovsk lab leak parallel incidents in Wuhan?
How close are we to genetically targeted biological weapons?
Why didn’t the Soviets know the location of their own research facilities?
I'll start by telling you how I got involved in the Sverdlovsk anthrax outbreak.
I was asked by a man at the Central Intelligence Agency named Julian Hoptman, who was in charge of a small unit dealing with biological threats, to come down and become part of this small working group. They had just learned about this anthrax epidemic and naturally wanted to know what it was. I got very close to Julian because at Langley, in Virginia, where the CIA is, there was no hotel. He invited me to stay at his house, because his daughter's bedroom was not being used. I got to talk to Julian a lot, both in the office and also at home, where we didn't talk about classified stuff.
And the kinds of evidence we had were: first, there was a particular hospital, Number 40 in Sverdlovsk, which had anthrax patients. Now, how did we know that? There was a physician who was in Sverdlovsk during the anthrax outbreak who then emigrated to Israel, and in Israel, he made contact with the agency.
He was one source of information, because he had actually been there and had friends in the medical community. He himself did not attend any of the patients, but his view was that it was inhalation and not gastrointestinal. Whereas the Russians were saying, “Yes, there has been an outbreak,” but they claimed it was gastrointestinal. They published one article with a lot of information in a law journal called Chelovek, which means “Man and the Law.” It was about a lady who lived south of Sverdlovsk whose cow got anthrax, and she had committed a crime by dumping this dead cow into a well.
There was another article in a veterinary journal about the outbreak of anthrax in sheep and cattle, and it named some villages. I don't think anybody but me tried to find out where these villages were, because they're little teeny nothing villages, but somehow I found out. And I noticed four of them were all in a straight line. At the time I thought it might be because there's a highway that goes from down south to Sverdlovsk.
From Meselson’s unclassified memo for the CIA in 1980
Were you the first person to notice that line pattern?
Yes, as far as I know — except for an admiral at the Arms Control and Disarmament Agency. He and I both thought that maybe the Russian explanation was plausible, the explanation that the anthrax outbreak was from rotted meat. The textbooks said the incubation time for anthrax was 5-7 days, but we knew that cases were coming in over six weeks, from early April until middle May. That would be inconsistent with an aerosol cloud, because the cloud goes by and then it's gone, but it could be explained by bad meat that sits in the refrigerator.
Anyway, I thought that the Soviet explanation was at least plausible. I concluded that the only way to find out is to go there. And I wrote an unclassified memo in April 1980. It gives my impressions, and there's some mathematical calculations on cloud travel, with some graphs that I made to calculate what the dosage would be downwind given various initial release sizes and all that.
But I concluded that I had to go there, and the first chance I had was in Geneva. Have you ever heard of the Pugwash Conference? It was created by Bertrand Russell and Albert Einstein. The idea was to have high-level scientists from Russia and the United States meet to try and cool down the nuclear arms race.
It's called Pugwash because a rich Canadian railway magnate named Cyrus Eaton had a resort place at Pugwash, Nova Scotia, where it used to meet. I had a cousin named Martin Kaplan, a leader of Pugwash, also the science advisor of the World Health Organization. He introduced me to a Russian who was visiting Geneva for Pugwash, Kiril Dumayev.
Dumayev was on something called the Military Industrial Committee in the Soviet Union. That's a high-level committee that decides how much money to spend on major projects, both military and civilian, and he was the chemistry guy. So Martin got us together, and I told Dumayev, “I want to go to Sverdlovsk.” He said, “Why not?”
So I sent him a letter for Moscow, describing exactly where I wanted to go. Now, how did I know where I wanted to go? Dating back to WWII, it was known that the Russians had a military microbiological laboratory in Sverdlovsk. German intelligence knew about it. There was something called “the Stern Report” in Germany under Hitler, translated in English, a great big thick thing, and it listed everything German intelligence knew about Soviet chemical and biological weapons, much of it quite correct, and it listed this place at Sverdlovsk.
I talked with John McMahon, who later became the deputy CIA director. He was all for it. He said, “We would love you to go there. We'd like to have an American go there.” He gave me a map, because he said, “When you're there, they may take you somewhere in Sverdlovsk, and they'll tell you it's this place, and it'll be nothing. It'll be a chocolate factory or something. So I will give you the exact longitude and latitude.”
And he gave me directions: you get on the trolley car at the center of town, and you get off at this certain stop, and you walk on this street, and then you turn, etc.
So that you wouldn't be hoodwinked.
It turned out the directions were a little bit wrong. The coordinates were correct, but the street directions would not have got me there. There were a couple of wrong turns.
Anyway, I'm all ready to go, and then the Russians shoot down, probably by mistake, a Korean jet, and everybody died. I get a letter from Dumayev, and he says, “In view of events with this jet, it's not a good time. Unfortunately I cannot invite you.”
Then a little bit later, this group called International Physicians for the Prevention of Nuclear War gets the Nobel Peace Prize, and specifically they give the Peace Prize to an American and a Russian. The Russian was their secretary of health, and the American was a cardiologist here in Boston named Bernie Lown, who I knew. In fact, I think he's some distant relative.
Then I learned somehow that Bernie was going to go see his friend, the health minister in Moscow, in a few weeks, so I asked Bernie if he would take a message from me to the minister, which was, “Can I go to Sverdlovsk?”
A little while later, I get a telex — we didn't have email yet in those days — with a guy named Fedorov, the assistant to the minister of health who handles foreign relations, and he says, “I've gone to Sverdlovsk to save you the trouble, and there's nothing there, don't bother, you can't go.”
Then I got a call from Sergey Kislyak, who later became the ambassador to the United States, He says, “We'd like you to come to Moscow to talk with us about Sverdlovsk, we'll fly you there on Aeroflot. You don't need any passports or anything, just come on, we'll take you to Moscow.”
So I met a bunch of people who were involved in this, including former minister of health Pyotr Burgasov.
Where were you hosted for these meetings?
It was a great big hotel near the big athletics stadium. And we met at the hospital, which was called the Botkina, a very famous, great big hospital. European hospitals in those days were like villages, for example the Children's Hospital in Paris. There'd be a wall around many buildings.
So we met there, and I went to the American Embassy to keep them informed with what was going on. I met with a Soviet general, who told me that the outbreak was caused by bad meat, and I wrote down exactly what they told me, and published it in the Bulletin of the Federation of American Scientists.
At the beginning of my article, I said, “This is what the Russians said to me.” Unfortunately, I should have made it clear that this is not what I believe, necessarily. Maybe it was true, maybe it was not. But a lot of people reading that thought that this was my belief. I had no great belief at the time. I thought maybe they were telling the truth, maybe not. I didn't know. It's still essential to go there.
So I come home, and now I'm accused of being a Soviet apologist by a lot of people because I wrote this article. I caught hell from a bunch of people for that. And it's true, I still thought that maybe they were telling the truth. [Under the Reagan administration, the intelligence community came to a consensus in the early 1980s that the Sverdlovsk anthrax was released from a bioweapons facility.]
Finally, the Soviet Union goes away, and we have Yeltsin and the Russian Federation. I'm in Washington doing some political thing, and I get a call from my secretary at Harvard: “You have a call from the Soviet embassy in Washington. They want you to greet a member of the Soviet embassy who is a physician, and he's coming from Washington into Logan Airport in Boston. And they wonder, because he doesn't know his way around, if you would meet him at the airport and help him out.”
So they gave me his name, and his American Airlines flight and arrival time. They thought I was at Harvard, but actually I'm in Washington. So I decide, “I'll find out if I can meet this guy on the airplane.”
I called American Airlines, and I said, “My partner and I both been doing business in Washington and we become separated, but I know that we're both going back on the same flight. Could you tell me the seat number with Mr. Bourdin? I'd like to sit next to him so we could conduct our business together and save a little time that way. They gave me the seat number, so I get to the airport real early, one of the first passengers there, and I'm sitting in this seat.
Pretty soon down the aisle comes a big, heavy guy, and I say nothing. He sits down next to me, I let him get settled, I wait till the plane starts down the runway. And I say in a perfectly calm voice, “Very nice to meet you, Dr. Bourdin.” He was stunned! Of course, I imagine back home that wouldn't be such a big surprise, but I like doing things like that.
Then he said, “I have a surprise for you, Dr. Meselson.” His surprise was to tell me that an American physicist is living in Sverdlovsk under a United States/Soviet exchange agreement between the two academies: their RAC and our National Academy of Sciences. He’s a guy named Don Ellis, a solid state physicist, he was there during the epidemic. He's a member of the National Academy, and so am I. So I go down to Washington.
Now, normally, trip reports are privileged, but the archivist gives me the trip report. Ellis records that he's there for several weeks, doing solid-state physics with his colleague, a Mr. Gubanov. When he came back to the States, he learned about the anthrax epidemic. He knew nothing about it while he was there, even though he's driving his kids to school every day on weekdays, going right past the police.
So I want to go to Sverdlovsk and nothing is working. Sometime in the 1980s, our National Academy of Sciences invited the Soviets to send a delegation, so we could show them that Fort Detrick was no longer doing anything with biological weapons, because in 1969, President Nixon had renounced biological weapons, and there was no bioweapons work going on at Fort Detrick. [For an account of Meselson’s role in Nixon’s biological weapons ban, see our first interview with him.]
I'm on the welcoming team, and each American was assigned a particular Russian to help them. I was assigned a guy named Alexei Yablokov, Yablokov is a Russian word for apple. This is Mr. Apple.
Have you ever been in Baltimore? They bring a big bucket of crabs to your table, and they put down a sheet of brown paper and they dump the crabs. I thought he might like that, and we went to a jazz bar where we couldn't talk because it was too loud. So I got to know this guy.
In those days, the CIA published something called FBIS, the Foreign Broadcast Information Service, unclassified translations of things from the Russian radio and press [the FBIS was dissolved in 2005]. There I saw an entry that Mr. Yablokov, my crab jazz friend, had become Yeltsin's Advisor for Environment and Health. So he's like a secretary of the Department of Environment and Health. It said that he had been asked by Yeltsin to look into this anthrax outbreak and figure out what happened.
So I sent him a telex saying, “I see that you've been asked by your president to go do this. Could I come and help you?” He said, “You can come to Sverdlovsk, but only if you're invited.”
Bear in mind, this is the former Soviet Union. Everything was loose at this time. Americans were greatly welcomed. People loved Americans. How am I going to get invited? Who do I know in Sverdlovsk? Only one name, this Mr. Gubanov who worked with the American.
Now the next thing will absolutely astonish you. I called Don Ellis. There he is in his office. And I say, “I need to get in touch with your colleague, Gubanov. Could you tell me how to reach him?”
And Don says, “Yes, I'll hand him the telephone. He's sitting right here, he's visiting me.”
That's incredible.
So Gubanov comes on the phone. I tell him I want to be invited, and he said, “Oh, I'm very interested in that outbreak, I'll get you an invitation.” By the way, Gubanov comes back to the United States sometime later, and he ends up as a stockbroker in Florida.
Anyway, pretty soon I get a telex from Mr. Suetin, who's the rector of the local university, which is named after Maxime Gorky. In the Middle Ages, universities taught what was called the trivium and the quadrivium. Do you know what I mean?
I was homeschooled with a classical education, so we did the trivium, yeah. This university in Soviet Russia was teaching the trivium and quadrivium as well as physics and chemistry. But I get this telex from the rector, who says the city is yours, and he assigns to me two guys: a physicist named Borisov, and a younger man who's a physical chemist. So I form a team, including my wife, Jeanne Guillemin, who is a medical anthropologist. And the success of what we did, which proved that it was airborne and not foodborne, was because of her.
So we go to Russia.
Can I interrupt? Yeltsin comes to power and asks for an investigation. But if I'm reading this old Washington Post story correctly, Yeltsin was told by the KGB in the early 1980s that the anthrax outbreak was a lab leak. He already knew.
That's largely true. Almost completely true. We did not know, because when he acknowledged this, we were on transit. We did not know that he had said it, which of course took some of the wind out of our sails, but we had a scientific proof.
In Yeltsin’s book, he says that at the time of the outbreak, he contacted Yuri Andropov, who was the head of the KGB, and he asked him to tell him the cause.
At that time, Yeltsin was the Communist Party leader in Sverdlovsk itself. He says he contacted Andropov, but he never heard back from Andropov. Later, after he became president and could get whatever he wanted, he came to the conclusion that it was not bad meat, that it was a military activity.
Anyway, we arrive in Sverdlovsk, and we have the names of the pathologist and her assistant, a Jewish man who had done the autopsies, and we knew how to reach them. We called on all these people, but they had nothing that would have really given us proof of a lab leak. But Borisov the physicist was a great help.
There was a woman who he knew very well named Larisa Mishustina, who was a member of the Duma. She had been elected to their House of Representatives. She had written a letter to Boris Yeltsin, and she gave me a photocopy: “Dear Boris, my constituents would like to know if the anthrax epidemic of 1979 was the result of government activity. If it was, they are entitled to double pension money.”
Now, I don't know if any money ever got paid out. But what did happen was she receives a letter from the KGB with, I think, 68 million dollars, and it has a list of constituent names, dates of birth, and their addresses.
So my wife Jeanne goes knocking on those doors. She goes straight down the list. We were there twice, 1990 and 1991, and then Jeanne goes back a third time to complete these interviews. Jeanne would go to each of these little houses, knock on the door: “We are from the university,” which is true. “We are studying health,” that's true. “We understand that you lost a husband or a child or a wife during the anthrax outbreak. May we talk with you?” In every case but one, Jeanne told me they were invited in. And the one was an elderly lady who had just come out of the bath and said she wasn't dressed. In all the other cases, they were invited in.
Jeanne Guillamin and a Russian researcher with a Sverdlovsk family Meselson and Guillamin (second and third from right) with their Russian hosts And Jeanne had a questionnaire, which I had written, but which she refined — now remember, she's an anthropologist, she knows how to do this — and she asked a whole bunch of questions. But the question that we were most interested in is, “Where did they work,” or were they pensioners who stayed home? So we could plot a map. In those days, you could buy a nice satellite map of Sverdlovsk from Spot Satellite, a high-res map showing individual houses, a high-resolution map, and I could plot each of these locations on my computer.
After Jeanne left, two professors in Sverdlovsk kept on doing the interviews, and data kept dribbling in. Little by little, it became more like a picture that's appearing when you develop a film. You could see more and more of these locations were in a narrow zone that goes from the military facility down toward the southwest, outside the city, to the villages where the sheep and cows had died. There were two exceptions, but they were the deaths of two men who were truck drivers. So they could have been driving through that band at the time of the lab leak.
The deaths all followed this line, every one of them. The most distant was 50 kilometers.
Also, the World Meteorological Organization has headquarters in Geneva, and many countries belong to it, including the Soviet Union, and every three hours, from all the major airports, they're supposed to report wind direction, wind speed cloud cover, humidity, and so on. All that data is there in Geneva. If you want it, you can buy it. It's expensive, but there was a guy there who was a graduate student and we made pals over the phone. So he sent me this data, I didn't have to pay for it.
And it turns out there's one day and one day only when the wind is in exactly that direction all day long. That's clearly what happened. No question.
Our paper is a classic in epidemiology, quite aside from the subject. I guess I'm bragging, but what could be more clear-cut?
It's a beautiful image. They're beautiful images. I'm very proud. And the credit really goes to my wife, who died in 2019.
Now, let's talk about what happened later.
Let me interrupt. I do want to hear what happened later. But I know throughout the 1980s, you were trying to figure this out. This was your intellectual project for more than a decade. Was it just running in the background for you during the 1980s? Yeah. It’s a remarkably long-term project, I was busy teaching genetics, and a lot of diplomacy. Although President Nixon had renounced biological weapons, there was still the problem of negotiating an international treaty, both for them and for chemical weapons, and the problem of influencing the diplomats to include some sort of verification protocol. I was very deeply involved in that, going back and forth to Washington and the meetings of the Conference on Disarmament in Geneva. Sverdlovsk was definitely on the back burner, but it was an active back burner.
In 1988, you were pivotal in getting Soviet health officials to come to Washington, D.C. to present on the Sverdlovsk case. Yes, that's right.
How did you get them to come? So that group included the minister of health, Pyotr Burgasov. He had invited Jeanne and me to his dacha outside of Moscow. And he tells us how he became Minister of Health. During the revolution, in Moscow, if you wanted certain kinds of jobs, you had to queue: if you wanted to be a carpenter, you wait in the long line, you get to the table, you sign up. So he and his friend wanted to become blow torch welders, but they got in the wrong line by mistake, into the line to become doctors. They say, “So what the hell? We'll become doctors instead of welders.” That's how he becomes a doctor, and eventually minister of health.
Now, I wanted to visit General Karechko, who's in charge of this closed military microbiological facility called Compound 19. I write a letter saying, “I want to meet with your scientists, and nothing but good could come from it.” And I got a letter back, and he says, “My scientists are not here right now. We can't do it.”
Now let's think about this. You are the general in charge of this facility. You have just managed to kill nearly a hundred Soviet citizens. Do you think you're going to call Moscow and say, “Hey boss, I've just managed to kill a whole bunch of people here, and I've managed to let the whole world know that there's a big anthrax outfit here.” You know what happened to him?
He killed himself, right? No, I don't know that, but certainly he's going to deny everything, right? He's going to say it was bad meat.
So when we say the Soviets were lying, it’s true that sooner or later Andropov knew. We know from Russian publications that later the GRU, military intelligence, put microphones and listened to what people were talking about. But initially, I'm sure that the people at Compound 19 [where the anthrax leak originated] were the source of the lie.
I'm looking at the Washington Post story from 1992 about Yeltsin, acknowledging that it was from a lab leak. The very last line of this piece quotes Izvestiya, the Russian outlet, that the chief of the military base committed suicide. Now, whether he actually did, or if something happened to him, I don't know. Wow. Would you send that to me?
Of course.
Is his name there? Was his rank given?
No, it's not. All they say is “the chief of the military base.” There's a lot of details missing. Yeah, I'll bet it was this poor guy.
In November of 1991, Izvestiya printed allegations from a retired general who said he learned from the KGB that “Someone from the laboratory arrived early in the morning and began to work without turning on safety filters and other protective mechanisms.” But it doesn't say when this retired general learned that from the KGB. I can't shed any light on that. I just don't know, and I don't know if the filter story is true or not either. All I know is that it was an airborne release of an aerosol, not just a spill of a liquid. It had to be an aerosol.
Now, why would they be generating an aerosol? Because just like we were doing, they were trying to determine the effective dose via inhalation for monkeys. If you're going to make an anthrax weapon, you're not going to spray liquid anthrax. You're going to disseminate an aerosol.
When you were invited down to Langley in 1980, the Sverdlovsk incident was a major concern for the CIA, because we didn't previously have any idea that the Soviet Union was developing biological weapons, right? There were suspicions. Even in 1963, when I first went to the CIA, I believe I was shown a satellite photograph of the Sverdlovsk facility. I think that we were watching this facility for years, but we weren't sure what was going on there.
We also knew about that island in the Aral Sea. We knew that was a chemical weapons testing ground because you could see on the satellite photographs, as I remember, what looked like test grids, markings for measuring how many kilometers from a central point.
In 1989, you testified before Congress and said that, to the best of your knowledge, “no country has stockpiles of biological weapons or toxins.” Do you believe there are countries with stockpiles today? I'm not connected to any intelligence channels anymore.
But you have the benefit of a long career thinking about this, even if you don't have hard intelligence. What would go through my mind is, if a country does have this stuff, try to imagine how that might have come about. That means that there's somebody or a group of people involved, but not the main leaders of their defense establishment, because this stuff is really shit. It’d be some guys who have a bee in their bonnet, to use an old expression, and they’re nagging and nagging, and sooner or later, they manage to persuade somebody who has the authority to develop them.
If I were in the intelligence business, I would try to get a list of the cast of characters in their Ministry of Defense. I know this is a very remote way to start out, but this is how I would start: are there people there who look like they're not being listened to, maybe even have training in this kind of stuff from the defensive point of view, who have maybe written about it?
Of course, I’d look at the communications information we have, and task the people from overhead reconnaissance to look around and the people who look at the incidence of various diseases worldwide to look for anything anomalous. If people from foreign governments who might know about this stuff are coming to this country, you’d want people from the intelligence community to take them out to dinner very skillfully. Maybe they would like to give us intelligence — or maybe they don't care or they'd like not to — but if we think they're highly placed and we take them to dinner, we’re skillful, maybe we can learn something.
I’d do all these things. The first paper I wrote at the Arms Control and Disarmament Agency was a proposal to detect distant outdoor tests of biological weapons, because, with a suitable fluorescent antibody, you can detect even a single organism.
By the way, long ago, the Israelis had a special guy: he would shoot birds flying out of Egypt, and then they would wash down the feathers and look for pathogens. They probably did it by culturing on petri dishes. I don't know that they've ever found anything. The Israelis had a big biological weapons program. I don't know if they still do.
You mentioned looking at any literature that officials may have published. Last year, it came out that a Chinese general had written about the possibility of genetically targeted biological weapons. How realistic do you think genetically targeted biologicals are as a threat? I think there's no way you could do this rapidly. On the other hand, if it's something you're willing to spend years and years, we know that some genetic polymorphisms are more frequent in one group than in another group.
Let's say we want to kill all the Armenians. Please don't, because I love the Armenians, my grocer is Armenian. So don’t do it. Anyway. A gene that's more frequent in Armenians will also be in other people: after all, Armenians marry other people.
If you find a hundred genes that are more frequent in Armenians, somebody who's got all 100 of them is probably Armenian. Now, that doesn't tell you how to make him sick or kill him, but now that you know what those genes are, maybe you could — in other words, it's theoretically not totally ridiculous. It would have to be based on multiple genetic targets. But it's crazy.
You spoke to the New York Times a couple of years ago about parallels between the Sverdlovsk lab leak and the potential origins of COVID-19. What’s your view today on that parallel? It looks more and more as though at least at one point they were not using an adequate high containment facility. If that's true — and they were certainly working on viruses from bats, they don't deny that, in fact, they're proud — and if in addition to that they were using NIH money to do gain of function research, it’s plausible, certainly very plausible.
I couldn't help but notice this parallel between the Soviet response to Sverdlovsk and the Chinese response to the COVID outbreak: both of them suggested they would welcome an investigation from the World Health Organization. Tell me a little bit more. I didn't know that the Russians ever said we would welcome anybody coming in. Did they say that?
There's a document here from the U.S. State Department team in Geneva, that “Ambassador Hellman received several reports of a possible Soviet initiative to invite the WHO to look into the Sverdlovsk incident.” One report credits Dr. Kaplan with the idea. That's my cousin, the head of the Pugwash conference.
One report credits him, but another describes an incident in a Pugwash meeting in which “[Soviet diplomat] Valentin Falin suggested that the WHO be asked to look into the true causes of the spread of anthrax at Sverdlovsk. [Soviet general] General Milstein reportedly was present and did not demur.” The memo says, if the Soviets are actually proposing a WHO investigation, “Presumably it would be to allow the Soviets to stage-manage the event in such a manner as to make an impossible finding.”
I have no memory of this at all.
But I'll tell you another story about the Soviet diplomats that you'll like. Under the confidence-building measures of the Biological Weapons Convention, every country is supposed to say where their high containment facilities are located, longitude and latitude. The Soviet Union is supposed to give the longitude and latitude of the laboratory in Sverdlovsk — They never denied that they had a high containment lab there, they just didn't say it was doing weapons work.
So now the Soviet foreign ministry has to share the location of this facility to the United Nations. But the ministry of defense doesn't want to give their own foreign ministry the longitude and latitude.
So I meet with Nikita Smidovich in Geneva. I remember there was snow on the ground, and he asked me to come out onto the porch with him. He says, “We need to know the longitude and latitude so we can report it, but we can't get it from the Ministry of Defense. Could you get it for me?”
That's incredible.
I did. I gave it to him. When the Soviets reported the location of Compound 19, they got it from us. They couldn't get it from their own guys.
All of these things are full of stories of human beings and all the nutcakes and crazy things that happened. You've got to make allowance for that in nearly everything.
But American intelligence agencies suspected a more nefarious explanation: the Soviets were secretly developing biological weapons.
Last week, we interviewed Matthew Meselson about his key role in convincing Henry Kissinger and Richard Nixon to ban biological weapons research in the early 1970s. After the Sverdlovsk incident, Meselson was brought in by the CIA to help assess the potential explanations. For more than a decade, he led scientific investigations into the incident. In 1992, after the fall of the Soviet Union, the truth finally came out: the Sverdlovsk incident was a bioweapons lab leak, the most deadly confirmed lab leak in history.
Meselson’s paper confirming the lab leak is an epidemiological classic. For the first time on Statecraft, we’ve doubled up on a guest: the 94-year-old Meselson is back for round two.
What You’ll Learn
How closely does the Sverdlovsk lab leak parallel incidents in Wuhan?
How close are we to genetically targeted biological weapons?
Why didn’t the Soviets know the location of their own research facilities?
I'll start by telling you how I got involved in the Sverdlovsk anthrax outbreak.
I was asked by a man at the Central Intelligence Agency named Julian Hoptman, who was in charge of a small unit dealing with biological threats, to come down and become part of this small working group. They had just learned about this anthrax epidemic and naturally wanted to know what it was. I got very close to Julian because at Langley, in Virginia, where the CIA is, there was no hotel. He invited me to stay at his house, because his daughter's bedroom was not being used. I got to talk to Julian a lot, both in the office and also at home, where we didn't talk about classified stuff.
And the kinds of evidence we had were: first, there was a particular hospital, Number 40 in Sverdlovsk, which had anthrax patients. Now, how did we know that? There was a physician who was in Sverdlovsk during the anthrax outbreak who then emigrated to Israel, and in Israel, he made contact with the agency.
He was one source of information, because he had actually been there and had friends in the medical community. He himself did not attend any of the patients, but his view was that it was inhalation and not gastrointestinal. Whereas the Russians were saying, “Yes, there has been an outbreak,” but they claimed it was gastrointestinal. They published one article with a lot of information in a law journal called Chelovek, which means “Man and the Law.” It was about a lady who lived south of Sverdlovsk whose cow got anthrax, and she had committed a crime by dumping this dead cow into a well.
There was another article in a veterinary journal about the outbreak of anthrax in sheep and cattle, and it named some villages. I don't think anybody but me tried to find out where these villages were, because they're little teeny nothing villages, but somehow I found out. And I noticed four of them were all in a straight line. At the time I thought it might be because there's a highway that goes from down south to Sverdlovsk.
From Meselson’s unclassified memo for the CIA in 1980
Were you the first person to notice that line pattern?
Yes, as far as I know — except for an admiral at the Arms Control and Disarmament Agency. He and I both thought that maybe the Russian explanation was plausible, the explanation that the anthrax outbreak was from rotted meat. The textbooks said the incubation time for anthrax was 5-7 days, but we knew that cases were coming in over six weeks, from early April until middle May. That would be inconsistent with an aerosol cloud, because the cloud goes by and then it's gone, but it could be explained by bad meat that sits in the refrigerator.
Anyway, I thought that the Soviet explanation was at least plausible. I concluded that the only way to find out is to go there. And I wrote an unclassified memo in April 1980. It gives my impressions, and there's some mathematical calculations on cloud travel, with some graphs that I made to calculate what the dosage would be downwind given various initial release sizes and all that.
But I concluded that I had to go there, and the first chance I had was in Geneva. Have you ever heard of the Pugwash Conference? It was created by Bertrand Russell and Albert Einstein. The idea was to have high-level scientists from Russia and the United States meet to try and cool down the nuclear arms race.
It's called Pugwash because a rich Canadian railway magnate named Cyrus Eaton had a resort place at Pugwash, Nova Scotia, where it used to meet. I had a cousin named Martin Kaplan, a leader of Pugwash, also the science advisor of the World Health Organization. He introduced me to a Russian who was visiting Geneva for Pugwash, Kiril Dumayev.
Dumayev was on something called the Military Industrial Committee in the Soviet Union. That's a high-level committee that decides how much money to spend on major projects, both military and civilian, and he was the chemistry guy. So Martin got us together, and I told Dumayev, “I want to go to Sverdlovsk.” He said, “Why not?”
So I sent him a letter for Moscow, describing exactly where I wanted to go. Now, how did I know where I wanted to go? Dating back to WWII, it was known that the Russians had a military microbiological laboratory in Sverdlovsk. German intelligence knew about it. There was something called “the Stern Report” in Germany under Hitler, translated in English, a great big thick thing, and it listed everything German intelligence knew about Soviet chemical and biological weapons, much of it quite correct, and it listed this place at Sverdlovsk.
I talked with John McMahon, who later became the deputy CIA director. He was all for it. He said, “We would love you to go there. We'd like to have an American go there.” He gave me a map, because he said, “When you're there, they may take you somewhere in Sverdlovsk, and they'll tell you it's this place, and it'll be nothing. It'll be a chocolate factory or something. So I will give you the exact longitude and latitude.”
And he gave me directions: you get on the trolley car at the center of town, and you get off at this certain stop, and you walk on this street, and then you turn, etc.
So that you wouldn't be hoodwinked.
It turned out the directions were a little bit wrong. The coordinates were correct, but the street directions would not have got me there. There were a couple of wrong turns.
Anyway, I'm all ready to go, and then the Russians shoot down, probably by mistake, a Korean jet, and everybody died. I get a letter from Dumayev, and he says, “In view of events with this jet, it's not a good time. Unfortunately I cannot invite you.”
Then a little bit later, this group called International Physicians for the Prevention of Nuclear War gets the Nobel Peace Prize, and specifically they give the Peace Prize to an American and a Russian. The Russian was their secretary of health, and the American was a cardiologist here in Boston named Bernie Lown, who I knew. In fact, I think he's some distant relative.
Then I learned somehow that Bernie was going to go see his friend, the health minister in Moscow, in a few weeks, so I asked Bernie if he would take a message from me to the minister, which was, “Can I go to Sverdlovsk?”
A little while later, I get a telex — we didn't have email yet in those days — with a guy named Fedorov, the assistant to the minister of health who handles foreign relations, and he says, “I've gone to Sverdlovsk to save you the trouble, and there's nothing there, don't bother, you can't go.”
Then I got a call from Sergey Kislyak, who later became the ambassador to the United States, He says, “We'd like you to come to Moscow to talk with us about Sverdlovsk, we'll fly you there on Aeroflot. You don't need any passports or anything, just come on, we'll take you to Moscow.”
So I met a bunch of people who were involved in this, including former minister of health Pyotr Burgasov.
Where were you hosted for these meetings?
It was a great big hotel near the big athletics stadium. And we met at the hospital, which was called the Botkina, a very famous, great big hospital. European hospitals in those days were like villages, for example the Children's Hospital in Paris. There'd be a wall around many buildings.
So we met there, and I went to the American Embassy to keep them informed with what was going on. I met with a Soviet general, who told me that the outbreak was caused by bad meat, and I wrote down exactly what they told me, and published it in the Bulletin of the Federation of American Scientists.
At the beginning of my article, I said, “This is what the Russians said to me.” Unfortunately, I should have made it clear that this is not what I believe, necessarily. Maybe it was true, maybe it was not. But a lot of people reading that thought that this was my belief. I had no great belief at the time. I thought maybe they were telling the truth, maybe not. I didn't know. It's still essential to go there.
So I come home, and now I'm accused of being a Soviet apologist by a lot of people because I wrote this article. I caught hell from a bunch of people for that. And it's true, I still thought that maybe they were telling the truth. [Under the Reagan administration, the intelligence community came to a consensus in the early 1980s that the Sverdlovsk anthrax was released from a bioweapons facility.]
Finally, the Soviet Union goes away, and we have Yeltsin and the Russian Federation. I'm in Washington doing some political thing, and I get a call from my secretary at Harvard: “You have a call from the Soviet embassy in Washington. They want you to greet a member of the Soviet embassy who is a physician, and he's coming from Washington into Logan Airport in Boston. And they wonder, because he doesn't know his way around, if you would meet him at the airport and help him out.”
So they gave me his name, and his American Airlines flight and arrival time. They thought I was at Harvard, but actually I'm in Washington. So I decide, “I'll find out if I can meet this guy on the airplane.”
I called American Airlines, and I said, “My partner and I both been doing business in Washington and we become separated, but I know that we're both going back on the same flight. Could you tell me the seat number with Mr. Bourdin? I'd like to sit next to him so we could conduct our business together and save a little time that way. They gave me the seat number, so I get to the airport real early, one of the first passengers there, and I'm sitting in this seat.
Pretty soon down the aisle comes a big, heavy guy, and I say nothing. He sits down next to me, I let him get settled, I wait till the plane starts down the runway. And I say in a perfectly calm voice, “Very nice to meet you, Dr. Bourdin.” He was stunned! Of course, I imagine back home that wouldn't be such a big surprise, but I like doing things like that.
Then he said, “I have a surprise for you, Dr. Meselson.” His surprise was to tell me that an American physicist is living in Sverdlovsk under a United States/Soviet exchange agreement between the two academies: their RAC and our National Academy of Sciences. He’s a guy named Don Ellis, a solid state physicist, he was there during the epidemic. He's a member of the National Academy, and so am I. So I go down to Washington.
Now, normally, trip reports are privileged, but the archivist gives me the trip report. Ellis records that he's there for several weeks, doing solid-state physics with his colleague, a Mr. Gubanov. When he came back to the States, he learned about the anthrax epidemic. He knew nothing about it while he was there, even though he's driving his kids to school every day on weekdays, going right past the police.
So I want to go to Sverdlovsk and nothing is working. Sometime in the 1980s, our National Academy of Sciences invited the Soviets to send a delegation, so we could show them that Fort Detrick was no longer doing anything with biological weapons, because in 1969, President Nixon had renounced biological weapons, and there was no bioweapons work going on at Fort Detrick. [For an account of Meselson’s role in Nixon’s biological weapons ban, see our first interview with him.]
I'm on the welcoming team, and each American was assigned a particular Russian to help them. I was assigned a guy named Alexei Yablokov, Yablokov is a Russian word for apple. This is Mr. Apple.
Have you ever been in Baltimore? They bring a big bucket of crabs to your table, and they put down a sheet of brown paper and they dump the crabs. I thought he might like that, and we went to a jazz bar where we couldn't talk because it was too loud. So I got to know this guy.
In those days, the CIA published something called FBIS, the Foreign Broadcast Information Service, unclassified translations of things from the Russian radio and press [the FBIS was dissolved in 2005]. There I saw an entry that Mr. Yablokov, my crab jazz friend, had become Yeltsin's Advisor for Environment and Health. So he's like a secretary of the Department of Environment and Health. It said that he had been asked by Yeltsin to look into this anthrax outbreak and figure out what happened.
So I sent him a telex saying, “I see that you've been asked by your president to go do this. Could I come and help you?” He said, “You can come to Sverdlovsk, but only if you're invited.”
Bear in mind, this is the former Soviet Union. Everything was loose at this time. Americans were greatly welcomed. People loved Americans. How am I going to get invited? Who do I know in Sverdlovsk? Only one name, this Mr. Gubanov who worked with the American.
Now the next thing will absolutely astonish you. I called Don Ellis. There he is in his office. And I say, “I need to get in touch with your colleague, Gubanov. Could you tell me how to reach him?”
And Don says, “Yes, I'll hand him the telephone. He's sitting right here, he's visiting me.”
That's incredible.
So Gubanov comes on the phone. I tell him I want to be invited, and he said, “Oh, I'm very interested in that outbreak, I'll get you an invitation.” By the way, Gubanov comes back to the United States sometime later, and he ends up as a stockbroker in Florida.
Anyway, pretty soon I get a telex from Mr. Suetin, who's the rector of the local university, which is named after Maxime Gorky. In the Middle Ages, universities taught what was called the trivium and the quadrivium. Do you know what I mean?
I was homeschooled with a classical education, so we did the trivium, yeah. This university in Soviet Russia was teaching the trivium and quadrivium as well as physics and chemistry. But I get this telex from the rector, who says the city is yours, and he assigns to me two guys: a physicist named Borisov, and a younger man who's a physical chemist. So I form a team, including my wife, Jeanne Guillemin, who is a medical anthropologist. And the success of what we did, which proved that it was airborne and not foodborne, was because of her.
So we go to Russia.
Can I interrupt? Yeltsin comes to power and asks for an investigation. But if I'm reading this old Washington Post story correctly, Yeltsin was told by the KGB in the early 1980s that the anthrax outbreak was a lab leak. He already knew.
That's largely true. Almost completely true. We did not know, because when he acknowledged this, we were on transit. We did not know that he had said it, which of course took some of the wind out of our sails, but we had a scientific proof.
In Yeltsin’s book, he says that at the time of the outbreak, he contacted Yuri Andropov, who was the head of the KGB, and he asked him to tell him the cause.
At that time, Yeltsin was the Communist Party leader in Sverdlovsk itself. He says he contacted Andropov, but he never heard back from Andropov. Later, after he became president and could get whatever he wanted, he came to the conclusion that it was not bad meat, that it was a military activity.
Anyway, we arrive in Sverdlovsk, and we have the names of the pathologist and her assistant, a Jewish man who had done the autopsies, and we knew how to reach them. We called on all these people, but they had nothing that would have really given us proof of a lab leak. But Borisov the physicist was a great help.
There was a woman who he knew very well named Larisa Mishustina, who was a member of the Duma. She had been elected to their House of Representatives. She had written a letter to Boris Yeltsin, and she gave me a photocopy: “Dear Boris, my constituents would like to know if the anthrax epidemic of 1979 was the result of government activity. If it was, they are entitled to double pension money.”
Now, I don't know if any money ever got paid out. But what did happen was she receives a letter from the KGB with, I think, 68 million dollars, and it has a list of constituent names, dates of birth, and their addresses.
So my wife Jeanne goes knocking on those doors. She goes straight down the list. We were there twice, 1990 and 1991, and then Jeanne goes back a third time to complete these interviews. Jeanne would go to each of these little houses, knock on the door: “We are from the university,” which is true. “We are studying health,” that's true. “We understand that you lost a husband or a child or a wife during the anthrax outbreak. May we talk with you?” In every case but one, Jeanne told me they were invited in. And the one was an elderly lady who had just come out of the bath and said she wasn't dressed. In all the other cases, they were invited in.
Jeanne Guillamin and a Russian researcher with a Sverdlovsk family Meselson and Guillamin (second and third from right) with their Russian hosts And Jeanne had a questionnaire, which I had written, but which she refined — now remember, she's an anthropologist, she knows how to do this — and she asked a whole bunch of questions. But the question that we were most interested in is, “Where did they work,” or were they pensioners who stayed home? So we could plot a map. In those days, you could buy a nice satellite map of Sverdlovsk from Spot Satellite, a high-res map showing individual houses, a high-resolution map, and I could plot each of these locations on my computer.
After Jeanne left, two professors in Sverdlovsk kept on doing the interviews, and data kept dribbling in. Little by little, it became more like a picture that's appearing when you develop a film. You could see more and more of these locations were in a narrow zone that goes from the military facility down toward the southwest, outside the city, to the villages where the sheep and cows had died. There were two exceptions, but they were the deaths of two men who were truck drivers. So they could have been driving through that band at the time of the lab leak.
The deaths all followed this line, every one of them. The most distant was 50 kilometers.
Also, the World Meteorological Organization has headquarters in Geneva, and many countries belong to it, including the Soviet Union, and every three hours, from all the major airports, they're supposed to report wind direction, wind speed cloud cover, humidity, and so on. All that data is there in Geneva. If you want it, you can buy it. It's expensive, but there was a guy there who was a graduate student and we made pals over the phone. So he sent me this data, I didn't have to pay for it.
And it turns out there's one day and one day only when the wind is in exactly that direction all day long. That's clearly what happened. No question.
Our paper is a classic in epidemiology, quite aside from the subject. I guess I'm bragging, but what could be more clear-cut?
It's a beautiful image. They're beautiful images. I'm very proud. And the credit really goes to my wife, who died in 2019.
Now, let's talk about what happened later.
Let me interrupt. I do want to hear what happened later. But I know throughout the 1980s, you were trying to figure this out. This was your intellectual project for more than a decade. Was it just running in the background for you during the 1980s? Yeah. It’s a remarkably long-term project, I was busy teaching genetics, and a lot of diplomacy. Although President Nixon had renounced biological weapons, there was still the problem of negotiating an international treaty, both for them and for chemical weapons, and the problem of influencing the diplomats to include some sort of verification protocol. I was very deeply involved in that, going back and forth to Washington and the meetings of the Conference on Disarmament in Geneva. Sverdlovsk was definitely on the back burner, but it was an active back burner.
In 1988, you were pivotal in getting Soviet health officials to come to Washington, D.C. to present on the Sverdlovsk case. Yes, that's right.
How did you get them to come? So that group included the minister of health, Pyotr Burgasov. He had invited Jeanne and me to his dacha outside of Moscow. And he tells us how he became Minister of Health. During the revolution, in Moscow, if you wanted certain kinds of jobs, you had to queue: if you wanted to be a carpenter, you wait in the long line, you get to the table, you sign up. So he and his friend wanted to become blow torch welders, but they got in the wrong line by mistake, into the line to become doctors. They say, “So what the hell? We'll become doctors instead of welders.” That's how he becomes a doctor, and eventually minister of health.
Now, I wanted to visit General Karechko, who's in charge of this closed military microbiological facility called Compound 19. I write a letter saying, “I want to meet with your scientists, and nothing but good could come from it.” And I got a letter back, and he says, “My scientists are not here right now. We can't do it.”
Now let's think about this. You are the general in charge of this facility. You have just managed to kill nearly a hundred Soviet citizens. Do you think you're going to call Moscow and say, “Hey boss, I've just managed to kill a whole bunch of people here, and I've managed to let the whole world know that there's a big anthrax outfit here.” You know what happened to him?
He killed himself, right? No, I don't know that, but certainly he's going to deny everything, right? He's going to say it was bad meat.
So when we say the Soviets were lying, it’s true that sooner or later Andropov knew. We know from Russian publications that later the GRU, military intelligence, put microphones and listened to what people were talking about. But initially, I'm sure that the people at Compound 19 [where the anthrax leak originated] were the source of the lie.
I'm looking at the Washington Post story from 1992 about Yeltsin, acknowledging that it was from a lab leak. The very last line of this piece quotes Izvestiya, the Russian outlet, that the chief of the military base committed suicide. Now, whether he actually did, or if something happened to him, I don't know. Wow. Would you send that to me?
Of course.
Is his name there? Was his rank given?
No, it's not. All they say is “the chief of the military base.” There's a lot of details missing. Yeah, I'll bet it was this poor guy.
In November of 1991, Izvestiya printed allegations from a retired general who said he learned from the KGB that “Someone from the laboratory arrived early in the morning and began to work without turning on safety filters and other protective mechanisms.” But it doesn't say when this retired general learned that from the KGB. I can't shed any light on that. I just don't know, and I don't know if the filter story is true or not either. All I know is that it was an airborne release of an aerosol, not just a spill of a liquid. It had to be an aerosol.
Now, why would they be generating an aerosol? Because just like we were doing, they were trying to determine the effective dose via inhalation for monkeys. If you're going to make an anthrax weapon, you're not going to spray liquid anthrax. You're going to disseminate an aerosol.
When you were invited down to Langley in 1980, the Sverdlovsk incident was a major concern for the CIA, because we didn't previously have any idea that the Soviet Union was developing biological weapons, right? There were suspicions. Even in 1963, when I first went to the CIA, I believe I was shown a satellite photograph of the Sverdlovsk facility. I think that we were watching this facility for years, but we weren't sure what was going on there.
We also knew about that island in the Aral Sea. We knew that was a chemical weapons testing ground because you could see on the satellite photographs, as I remember, what looked like test grids, markings for measuring how many kilometers from a central point.
In 1989, you testified before Congress and said that, to the best of your knowledge, “no country has stockpiles of biological weapons or toxins.” Do you believe there are countries with stockpiles today? I'm not connected to any intelligence channels anymore.
But you have the benefit of a long career thinking about this, even if you don't have hard intelligence. What would go through my mind is, if a country does have this stuff, try to imagine how that might have come about. That means that there's somebody or a group of people involved, but not the main leaders of their defense establishment, because this stuff is really shit. It’d be some guys who have a bee in their bonnet, to use an old expression, and they’re nagging and nagging, and sooner or later, they manage to persuade somebody who has the authority to develop them.
If I were in the intelligence business, I would try to get a list of the cast of characters in their Ministry of Defense. I know this is a very remote way to start out, but this is how I would start: are there people there who look like they're not being listened to, maybe even have training in this kind of stuff from the defensive point of view, who have maybe written about it?
Of course, I’d look at the communications information we have, and task the people from overhead reconnaissance to look around and the people who look at the incidence of various diseases worldwide to look for anything anomalous. If people from foreign governments who might know about this stuff are coming to this country, you’d want people from the intelligence community to take them out to dinner very skillfully. Maybe they would like to give us intelligence — or maybe they don't care or they'd like not to — but if we think they're highly placed and we take them to dinner, we’re skillful, maybe we can learn something.
I’d do all these things. The first paper I wrote at the Arms Control and Disarmament Agency was a proposal to detect distant outdoor tests of biological weapons, because, with a suitable fluorescent antibody, you can detect even a single organism.
By the way, long ago, the Israelis had a special guy: he would shoot birds flying out of Egypt, and then they would wash down the feathers and look for pathogens. They probably did it by culturing on petri dishes. I don't know that they've ever found anything. The Israelis had a big biological weapons program. I don't know if they still do.
You mentioned looking at any literature that officials may have published. Last year, it came out that a Chinese general had written about the possibility of genetically targeted biological weapons. How realistic do you think genetically targeted biologicals are as a threat? I think there's no way you could do this rapidly. On the other hand, if it's something you're willing to spend years and years, we know that some genetic polymorphisms are more frequent in one group than in another group.
Let's say we want to kill all the Armenians. Please don't, because I love the Armenians, my grocer is Armenian. So don’t do it. Anyway. A gene that's more frequent in Armenians will also be in other people: after all, Armenians marry other people.
If you find a hundred genes that are more frequent in Armenians, somebody who's got all 100 of them is probably Armenian. Now, that doesn't tell you how to make him sick or kill him, but now that you know what those genes are, maybe you could — in other words, it's theoretically not totally ridiculous. It would have to be based on multiple genetic targets. But it's crazy.
You spoke to the New York Times a couple of years ago about parallels between the Sverdlovsk lab leak and the potential origins of COVID-19. What’s your view today on that parallel? It looks more and more as though at least at one point they were not using an adequate high containment facility. If that's true — and they were certainly working on viruses from bats, they don't deny that, in fact, they're proud — and if in addition to that they were using NIH money to do gain of function research, it’s plausible, certainly very plausible.
I couldn't help but notice this parallel between the Soviet response to Sverdlovsk and the Chinese response to the COVID outbreak: both of them suggested they would welcome an investigation from the World Health Organization. Tell me a little bit more. I didn't know that the Russians ever said we would welcome anybody coming in. Did they say that?
There's a document here from the U.S. State Department team in Geneva, that “Ambassador Hellman received several reports of a possible Soviet initiative to invite the WHO to look into the Sverdlovsk incident.” One report credits Dr. Kaplan with the idea. That's my cousin, the head of the Pugwash conference.
One report credits him, but another describes an incident in a Pugwash meeting in which “[Soviet diplomat] Valentin Falin suggested that the WHO be asked to look into the true causes of the spread of anthrax at Sverdlovsk. [Soviet general] General Milstein reportedly was present and did not demur.” The memo says, if the Soviets are actually proposing a WHO investigation, “Presumably it would be to allow the Soviets to stage-manage the event in such a manner as to make an impossible finding.”
I have no memory of this at all.
But I'll tell you another story about the Soviet diplomats that you'll like. Under the confidence-building measures of the Biological Weapons Convention, every country is supposed to say where their high containment facilities are located, longitude and latitude. The Soviet Union is supposed to give the longitude and latitude of the laboratory in Sverdlovsk — They never denied that they had a high containment lab there, they just didn't say it was doing weapons work.
So now the Soviet foreign ministry has to share the location of this facility to the United Nations. But the ministry of defense doesn't want to give their own foreign ministry the longitude and latitude.
So I meet with Nikita Smidovich in Geneva. I remember there was snow on the ground, and he asked me to come out onto the porch with him. He says, “We need to know the longitude and latitude so we can report it, but we can't get it from the Ministry of Defense. Could you get it for me?”
That's incredible.
I did. I gave it to him. When the Soviets reported the location of Compound 19, they got it from us. They couldn't get it from their own guys.
All of these things are full of stories of human beings and all the nutcakes and crazy things that happened. You've got to make allowance for that in nearly everything.
Tuesday, July 02, 2024
How Putin is still being funded by EU
February 23, 2024 10:25 am CET
By Victor Jack
BRUSSELS — The EU last year added €1 billion to Vladimir Putin’s war chest through fuel purchases despite sweeping bans on Russian oil, a new study shared with POLITICO found.
In 2023, the EU bought an estimated 35 million barrels of refined fuels — mostly diesel — originating at least in part from Russia, according to the analysis by NGO Global Witness based on Kpler shipping data.
These purchases were allowed through a gaping and now well-known loophole: Despite the EU ban on nearly all Russian oil imports, countries can still legally buy Moscow’s crude as long as it’s first refined into fuels elsewhere. The result is a steady flow of Russian fuel entering to the EU via places like India and Turkey — and lots of money flowing back to the Kremlin. The €1 billion figure — equivalent to the cost of around 60,000 of the Iranian-made Shahed drones which Moscow frequently uses to bomb Ukrainian cities — comes as the EU this week agreed to a 13th package of sanctions to mark two years since Russia launched its full-scale invasion.
Those sanctions have been patchy at best in throttling Moscow’s energy revenues, which make up roughly half the Kremlin’s budget. Last year, POLITICO revealed Moscow raked in another €1 billion from a separate EU sanctions loophole in Bulgaria and found EU attempts to cap Russian oil revenues had largely failed.
That’s spurring calls for further action, as the EU begins to prepare its 14th sanctions package, which should be unveiled in the coming months. The latest revelations of Russia’s titanic oil profits — not to mention the death of Russian opposition leader Alexei Navalny — will increase that pressure.
“The Russian regime keeps indirectly profiting from third countries that sell oil products produced from Russian origin crude oil to the EU,” said Estonian Deputy Foreign Minister Erki Kodar. Brussels, he added, must “assess the problem,” suggesting a new rule requiring foreign refineries to inform EU buyers of any Russian imports.
Thus far, however, fears of a diesel price spike and economic recession have scared officials away from taking such steps.
Refined reliance
In 2022, the EU banned Russian seaborne oil imports and, alongside its G7 allies, imposed a $60-per-barrel price limit for sales outside the EU of Russian cargoes using Western shipping and insurance services.
“Thanks to this,” European Commission President Ursula von der Leyen said at the time, there will be “a ban on almost 90 percent of all Russian oil imports” entering the EU, later adding the measures would “reduce Russia's revenues significantly.”
However, the plan had some glaring workarounds that have undermined its effectiveness. In addition to the carve-out allowing EU countries to still buy Russian crude refined outside the bloc, a further exemption was given to EU member Bulgaria, which was temporarily allowed to export limited Russian-origin fuels under strict conditions.
In all, that meant seven refineries processing Moscow’s crude in India, Turkey and Bulgaria continued exporting refined fuels to the EU. Indian facilities supplied the most fuel to the bloc, accounting for two-thirds of the supply.
Those processed fuels were then sold legally, including via Western oil firms and commodity traders, and later arrived at EU ports, according to the report. All refineries involved in the process were also in compliance with current EU sanctions laws. None of the facilities' owners responded to a request for comment.
Global Witness estimated that the fuel exports from these refineries to the EU last year generated between €870 million and €1.3 billion for the Kremlin based on the average tax levied on crude exports leaving Russia combined with the amount of unprocessed crude Moscow sent to each refinery.
“Every penny spent on Russian oil helps pay for the Kremlin’s war of aggression on Ukraine,” said Christopher Lambin, a senior analyst at the NGO who authored the report, adding that “the EU should move to close the refining loophole.”
The result is “obviously wrong,” said one EU diplomat, granted anonymity to speak candidly, as the aim is to completely cut off Moscow’s supplies. The diplomat added that the bloc should ban imports from refineries using Russian oil as long as it can secure affordable alternative supplies.
Everybody knows
The EU is already well aware of the issue.
Last May, the bloc’s foreign policy chief, Josep Borrell, said EU purchases of Indian fuels made with Russian oil “undermine the effectiveness of our restrictive measures” and are “circumventing our sanctions” — and urged the bloc’s capitals to deal with the issue.
A Commission spokesperson said the EU executive was “in regular contact with third countries” on circumvention, adding: “We remain determined to stay ahead of the curve … if need be with additional sanctions.”
But so far, neither Brussels nor EU capitals have moved an inch.
That’s largely because doing so “would be massively disruptive and trigger large price hikes” on diesel, said Eugene Lindell, head of refined products at the FGE energy consultancy. The fuel is already “incredibly expensive” after the EU banned direct oil imports from Russia, and the recent Houthi rebel attacks on cargoes in the Red Sea, he added.
“EU governments are fighting right now to not have their economies go into recession,” Lindell said. And despite the bloc’s desire to drain Russia’s revenues, there’s an “economic imperative which trumps politics even between archenemies.”
By Victor Jack
BRUSSELS — The EU last year added €1 billion to Vladimir Putin’s war chest through fuel purchases despite sweeping bans on Russian oil, a new study shared with POLITICO found.
In 2023, the EU bought an estimated 35 million barrels of refined fuels — mostly diesel — originating at least in part from Russia, according to the analysis by NGO Global Witness based on Kpler shipping data.
These purchases were allowed through a gaping and now well-known loophole: Despite the EU ban on nearly all Russian oil imports, countries can still legally buy Moscow’s crude as long as it’s first refined into fuels elsewhere. The result is a steady flow of Russian fuel entering to the EU via places like India and Turkey — and lots of money flowing back to the Kremlin. The €1 billion figure — equivalent to the cost of around 60,000 of the Iranian-made Shahed drones which Moscow frequently uses to bomb Ukrainian cities — comes as the EU this week agreed to a 13th package of sanctions to mark two years since Russia launched its full-scale invasion.
Those sanctions have been patchy at best in throttling Moscow’s energy revenues, which make up roughly half the Kremlin’s budget. Last year, POLITICO revealed Moscow raked in another €1 billion from a separate EU sanctions loophole in Bulgaria and found EU attempts to cap Russian oil revenues had largely failed.
That’s spurring calls for further action, as the EU begins to prepare its 14th sanctions package, which should be unveiled in the coming months. The latest revelations of Russia’s titanic oil profits — not to mention the death of Russian opposition leader Alexei Navalny — will increase that pressure.
“The Russian regime keeps indirectly profiting from third countries that sell oil products produced from Russian origin crude oil to the EU,” said Estonian Deputy Foreign Minister Erki Kodar. Brussels, he added, must “assess the problem,” suggesting a new rule requiring foreign refineries to inform EU buyers of any Russian imports.
Thus far, however, fears of a diesel price spike and economic recession have scared officials away from taking such steps.
Refined reliance
In 2022, the EU banned Russian seaborne oil imports and, alongside its G7 allies, imposed a $60-per-barrel price limit for sales outside the EU of Russian cargoes using Western shipping and insurance services.
“Thanks to this,” European Commission President Ursula von der Leyen said at the time, there will be “a ban on almost 90 percent of all Russian oil imports” entering the EU, later adding the measures would “reduce Russia's revenues significantly.”
However, the plan had some glaring workarounds that have undermined its effectiveness. In addition to the carve-out allowing EU countries to still buy Russian crude refined outside the bloc, a further exemption was given to EU member Bulgaria, which was temporarily allowed to export limited Russian-origin fuels under strict conditions.
In all, that meant seven refineries processing Moscow’s crude in India, Turkey and Bulgaria continued exporting refined fuels to the EU. Indian facilities supplied the most fuel to the bloc, accounting for two-thirds of the supply.
Those processed fuels were then sold legally, including via Western oil firms and commodity traders, and later arrived at EU ports, according to the report. All refineries involved in the process were also in compliance with current EU sanctions laws. None of the facilities' owners responded to a request for comment.
Global Witness estimated that the fuel exports from these refineries to the EU last year generated between €870 million and €1.3 billion for the Kremlin based on the average tax levied on crude exports leaving Russia combined with the amount of unprocessed crude Moscow sent to each refinery.
“Every penny spent on Russian oil helps pay for the Kremlin’s war of aggression on Ukraine,” said Christopher Lambin, a senior analyst at the NGO who authored the report, adding that “the EU should move to close the refining loophole.”
The result is “obviously wrong,” said one EU diplomat, granted anonymity to speak candidly, as the aim is to completely cut off Moscow’s supplies. The diplomat added that the bloc should ban imports from refineries using Russian oil as long as it can secure affordable alternative supplies.
Everybody knows
The EU is already well aware of the issue.
Last May, the bloc’s foreign policy chief, Josep Borrell, said EU purchases of Indian fuels made with Russian oil “undermine the effectiveness of our restrictive measures” and are “circumventing our sanctions” — and urged the bloc’s capitals to deal with the issue.
A Commission spokesperson said the EU executive was “in regular contact with third countries” on circumvention, adding: “We remain determined to stay ahead of the curve … if need be with additional sanctions.”
But so far, neither Brussels nor EU capitals have moved an inch.
That’s largely because doing so “would be massively disruptive and trigger large price hikes” on diesel, said Eugene Lindell, head of refined products at the FGE energy consultancy. The fuel is already “incredibly expensive” after the EU banned direct oil imports from Russia, and the recent Houthi rebel attacks on cargoes in the Red Sea, he added.
“EU governments are fighting right now to not have their economies go into recession,” Lindell said. And despite the bloc’s desire to drain Russia’s revenues, there’s an “economic imperative which trumps politics even between archenemies.”
Monday, July 01, 2024
German Newspaper article on welfare
How the German welfare state punishes performance
Transfer payments such as citizen's allowance and housing benefit as well as the tax system are poorly coordinated. More gross often leads to less net. Berlin. If the citizen's allowance increases by twelve percent at the turn of the year, there will be a lot of envy: most employees can only dream of a wage increase of this magnitude.
Despite the higher citizen's allowance, someone who works always has more money at their disposal than someone who does not work, says Andreas Peichl of the Munich Ifo Institute . "But the question is how big the incentive to work is," stresses the economist.
Poorly coordinated state benefits such as the citizen's allowance, housing benefit or child allowance often mean that additional work is not worthwhile or, in extreme cases, even leads to lower net income. The Ifo Institute has calculated this for various household types for the Handelsblatt newspaper - and shown how anti-performance the system sometimes is.
The economists took into account the higher citizen's allowance rates and the increase in the maximum amount of the child allowance to 292 euros, as well as tax changes announced by the coalition for the coming year, some of which have not yet been enshrined in law It is planned to increase the basic allowance to 11,784 euros and the child allowance – including the allowance for care and education or training needs – to 9,540 euros.
Calculation example single
An unemployed, single citizen's allowance recipient, for whom the state reimburses rent costs of 650 euros and heating costs of 80 euros, would only have the standard rate of 563 euros available per month.
If the single person were to work full-time for the minimum wage and have the same housing costs , he would earn around 2,000 euros gross. According to Ifo calculations, he would have 911 euros left over net if he claimed the transfer payments to which he was entitled, such as housing benefit. This would mean he would have 348 euros more at his disposal than his unemployed counterpart.
However, if the citizen's allowance recipient takes on a mini-job that pays 500 euros, the wage gap to that of a full-time employee is only 168 euros. For a midi-job with 18.5 hours per week at the minimum wage, the wage gap shrinks to just 20 euros. So for half the work, you get almost as much money as in a full-time job.
Calculation example for single parents
An unemployed single parent with two children aged five and nine and housing and heating costs of 1,055 euros would have 1,553 euros at her disposal with the citizen's allowance. With a full-time job at the minimum wage and a gross income of 2,000 euros, she would have a net income of 2,349 euros - 796 euros more. However, this only applies if she actually claims the transfer payments to which she is entitled, such as housing benefit, child benefit or maintenance advance. Many people who are entitled to benefits do not do so out of shame or ignorance. Without all the transfer payments, the single parent with her full-time job at the minimum wage would only have a net income of 1,015 euros instead of 2,349 euros - 538 euros less than a corresponding recipient of citizen's allowance.
Calculation example for a couple with two incomes
A dual-income couple with two children aged five and nine, who work full-time and each earn 2000 euros gross per month, have a net income of 2686 euros with rent and heating costs of 1235 euros.
The couple therefore only has 887 euros more at their disposal per month than the household receiving citizen's allowance. The absurd thing is that if the model working couple increases their joint income to 5,000 euros, the household's net income falls by 43 euros to 2,643. Criticism from the opposition and coalition
The problem is that rising wages are in many cases eaten up again by the parallel reduction in state transfers and an increasing tax and social security burden. "Work is therefore often no longer profitable," criticizes the labor market policy spokesman for the Union faction , Stephan Stracke ( CSU ). "But performance and hard work must be worthwhile."
Despite falling inflation rates, the federal government has raised the citizen's allowance rates by an average of almost a quarter within two years. The standard rate for single people will rise by 61 euros to 563 euros per month in 2024.
The SPD , Greens and FDP had also already reformed the additional income limits so that benefit recipients of earned income between the mini-job limit of 520 euros and 1,000 euros could keep more than before. But the coalition is thus continuing to privilege part-time employment, criticizes Stracke. The goal must always be full-time employment that meets demand without permanent subsidies. "Anything else is just tinkering with symptoms." The traffic light coalition has not yet implemented its reform promise from the coalition agreement to better coordinate state services in order to create real incentives to work.
And so there are warning voices not only in the opposition, but also in the governing coalition that the welfare state must not destroy work incentives: "Work and performance must be noticeably more and more worthwhile," says Jens Teutrine, the spokesman for the FDP parliamentary group responsible for the citizen's allowance.
It is "absurd" that, in the interaction of the various social benefits, there are currently income ranges where, despite higher income, people have less money in their pockets and working more is hardly financially worthwhile.
Coalition promised reform
A reform of the system "is urgently needed and is long overdue," warns Ifo researcher Lilly Fischer, who carried out the calculations together with Peichl. This includes reducing the transfer withdrawal rates and increasing the tax allowances for employed people. In addition, the two competing social systems of citizen's allowance on the one hand and housing benefit plus child allowance on the other hand would have to be integrated. According to the coalition agreement, the SPD, Greens and FDP want to coordinate tax-financed social benefits in such a way that it really is worthwhile for recipients of citizen's allowance to take up employment subject to social insurance contributions.
As a basis for such a reform, Labor Minister Hubertus Heil (SPD) commissioned a report from the economic research institutes Ifo and ZEW as well as other scientists - as agreed in the coalition agreement. The report, which Handelsblatt had already reported on in advance, was published shortly before Christmas. The research team led by project leader Peichl proposes several reform paths, including the following model: If citizens' allowance recipients earn more than 520 and no more than 2,000 euros per month, only 70 percent of this should be counted towards the citizens' allowance.
Under current law, only incomes between 520 and 1,000 euros are exempt to this extent. According to the Commission's proposal, benefit recipients should be allowed to keep 35 cents instead of zero for every euro earned above 2,000 euros.
This would mean that even with higher earned income, there would be significantly more net income left over from gross income. However, a change in the income limits would also increase the number of people entitled to benefits.
Depending on how the additional income limits are designed, the Commission assumes that over a million more households could receive basic social security benefits, says CSU politician Stracke. This would expand transfer payments and consolidate them for low earners He suggests that social benefits should be reduced at a lower rate for a limited period of time as incomes rise. "This could be a way to pave the way to full-time employment without the disadvantage of permanent subsidies," emphasises Stracke.
Housing benefit reform is still pending
Reducing social transfers as income increases, not too quickly and not too slowly, is always a balancing act, says economist Martin Werding, who also worked on the report. "However, basic security currently still contains real gaps that make it difficult to completely stop relying on transfers."
The next major reform would require housing benefit to be better linked to citizen's allowance, says the Bochum economist. The two benefits are currently poorly coordinated. However, solutions to this problem were not part of the reviewers' task. The coalition will now examine the experts' suggestions as a basis for a reform, even if his group does not adopt all of them one-to-one, says FDP politician Teutrine. "Our goal is to strengthen employment subject to social insurance contributions and to build a stable bridge to the labor market for a wide variety of family constellations."
Until that happens, the welfare state will continue to produce many absurdities.
By Frank specht and Martin Grieve
Transfer payments such as citizen's allowance and housing benefit as well as the tax system are poorly coordinated. More gross often leads to less net. Berlin. If the citizen's allowance increases by twelve percent at the turn of the year, there will be a lot of envy: most employees can only dream of a wage increase of this magnitude.
Despite the higher citizen's allowance, someone who works always has more money at their disposal than someone who does not work, says Andreas Peichl of the Munich Ifo Institute . "But the question is how big the incentive to work is," stresses the economist.
Poorly coordinated state benefits such as the citizen's allowance, housing benefit or child allowance often mean that additional work is not worthwhile or, in extreme cases, even leads to lower net income. The Ifo Institute has calculated this for various household types for the Handelsblatt newspaper - and shown how anti-performance the system sometimes is.
The economists took into account the higher citizen's allowance rates and the increase in the maximum amount of the child allowance to 292 euros, as well as tax changes announced by the coalition for the coming year, some of which have not yet been enshrined in law It is planned to increase the basic allowance to 11,784 euros and the child allowance – including the allowance for care and education or training needs – to 9,540 euros.
Calculation example single
An unemployed, single citizen's allowance recipient, for whom the state reimburses rent costs of 650 euros and heating costs of 80 euros, would only have the standard rate of 563 euros available per month.
If the single person were to work full-time for the minimum wage and have the same housing costs , he would earn around 2,000 euros gross. According to Ifo calculations, he would have 911 euros left over net if he claimed the transfer payments to which he was entitled, such as housing benefit. This would mean he would have 348 euros more at his disposal than his unemployed counterpart.
However, if the citizen's allowance recipient takes on a mini-job that pays 500 euros, the wage gap to that of a full-time employee is only 168 euros. For a midi-job with 18.5 hours per week at the minimum wage, the wage gap shrinks to just 20 euros. So for half the work, you get almost as much money as in a full-time job.
Calculation example for single parents
An unemployed single parent with two children aged five and nine and housing and heating costs of 1,055 euros would have 1,553 euros at her disposal with the citizen's allowance. With a full-time job at the minimum wage and a gross income of 2,000 euros, she would have a net income of 2,349 euros - 796 euros more. However, this only applies if she actually claims the transfer payments to which she is entitled, such as housing benefit, child benefit or maintenance advance. Many people who are entitled to benefits do not do so out of shame or ignorance. Without all the transfer payments, the single parent with her full-time job at the minimum wage would only have a net income of 1,015 euros instead of 2,349 euros - 538 euros less than a corresponding recipient of citizen's allowance.
Calculation example for a couple with two incomes
A dual-income couple with two children aged five and nine, who work full-time and each earn 2000 euros gross per month, have a net income of 2686 euros with rent and heating costs of 1235 euros.
The couple therefore only has 887 euros more at their disposal per month than the household receiving citizen's allowance. The absurd thing is that if the model working couple increases their joint income to 5,000 euros, the household's net income falls by 43 euros to 2,643. Criticism from the opposition and coalition
The problem is that rising wages are in many cases eaten up again by the parallel reduction in state transfers and an increasing tax and social security burden. "Work is therefore often no longer profitable," criticizes the labor market policy spokesman for the Union faction , Stephan Stracke ( CSU ). "But performance and hard work must be worthwhile."
Despite falling inflation rates, the federal government has raised the citizen's allowance rates by an average of almost a quarter within two years. The standard rate for single people will rise by 61 euros to 563 euros per month in 2024.
The SPD , Greens and FDP had also already reformed the additional income limits so that benefit recipients of earned income between the mini-job limit of 520 euros and 1,000 euros could keep more than before. But the coalition is thus continuing to privilege part-time employment, criticizes Stracke. The goal must always be full-time employment that meets demand without permanent subsidies. "Anything else is just tinkering with symptoms." The traffic light coalition has not yet implemented its reform promise from the coalition agreement to better coordinate state services in order to create real incentives to work.
And so there are warning voices not only in the opposition, but also in the governing coalition that the welfare state must not destroy work incentives: "Work and performance must be noticeably more and more worthwhile," says Jens Teutrine, the spokesman for the FDP parliamentary group responsible for the citizen's allowance.
It is "absurd" that, in the interaction of the various social benefits, there are currently income ranges where, despite higher income, people have less money in their pockets and working more is hardly financially worthwhile.
Coalition promised reform
A reform of the system "is urgently needed and is long overdue," warns Ifo researcher Lilly Fischer, who carried out the calculations together with Peichl. This includes reducing the transfer withdrawal rates and increasing the tax allowances for employed people. In addition, the two competing social systems of citizen's allowance on the one hand and housing benefit plus child allowance on the other hand would have to be integrated. According to the coalition agreement, the SPD, Greens and FDP want to coordinate tax-financed social benefits in such a way that it really is worthwhile for recipients of citizen's allowance to take up employment subject to social insurance contributions.
As a basis for such a reform, Labor Minister Hubertus Heil (SPD) commissioned a report from the economic research institutes Ifo and ZEW as well as other scientists - as agreed in the coalition agreement. The report, which Handelsblatt had already reported on in advance, was published shortly before Christmas. The research team led by project leader Peichl proposes several reform paths, including the following model: If citizens' allowance recipients earn more than 520 and no more than 2,000 euros per month, only 70 percent of this should be counted towards the citizens' allowance.
Under current law, only incomes between 520 and 1,000 euros are exempt to this extent. According to the Commission's proposal, benefit recipients should be allowed to keep 35 cents instead of zero for every euro earned above 2,000 euros.
This would mean that even with higher earned income, there would be significantly more net income left over from gross income. However, a change in the income limits would also increase the number of people entitled to benefits.
Depending on how the additional income limits are designed, the Commission assumes that over a million more households could receive basic social security benefits, says CSU politician Stracke. This would expand transfer payments and consolidate them for low earners He suggests that social benefits should be reduced at a lower rate for a limited period of time as incomes rise. "This could be a way to pave the way to full-time employment without the disadvantage of permanent subsidies," emphasises Stracke.
Housing benefit reform is still pending
Reducing social transfers as income increases, not too quickly and not too slowly, is always a balancing act, says economist Martin Werding, who also worked on the report. "However, basic security currently still contains real gaps that make it difficult to completely stop relying on transfers."
The next major reform would require housing benefit to be better linked to citizen's allowance, says the Bochum economist. The two benefits are currently poorly coordinated. However, solutions to this problem were not part of the reviewers' task. The coalition will now examine the experts' suggestions as a basis for a reform, even if his group does not adopt all of them one-to-one, says FDP politician Teutrine. "Our goal is to strengthen employment subject to social insurance contributions and to build a stable bridge to the labor market for a wide variety of family constellations."
Until that happens, the welfare state will continue to produce many absurdities.
By Frank specht and Martin Grieve
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