The West is “helpless” when the Russian ruble rises sharply despite sanctions?

After nearly two months EU and US punish Russia far and wide, the Russian ruble is now stronger than it was before the country launched its military campaign into Ukraine. With Western powers still pondering more sanctions, the ruble is poised to further strengthen its position against the euro and dollar.

According to Bloomberg, the ruble is the best performing currency of 2022, up 11% in exchange rate against USD in the past 4 months. The ruble is also one of only three currencies to appreciate against the dollar this year.

Does China give Russia extra economic support?

Some believe that China may be helping to boost the Russian economy, while others argue that continued Chinese trade activity is enough to offset the damage of EU and US sanctions. . So far, the fact that Russia and China still trade at levels similar to before Russia’s military campaign in Ukraine is not seen by Western powers as “offsetting”.

While the support from China Part of the explanation for the sudden appreciation of the ruble should not be underestimated, and the efforts of the Kremlin and the Russian Central Bank (RCB) should not be underestimated. The Central Bank of Russia has taken aggressive steps to increase demand for the local currency.

What did Russia do to avoid the collapse of the ruble?

While the charts show the ruble rising, the news from RCB tells a different story. The sanctions, which the bank calls “external trade and financial restrictions,” have resulted in a significant drop in imports, more than a drop in exports. To put it more simply, Russian goods are leaving the country in higher quantities than foreign goods are pouring in. The bank’s leaders said that while “new suppliers and sales markets” were emerging, “enterprises are experiencing significant production and logistics difficulties”.

After a surge in demand as the military campaign began, fueled by shortage fears, RCB noted that consumer demand has stabilized from levels seen in late February and early March. However, shortages are ongoing, with the country’s Central Bank noting that two-thirds of companies in Russia have had import disruptions.

The RCB issues periodic projections for the economy as a whole, forecasting GDP to shrink by 8% while inflation climbs between 18 and 23% this year. By 2024, the bank forecasts that the inflation rate will drop to around 4%; while GDP growth is expected to decline in 2022-2023 and increase in 2024.

Russian gas has little impact

The strength of the Russian economy is due in part to Russian gas have not been severely affected by the sanctions. The EU has proposed a similar ban on Russian energy exports to the US but has so far not received the consent of all members.

Russia has weaponized its reliance on exports to increase demand for its currency. Gazprom, the state-owned Russian energy group, has announced the suspension of exports to Poland and Bulgaria due to their refusal to pay in rubles.

Threats to other European nations that rely heavily on Russian energy sources, such as Germany, have been raised, but no action has been taken so far. By forcing these countries to pay in rubles to buy gas, it means that the demand and value of this currency can continue to increase.

How have sanctions impacted the Russian oil market?

In March, the US banned imports of Russian oil, sending global oil prices soaring. The Central Bank of Russia reported that sanctions have led to a drop in oil exports, which fell 10.9% in the refining sector in March.

EU will embargo Russian oil?

The EU proposal to ban Russian oil imports will need a transition over the next six months. The move would be a serious escalation in Europe’s economic attacks on the Russian economy. Countries heavily dependent on Russian oil exports such as Hungary (75%) and Slovakia (100%) are voicing their opposition to this proposal.

Hungarian Prime Minister Viktor Orbán said in an interview that the Russian oil embargo would “ruin” the country’s economy, drawing a “red line” on Budapest’s support for the move. so.

To propose ban Russian oil adopted by the EU, all 27 member states must agree.