After 4 months of fighting: the ruble is at its peak but the Russian economy is in a slump and looking for solutions

After 4 months of fighting: the ruble is at its peak but the Russian economy is in a slump and looking for solutions
After 4 months of fighting: the ruble is at its peak but the Russian economy is in a slump and looking for solutions

Yesterday, the Russian ruble stood at 52.3 dollars, its strongest level since May 2015, and far from the low it recorded in early March, amid sanctions against the country by the US and the EU in response to the military invasion of Ukraine. It is currently trading at $ 54.3, still close to the record it recorded last night.

At the end of February, after the initial fall of the ruble and four days after the start of the Russian invasion of Ukraine, Russia decided to double the interest rate in the country to a level of 20% compared to 9.5% by then. In response to the move, the value of the currency has consistently improved, leading the country to decide to cut interest rates by three beats to reach 11% at the end of May. The value of the currency has strengthened to such an extent that the Central Bank of Russia has begun to take active steps to try to weaken it, fearing that this will make the country’s exports less competitive.

The main engine behind the rise in the value of the currency is first and foremost, the peak revenues that the country registers from oil and gas, somewhat paradoxically, due to the rise in energy prices and partly due to the sanctions imposed on it. High energy prices, of course, contribute to the largest gas exporter in the world and the second largest exporter of oil. Although many Western countries have stopped buying their Russian oil, the fact that Brent crude oil prices are 60% higher than they were this time last year is enough for Moscow to see record profits.

And if the absurdity is not enough then the main customer of the country’s oil and gas sector is none other than the EU, which buys Russian energy worth billions of dollars a week. To illustrate the magnitude of the absurdity, it is enough to look at the work that the Union is now transferring more money to Russia for oil, gas and coal purchases than the money it is sending to Ukraine for aid to a country fighting the Russian army.


Is this a real increase?
The surge of the ruble in recent months serves the Kremlin as conclusive proof of the failure of Western sanctions. In a speech last week during the annual St. Petersburg International Economic Forum, Russian President Vladimir Putin said “the idea was clear: to smash the Russian economy violently. They failed. It clearly did not happen.”

If so, the West believes that the celebrations on Putin’s part are a bit excessive, as is the price of the ruble, and do not indicate the real situation in the country. This is because the ruble does seem strong, but it relies in part on the fact that Russian imports are crushed, due to Western sanctions. As a result, Russia holds foreign exchange reserves without being able to buy things outside its borders. Russia, which is cut off from the international banking system SWIFT and blocked from international trading in dollars and euros, is left to trade with itself. Its, it can not use these reserves to serve its import needs.

Added to this is the fact that a strong ruble does not necessarily indicate the strength of the Russian economy in the face of sanctions. For example, the Russian Ministry of Economy announced in mid-May that it expects unemployment to reach almost 7% this year, and that a return to 2021 levels is not expected until at least 2025. In addition, the fact that thousands of international companies have left Russia has led to a huge number of Russian unemployed, as well as a significant decrease in foreign investment in the country.


Attempt to strengthen ties with India and China
Meanwhile, in an attempt to deal with the harsh sanctions, Putin is working to tighten ties between the BRICS, a bloc of five developing countries that includes Brazil, Russia, India, China and South Africa. At the group’s 14th annual meeting, Putin yesterday condemned the international sanctions imposed on his country, calling them “political motives.”

Whoever joined the sentiments is Chinese President Xi Jinping who attacked the use of sanctions, in his keynote speech yesterday. “Politicizing the world economy and turning it into a weapon, and deliberately imposing sanctions by using the main position in international financial and monetary systems, will only ultimately harm the interests of those who operated them and cause them suffering,” he refrained from mentioning the US name. .

In his speech, Putin argued that the BRICS economies were exploring the possibility of creating an international reserve currency using their currency basket. “The Russian financial messaging system is open for connection with the banks of the BRICS countries. The Russian payment system MIR is expanding its presence. We are examining the possibility of creating an international reserve currency based on the BRICS currency basket,” he said.

The Russian president also said there were plans to “develop transportation infrastructure, rebuild logistics routes and create new production chains.” He also said that there are ongoing discussions about opening stores of Indian chains in Russia as well as increasing the share of Chinese cars and other vehicles in the Russian market. “Russia’s presence in the BRICS is growing. There has been a significant increase in Russian oil exports to China and India. Agricultural cooperation is developing dynamically,” Putin said.


The article is Hebrew

Tags: months fighting ruble peak Russian economy slump solutions

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