Russia: oil, gas… Despite the war in Ukraine, the ruble is rising

The ruble’s descent into hell after the shock of the invasion of Ukraine seems a long way off, thanks oil and gas! In late February and early March, the FX market panicked. The ruble surges from unprecedented levels against the greenback: 100 rubles, then 120…until reaching more than 140 rubles per dollar on March 7th. But since that day, the Russian currency has continued to strengthen, reaching 71 rubles/dollar on Friday, a record since autumn 2021, and 77 rubles, its strongest since June 2020.

This is excellent news for the authorities, because the ruble rate is an indicator closely watched by the population, which signals that the sanctions are not crumbling on the Russian fortress. How to explain such a feat as unprecedented Western sanctions against Russia pile up? According to Sofya Donets, chief economist for Russia at Renaissance Capital, the answer lies in an unprecedented trade surplus. “Imports to Russia have fallen while exports are solid, and with high hydrocarbon prices, this translates to an estimated trade surplus of $20-25 billion in March,” according to the economist, a record.

Oil and gas, Russia’s main exports, continue to flow, filling Russia’s coffers. “Certainly, Russian oil (Urals) is selling at a lower price” than Brent, “but it remains higher than the 2021 price,” she notes. However, announcements have been made. Washington has imposed an embargo on Russian oil, and the EU has imposed a ban on the metals sector. “These are loud announcements, but if we look at the numbers, it only affects 5% of Russian exports,” notes Sofya Donets.

>> Read also – Forex: what is it? Why invest?

As long as Europe, the first buyer of Russian hydrocarbons, continues to buy, Moscow is guaranteed substantial revenues. Robust exports are complemented by draconian capital controls imposed by the central bank. Indeed, the latter was hit by unexpected sanctions: its foreign exchange reserves held abroad, nearly $300 billion, were frozen.

However, it is this windfall that it has traditionally used to defend the Russian currency in the event of a hard hit. To compensate, all export companies had to sell 80% of their export earnings to buy rubles. Individuals have been capped at $10,000 per month and one cannot leave the territory with more than that sum. With most international remittances blocked and foreigners banned from selling their Russian assets, the financial market is in a vacuum.

>> Our service – currency comparator

These capital controls have worked so well to strengthen the ruble that the central bank surprised on Friday by cutting its interest rate to 17% without notice after doubling it to 20% in an emergency on February 28. “It gives them room to focus on domestic issues,” reads a Renaissance Capital note, about balancing runaway inflation and the looming recession. The investment bank is forecasting inflation to peak at 24% in the summer before the tide ebbs.

“The Russian stock market and the ruble remain detached from global macroeconomic factors and information flow,” Alfa Bank said in a statement, estimating that the ruble will trade around 80-85 to the dollar in the near future. “The price of the ruble has become a local instrument, there are no financial flows. The market is currently destroyed, and the price of a currency is a factor in international trade,” notes Sofya Donets. “Where would it be if there were no capital controls? Difficult to say,” she concludes, referring to an unprecedented situation.

>> Buy and sell your investments (stock market, cryptocurrency, gold, etc.) at the right time thanks to Momentum, Capital’s technical analysis newsletter. And benefit now from a free trial month with the promo code CAPITAL30J.

Leave a Comment