• Western sanctions creak the Russian economy: this is how they affect the oil and semiconductor business and foreign exchange reserves
  • Russia sees negotiations for Ukraine possible but only with a new world order

The Russian currency, the ruble, sank on Friday to 82.4 rubles per dollar and 90 rubles per euro, its lowest level in the last year, due, in part, to the decrease in Moscow's foreign exchange earnings due to sanctions imposed by the West in the wake of the war in Ukraine.

The Russian currency already collapsed at the beginning of the offensive, in February 2022, but had managed to recover considerably during the summer and autumn thanks to the rise in hydrocarbon prices, driven in turn by supply restrictions. After a year of sanctions, with Europe moving far away from Russian gas and with the imposition of a cap on Moscow's oil price, the outlook for the country's economy is bleaker. President Vladimir Putin himself has admitted in that sense that there will be a "negative" impact in the "medium term" on the country's economy because of the sanctions, as AFP recalls.

According to experts, one of the reasons for the devaluation suffered this Friday by the Russian currency is the increase in imports and the reduction of exports at the beginning of the year, although the fall of the ruble would also justify Moscow's decision to reduce the sale of currencies and also the speculative demand for foreign currency due to the continued flight of capital.

Finance Minister Anton Siluanov reassured investors that the ruble was developing according to the market and that he expected it to strengthen, as Russian hydrocarbon prices were rising. "It is the sign that more foreign currency is going to enter the country. This will lead to a trend of strengthening the ruble," he predicted this week.

The Russian economy contracted by 3.2% in the first two months of this year after already falling by 2.1% in 2022, largely due to the impact of Western sanctions, which have worked but, for some, are insufficient.

"

Russia has been preparing its economy for war for years. However, the sanctions work and the fortress they tried to build is already cracking, "said Yuliia Pavytska, researcher of the team of the Sanctions Group of the KSE Institute based in Ukraine in statements to the Efe agency.

Fall in Russian revenues

Russia's revenue from the oil and gas industry fell by at least 45% in the first quarter of 2023 thanks to the price cap and partial bans introduced by coalition members. Gas exports used to account for 60% of all Russian exports and most of the revenue.

As a result, in the first two months of 2023 alone, Russia's fiscal deficit reached almost 90% of the planned annual deficit, and Russia experienced great difficulties in plugging the budget hole, Pavytska said.

Russia has already used at least $53 billion of the more than $000 billion in its National Wealth Fund to support its economy and finance its fiscal deficit but is on track to run out of liquid assets by the end of the year.

With international investors out of the picture, borrowing costs are rising, placing an additional burden on Russian state finances. "The Russian invasion is being repelled on the battlefield but sanctions are an important additional tool, aimed at weakening Russia's economy so that it cannot finance the war and produce enough weapons," Pavytska explains.

The analytical group of which Pavytska is a member provides the justification and monitors the effectiveness of the measures taken by some of the world's leading economies in response to the Russian invasion of Ukraine.Its analytical materials offer arguments for some 60 Ukrainian and foreign economists and diplomats working on sanctions within the group headed by the head of the administration of Volodimir Zelenskiy, Andriy Yermak, and Michael McFaul, former U.S. ambassador to Russia.

The data makes it increasingly difficult for Russia to spread narratives about the alleged ineffectiveness of sanctions, Pavytska says. According to the KSE Institute, its economy will contract by 6% in 2023.

  • Russia
  • Ukraine
  • United States
  • Petroleum
  • Europe
  • European Union

According to The Trust Project criteria

Learn more