Note : There are internal and external factors that allows Russia to resist the economic war: the Bank of Russia intervened for the first time in years as part of a series of measures aimed at stabilizing the Russian financial system and defend their currency. On February 28, the Central Bank of Russia raised its interest rates to 20%, which is a strong incentive for Russians to keep their local currency. Another strong measure put in place by the government: the order for Russian companies to convert a minimum of 80% of income earned abroad into rubles. This means that a Russian steelmaker who earns 100 million euros selling steel to a company in Germany has to change 80 million of those euros into rubles. The Kremlin also issued a decree banning Russian brokers from selling foreign-owned securities. 

One of the external reasons for the appreciation of the ruble comes from the weak link in the sanctions that have been imposed by the West: natural gas. The sanctions were originally designed to restrict Russia’s ability to acquire foreign currencies – dollars and euros in particular. But several European countries continue to buy Russian gas because they are dependent on it and because there are not enough alternative suppliers to meet demand.

Moreover, one of the main driving forces behind the appreciation of the ruble is the strategy put in place by Vladimir Putin: asking certain buyers of Russian natural gas to pay their gas bills in rubles from now on. Natural gas contracts are usually written in euros or dollars, and the countries that buy this gas – EU, USA, Canada, etc. – usually have few reserves of Russian currency. Forcing these countries to pay in rubles will lead to purchases of rubles in large quantities (it is estimated that purchases of Russian natural gas by the European Union amount to around 1 billion dollars per day). The demand for the ruble could therefore explode, pushing the ruble higher. It was the anticipation of this rise that contributed to pushing up the value of the ruble.

Second flaw in the sanctions: the exclusion of sovereign debt. One of the most far-reaching measures against Russia has been the freezing of its foreign accounts. Russia holds about $640 billion in euros, dollars, yen and other foreign currencies in banks around the world. Sanctions have blocked Russia’s access to these assets, except when it comes to paying interest on its sovereign debt. The US Treasury has left a window open for financial intermediaries to process payments for Russia. This window will soon close, but it has been a great help for Russia so far. Without it, Russia might have had to raise dollars by selling rubles, which would have put downward pressure on the currency. And if it hadn’t been able to raise those dollars, it would have defaulted, with negative consequences for the ruble.

Another factor that contributes to the strengthening of the ruble: the increase in the prices of oil and natural gas. Commodity-exporting countries benefit from higher prices. Such is the case of Russia, one of the largest exporters of raw materials in the world and which, as we have just explained, continues to export despite the sanctions. Because in addition to energy exports to Europe, Russia has maintained very solid trade relations with other major economies such as China and India. The net result is a steady flow of foreign currency into Russia and an explosion in Russia’s trade surplus .

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After the United States and the European Union imposed sanctions on Russia, the most comprehensive and unprecedented economic attack in recent history, Western economists and the media parroted the same talking points of their political elites – the Russian economy was finished. The ruble was in free fall, at least half of Russia’s massive foreign exchange reserves were frozen, estimated at around $300-350 billion in assets now effectively stolen by the West, while Western financial institutions and banking systems were starting to cut Russia off, hampering trade, even with third parties.

Western leaders boasted about how they made it all happen at the push of a button and that Russia was now faced with the prospect of an economic collapse. The Moscow Stock Exchange stopped trading and by early March, it certainly seemed Russia was about to go back to the troublesome 1990s. Self-styled economic experts were making predictions and boastful prognoses of how much the Russian economy would contract by year’s end. The initial number of 30% soon turned into 25, then 22, then 17 and in the end 14 percent. Now, that number is projected to go even lower.

How is it possible that the Russian economy is so resilient? Isn’t the country just “a gas station with nukes”? Isn’t its economy the size of Spain’s? Isn’t Russia a country with no culture, no money, no laws, no future, in a state of perpetual collapse, inhabited by a deeply depressed populace with the sole wish to leave, but prevented by the “evil Kremlin”? This is precisely the image that the mainstream media have been trying to create. The spiteful portrayal of anything even remotely connected to Russia has been the norm for quite some time now.

This has been preventing the establishment of normal relations between Russia and the West for decades, despite Russia’s efforts, oftentimes at its own expense, as we were able to see during decades of NATO’s eastward expansion, made possible only thanks to Moscow’s willingness to dismantle not just its own NATO-like alliance with Eastern European countries, but also the significantly larger and more powerful USSR. All for nothing, as is evident now, since the political West has exposed its true face completely by treating Russia even worse than the USSR during the Cold War.

However, there are still some Western mainstream media decent enough to let occasional slivers of truth out through all the mindless Russophobic clutter. In its May 7th release, the Economist, a somewhat still reputable London-based publication, stated that “Russia’s economy is back on its feet”. In early April, the weekly pointed to preliminary evidence that the Russian economy was defying predictions of collapse, despite unprecedented sanctions. Recent data further support this view. Helped along by capital controls and high interest rates, the rouble is now more valuable than it was before Russia’s special military operation. Russia also continued with payments of its foreign-currency bonds.

“The real economy is surprisingly resilient too. True, Russian consumer prices have risen by more than 10% since the beginning of the year, as the rouble’s initial depreciation made imports more expensive and many Western companies pulled out, reducing supply. The number of firms late on their wage payments seems to be growing,” the report states.

“But ‘real-time’ measures of Russian economic activity are largely holding up. Total electricity consumption has fallen only a smidge. After a lull in March, Russians seem to be spending fairly freely on cafés, bars and restaurants, according to a spending tracker run by Sberbank, Russia’s largest bank. On April 29th the central bank lowered its key interest rate from 17% to 14%, a sign that a financial panic which began in February has eased slightly. The Russian economy is undoubtedly shrinking, but some economists’ predictions of a GDP decline of up to 15% this year are starting to look pessimistic,” the report adds.

The notion that a GDP decline not nearly as bad as expected is “pessimistic” shows just how excited the Western media and governments were about the possibility of Russia’s economic demise, which in turn was supposed to cause a regime-change in Moscow, bringing about the 1990s-style enslavement of the country. The fact that this failed to materialize seems rather frustrating to the political West, but it’s still nothing compared to the absolutely enraging notion that Russia’s economy is holding together with relative ease, while Western economies are suffering significantly more than expected as sanctions backfire.

“Even before the invasion Russia was a fairly closed economy, limiting sanctions’ bite. But the biggest reason for the economy’s resilience relates to fossil fuels. Since the invasion Russia has exported at least $65bn-worth of fossil fuels via shipments and pipelines, suggests the Centre for Research on Energy and Clean Air, a think-tank in Finland. In the first quarter of 2022 the government’s revenues from hydrocarbons rose by over 80% year on year. On May 4th the European Commission proposed a ban on imports of all Russian oil that would come into full force by the end of the year. Until then, expect the Russian economy to continue to trundle along,” the report concludes.

The claim that Russia is doing well only because of the fossil fuels price hike serves as an excuse and a supposed confirmation that Russia is still allegedly “a second-class economy”. However, this notion ignores the fact that the price hikes are a result of multiple factors, one being the Western sanctions which are disrupting financial transactions and supply lines. Still, it’s naive to expect that the problems resulting from the failed economic siege of Russia could be resolved by lifting the sanctions. Russia simply has no reason to trust the West. Even in the case Russia’s stolen foreign exchange reserves are unfrozen, it would take years or even decades to restore the trust in Western financial institutions.

Source: Southfront, Drago Bosnic, independent geopolitical and military analyst

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