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Russia struggles for economic foothold as sanctions bite

By Andrew Knoll

07:41, 9 March 2022

Yellow ribbons with the inscription 'sanctions' wrapped around the map of the Russian Federation, painted in the colours of the flag. Economic isolation of Russia concept. Banknotes 5000 rubles
As the conflict intensifies, the West calls for greater unity on sanctions – Photo: Shutterstock

On Tuesday, US President Joseph R Biden announced a ban on US oil imports from Russia, the latest in a series of isolation measures and sanctions imposed since Russia’s invasion of Ukraine.

Simultaneously, some 8,000 kilometres away, Russian President Vladimir Putin issued a sweeping but unspecific decree designed to counteract the effects of Western efforts to undermine Russia economically.

It was a follow-up to the measures his government instituted on 28 February, which included Russia’s Central Bank raising its key-figure interest rate to 20%.

Yet Russia’s rouble remains in serious distress – its banking system has become entangled outside the SWIFT system, its interest rates have ballooned, its access to its foreign currency reserves has been diminished greatly and its equities crashed before an indefinite closure of the stock market on February 25.

Counter-measures against sanctions 

Despite efforts to insulate and indemnify itself from this type of concerted effort, Russia has already been forced to mobilise counter-measures and attempt to right its careening economic ship.

“Russia’s invasion of Ukraine has sent shockwaves around the globe, leading to market volatility and economic uncertainty,” Impax Asset Management wrote in a note to investors.

“As this is a developing and potentially escalating conflict, we anticipate that the geopolitical and economic effects will rapidly change.”

Below, offers a primer on forex and market implications for the regional conflict and global polemic that have already strengthened the dollar and decimated the rouble and affected equity markets around the world.

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Rouble on the runRussian currency rouble resumed trading on Tuesday even as the stock exchange remained closed – Photo: Shutterstock

The rouble and the damage done

Though its stock exchange remained shuttered through at least Wednesday, Russia’s currency, the rouble, resumed trading on Tuesday.

Since Russian forces invaded Ukraine on 24 February, the rouble’s value has entered a freefall against the US dollar. Since that date, the rouble lost more than half its value against the dollar, with sizable further losses dating back to the start of the calendar year.

With the rouble now worth less than one US cent, a new low against the dollar has transformed into the daily bread of the Russian currency. “The conditions for the Russian economy have altered dramatically,” Russian Central Bank head Elvira Nabiullina said in a speech last week.

“The new sanctions imposed by foreign states have entailed a considerable increase in the rouble exchange rate and limited the opportunities for Russia to use its gold and foreign currency reserves,” she added.

On Tuesday, President Putin barred certain products and raw materials from certain countries, though neither the goods, resources nor countries in question were immediately clarified. Those determinations should be made by the end of the week, and the measures were implemented through the end of the year.

It was unclear if the restrictions pertained to import and export activity with its list of unfriendly countries, among which are the US and Canada. One nation that has been amiable toward Russia is China, and their relationship is at the fulcrum of any mechanism that may enable Russia to weather this storm.

“In the long term we expect that the Russian economy can strengthen the links with mainland China, its largest trade partner,” wrote IHS Markit analyst Jakub M. Kwiatkowski, who expected a sharp short-term decrease in Russian exports.


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“On the other hand, we believe that mainland China is not able to absorb the whole sanctions-related trade shift.”

The conditions for the Russian economy have altered dramatically. The new sanctions imposed by foreign states have entailed a considerable increase in the rouble exchange rate and limited the opportunities for Russia to use its gold and foreign currency reserves. – Elvira Nabiullina, chair of the Central Bank of Russia

Biden’s latest declaration

Even though Russia is among the elite producers of both petroleum (third globally) and natural gas (second) and the US is the world’s largest economy, the latter’s barring of Russian energy imports may not have any grand consequence for Russia. Resources, headlined by oil and natural gas, dominate Russian exportation, but mostly flow elsewhere.

In the US, with price pressure and inflation levels at four-decade highs, accompanying gas price increases could take sandpaper to an already abrasive situation and leave less disposable income for elastic goods. In a note from Morningstar analyst Allen Good obtained by, the present situation was compared to 1938, the nascent stage of World War II, and 2008, when crude oil soared to a record $147 per barrel. Morningstar suggested that a “2008-type spike isn’t off the table unless a deal is struck.”

Barrels of crude oil have pressed upward toward $130 in recent days and price shock has become common at petrol pumps in the US. The national average for a gallon of regular, unleaded gas reached a record $4.17 and some areas of California, where the state average is nearing $5.50 per gallon, have seen prices nearly double the national average.

That demonstrates that President Biden’s manoeuvre was anticipated and at least partially accounted for by markets. Still, the US has limited trade with Russia, and the efficacy of embargos, phase-outs and other such measures would be stronger coming from larger-volume-consuming countries in Europe, Asia and elsewhere.

After China, the next six largest trade partners of Russia are in continental Europe. Major petroleum player Shell (SHEL), which recently purchased a tanker of Russian crude oil at a substantial discount, has now opted to sever ties with Russia.

“The ban that was announced by President Biden won’t do much by itself as the US doesn’t import much Russian oil and import bans don’t do a lot anyway – all that happens is the US buys oil from somewhere else, and then somewhere else buys the Russian oil instead. It’s a zero-sum game,” said David Meats, Morningstar’s director of research, energy and utilities, in an email to

“However, if the Europeans eventually join, or if Russia retaliates with wider embargos, it could be more impactful,” said Meats.

President Biden touched on the potential for coordinated measures, such as the UK’s gradual weaning from Russian oil and gas across 2022. While Biden reiterated that NATO members and other allies were committed to a common purpose, he acknowledged that “many of our European allies and partners may not be in a position to join us.” Biden also admonished oil and gas companies, urging them to avoid exploitation, profiteering and any unwarranted price increases.

Hulking dollar, Russian workarounds

Even with a marginal drop on Tuesday, the ICE US Dollar Index had gained about 1.6% in the past five days and 3.7% in the past month, to levels unseen since 2020. Amid wild volatility, investors have turned to US dollars and gold as hedges against inflation and other uncertainties, sending gold toward its August 2020 peak as well.

That’s something Russia, whose rouble was historically wobbly, had done with its foreign reserves, access to which has been fettered by sanctions (their reserves of Chinese Yuan are available as are funds for energy payments).

President Putin took action to allow foreign debts in other currencies to be paid in roubles. An analysis by Mint detailed other potential Russian workarounds and asserted that stricter sanctions against Iran were not entirely effective.

However, the rapid deterioration of the rouble’s value, among other factors, could leave Russia in a position to default on billions of dollars worth of bonds as they did in 1998, with far-reaching forex implications.

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