It’s not just the Blitzkrieg of Vladimir Putin against Ukraine to be vanished. Not even that of the West towards the Russian economy seems to have worked as planned. It was Putin himself who said this in a public appearance alongside his friend and Belarusian president Aleksandr Lukashenko. But if Putin’s words can rightly be doubted, it is the trend of the ruble that is the real litmus test: after hitting historic lows at the end of February, today the Russian currency has returned no more and no less to pre-war levels. .
A clear signal that the sanctions imposed in the last month and a half with packets have not been enough.
The primary goal of Western sanctions was clear: to attack the Russian financial system, triggering the ruble’s fall and an inflationary flare-up. It was President Mario Draghi, it is said, who indicated what should have been “the nuclear weapon”: the freezing of Russian foreign exchange reserves – about 300 billion dollars out of a total of 640 – to prevent the Bank Central Russia to rush to the rescue of the ruble.
A move that forced the governor Elvira Nabiullina to raise interest rates from 9.5% to 20% in one fell swoop. And which, at least initially, produced the desired effects: the Russian currency had become little more than a sheet of paper and inflation had soared to record levels since 2015.
Today the music has already changed. According to estimates by the Russian authorities, price growth last week was less than half that of a month ago. So much so that the Central Bank has decided to start cutting interest rates, just five weeks after raising them. And the ruble has regained lost ground. So how is it possible that in just over a month Russia managed to defuse the financial bomb prepared by the United States and the European Union?
The priority for Moscow was to defend the currency. Since the ruble – like any other asset – increases its value as demand rises, the only possible maneuver was to create this demand artificially. And so the Kremlin ordered Russian exporting companies to immediately convert 80% of their revenues into rubles. And it is also trying to force Western countries to pay for gas and oil in rubles, threatening them to refuse other currencies. An announcement that had immediately reassured the Russian currency on international markets, although actual implementation is still a long way off. And if a month ago the exchange rate with the dollar was 1 to 130, today the ruble is exchanged for 80 dollars.
Admittedly, this is a greatly inflated exchange rate. Signals from the black market suggest that its actual value is much lower, perhaps as much as half. But it at least creates the illusion of stability, when stability is everything in the financial system. And it neutralizes, at least in the short term, the “nuclear weapon” available to the West, namely the freezing of reserves.
All the more so since, thanks to a waiver granted by the US Treasury, in the first month and a half of the war, Moscow was able to draw on dollar reserves, theoretically blocked, to repay the interest on its sovereign debt to American investors. Thus avoiding the technical default, at least until last week, when the United States decided to remedy it by effectively sealing the reserves.
As for the other sanctions, they are certainly not enough to bring down the Russian economy. They serve to distance ourselves from the massacres, to distinguish the good from the bad, but they do not affect the economic engine of Moscow: the energy raw materials, that is, natural gas and oil. And the reluctance of European governments is followed by huge revenues for Russia. Revenues that, thanks also to the war effect, have even increased compared to a year ago: according to Bloomberg, Moscow will collect 321 billion from energy exports in 2022, up by a third compared to 2021 due to the surge in prices.
Then looking at the bans on imports of high-tech products and luxury products, the block affects a maximum of 12% of total Russian imports, as estimated by the ISPI. While Russian exports will contract by more than 7% compared to pre-invasion levels.
But there is more: the effectiveness of economic sanctions depends not only on their intensity, but also on the possibility of circumventing them. Today only a slice of the states of the world have decided to impose sanctions on Russia.
It is true that these countries represent 59% of global GDP according to data from the World Bank. But the absence of a unanimous condemnation leaves Moscow free to extend its commercial network to countries that have not fined it, and which represent the remaining 41% of the world economy. And so it can happen that Russian products are simply diverted elsewhere, to China for example. As is already happening for oil, albeit sold at a lower price.
Of course, the World Bank predicts a severe recession for Russia, with GDP falling by 11.2% by the end of the year. A lot, but perhaps not the all-out collapse in which the United States and the European Union trusted.
Surely the sanctions against Russia represent an exceptional case of mobilization by Western countries, above all because they are aimed at a country deeply intertwined with the global economic system (in particular the European). Nonetheless, seven weeks after the invasion of Ukraine, their value remains largely symbolic and political. And one wonders if the West ever really wanted this value to change.
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