OPINION: The Ruble is Melting, Finally

The ruble seems now to be in free fall, down around 6% this week and close to 15% lower this month. At close to 112 against the US dollar, the ruble is now at its weakest level since the panic which set in after the “surprise” full scale invasion of Ukraine in February 2022 – not a surprise to some, such as yours truly who had been predicting the full scale invasion as far back as 2015.

The ruble seems to being driven weaker as a result of the decision of the Biden administration to tighten the sanctions regime around Russia. This was seen over the summer in the sanctioning of the MOEX Moscow based FX exchange, then a tightening of secondary sanctions around Russia, and then over the past week with the US finally sanctioning Gazprombank – the latter being the main conduct for Russia to transact for oil and energy. We have also had efforts this week from the G7 to tighten sanctions around Russia’s shadow oil fleet. All this is making it harder for Russia to transact trade.

The driver for recent G7 actions seems to be a concerted effort to increase the economic costs of the war in Ukraine and to force the Putin regime to the negotiating table with the incoming US administration – to weaken Russia’s negotiating position in those talks to the advantage of Ukraine.

It feels also as though China is working to assist the G7 herein, not going out of its way to help Russia to alleviate pressure on the ruble. China likely has been annoyed by Russian actions to bring North Korea into the conflict, pulling North Korea further out of Beijing’s strategic orbit. China also probably wants to be seen as being helpful to the Trump administration mindful to try and win friends in the new Trump administration to help secure tariff moderation on its own behalf.

Other Topics of Interest

Freezing Winter Awaits Ukrainians Because of Russian Missile Offensive

Seasonal demand growth will still cause electricity shortages in Ukraine. Russia’s missile strikes on energy infrastructure has damaged 85% of thermal generation, impacting energy security.

All these latest Western sanctions efforts come as Russian reserves have been eroded through over 1000 days of war – and the CBR lost access to at least $330 billion in FX reserve held in G7 jurisdictions. It hence has less FX reserves from which to defend the ruble.

For Russia, and Russians, a weaker ruble means higher inflation, resultant higher CBR policy rates (already at 21%), lower growth and ultimately lower standards of living for Russians. It will make the costs of the war finally bite on the Russian population - which might make Putin think twice over continuing the war. Already Putin’s move to resort to using North Korean troops in Kursk shows that he is nervous about the human and social costs of the war in Russians. He is showing vulnerability.

Reprinted from the author’s @tashecon blog! See the original here.

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.