Since Russia invaded Ukraine in late February, West has imposed a series of sanctions on Russia to curb their aggression and weaken their economy to punish them for their invasion in Ukraine. The sanctions were aimed at crashing Russian economy by excluding them from SWIFT international payment system and blocking Russian Rouble by banning their banks internationally. Though to a extent the sanctions has worked for the west, as Russian Rouble plunged to RUB 139 against the US Dollar, Russia had to shut down its stock market, yet Russia managed to recover very soon. Russian rouble has gained 43% against the US Dollar in about a month to 82 on April 18.
How did Russia managed to recover rouble despite a tall wall of sanctions? The key to this lies in the energy exports, which are soaring to sky high, immediate measures and policies.
Energy exports, the game changer for Russia.
A car is just an iron scrap without oil, similarly economies relay on oil and energy for its survival. Russia is a major oil and energy exporter to many countries in the world. As the war started, crude oil and natural gas prices soared to very high globally and gave a chance to Russia by making more money. Russia offered oil to its friendly nations on handsome discounts. The situation also increased the demand of oil as countries sought to stock more to avoid any discrepancy in oil supply. More oil supply, high prices means more foreign currency and revenue for Russia.
Many major economies are dependent on Russia for their energy needs and one of them is European Union which imports heavily from Russia. EU imports 27% of its oil imports, 41 % natural gas, and 47 % coal from Russia. The US, and west partners, thought imposing series of sanctions on Russia will cripple the Russian economy, dent its oil-energy revenues and force Putin to end the war. But European Union’s heavy reliance on Russian oil and other importing nation’s decision to increase their demand changed the desired effect for which the sanctions were imposed into.
Among the US allies, who posed a string of sanctions against Russia, European Union has been very aggressive but on the other part it is compelled to contradict itself by buying large amounts of oil and energy from their counterpart Russia. In 2021, EU imported about $ 150 billion of energy and crude oil from Russia and surprisingly, since the invasion it has bought $ 38 billion (around 1/3rd it bought in 2021) till the date. So, it is evident that with sanctions it posed to Russia, gradually EU also paved the way for them to recover.
The role of ‘friendly nations’
In the midst of heavy opposition from all around the world against Russia, there were some nations which supported Russia, some directly and indirectly also. Among those nations India is a major economy which is neutral in Russia-Ukraine issue, but signaled its soft-policy for Russia.
Despite the sanction on the place, India has bought more than $ 15 million barrels of oil from Russia since the invasion began. In 2021, India purchased $ 16 million barrels. Russia has offered huge discounts to its friendly nations on oil purchase and India has grabbed the opportunity with both hands and without any fear from West. It is also planning to increase its oil imports from Russia in future also.
‘If you are looking at energy purchases from Russia, I would suggest that your attention should be focused on Europe. We do buy some energy which is necessary for our energy security. But I suspect looking at the figures, probably our total purchases for the month would be less than what Europe does in an afternoon’, said External Affairs Minister S Jayshankar, when asked by US Media in 2+2 dialogue between India and US.
Even if Europe stops importing Russia oil, then also Russia has no issues because many friendly and other nations are buying Russian oil at a very cheap rate and huge discounts. Overall, the country making $ 1 billion on oil exports on daily basis and is expected to make $ 320 billion from energy sales in this year.
Other key measures
Russia has found every possible way to get out of the sanction bubble posed by the west to them. Western nations, led by US, decided to remove selected Russian banks from SWIFT (Society for Worldwide Interbank Financial Telecommunications) international payment system, in order to make sure that Russia is no longer capable of making international transaction which would weaken its economy. But the country made a way out of it. Like with India, Russia agreed on a Rupee-Rouble swap system in which instead of making payment in dollars, both countries will transact in their respective currencies.
To recover Rouble, Russia created a mechanism in which it announced that it will collect payments of oil and energy exports in Russian rouble only. By this it compelled to buy more roubles by the other nations and within one month, Rouble recovered 43 % against the US Dollar. Banks were prohibited from running cash-based currency exchanges for the short term. Exporters were told to convert 80 % of their foreign currency earnings to roubles.
Russia’s current account surplus hit $ 58.2 bllion in the first quarter of 2022-a three decade high. In the same period last year, it recorded $ 22.5 billion. Russia’s stock market was shut down on February 28 and restarted on March 24. After reopening, the market is on high, as the RTS benchmark has risen 42.3%, from 794 to 1130 levels.
Surely, Russia has turned the desired results of the sanctions, posed by the western nations, in its favour. On every front, it has answered quite strongly against all odds. In short-term, Putin’s Russia has so far able to control the sanctions but the concern would be what happens in the long-term and how Russia will tackle it.
References
https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html
The Economic Times, Oct 24th, 2022 edition.
Ministry of External Affairs, Government of India.
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