Ruble Plummets as Strain on Russia’s Wartime Economy Intensifies

The ruble has faced consistent downward pressure throughout the summer, primarily due to declining oil prices — a crucial export for Russia despite ongoing Western sanctions. Weak demand from China and Europe, combined with an increase in oil supply from the U.S., Brazil, and Guyana, has pushed prices lower. Brent crude, a global benchmark, experienced a nearly 4 percent decline this week following relief over a ceasefire agreement between Israel and Hezbollah.

The pressure on the ruble surged further after the U.S. announced a fresh wave of sanctions targeting Gazprombank, which had been one of the few entities allowed to process payments for Russia’s dwindling gas exports to Europe. This new sanctions package also expanded to include 50 internationally connected Russian banks, over 40 securities registrars, and 15 Russian finance officials.

“These sanctions are having tangible negative effects, most notably seen by Russians as high inflation,” commented Grzegorz Drozdz, a market analyst at Conotoxia.

The ruble plunged to 114.75 per U.S. dollar, a level not seen since March 2022, shortly after Russia’s invasion of Ukraine. By the end of trading in Moscow, it slightly recovered to 113.15, marking a decline of more than 7 percent in a single day, according to data from Investing.com.

Frustration Among Oligarchs

The Russian central bank’s stringent monetary policy has drawn increasing criticism from the nation’s powerful industrial leaders, such as metals magnate Oleg Deripaska and Sergey Chemezov, head of the defense conglomerate Rostec. Chemezov’s organization manufactures much of the equipment used in Russia’s war effort in Ukraine.

“The cure seems worse than the disease,” said Alexey Mordashov, chairman of Severstal, during a conference in St. Petersburg, as reported by RBC.

“We need serious discussions about this,” Mordashov added. “This is a situation that is likely without precedent in modern history, where the central bank rate is 2.5 times higher than the inflation rate, and it still doesn’t have the desired effect.”

The Central Bank of Russia (CBR) recently raised its key interest rate to 21 percent at its last policy meeting, with Governor Elvira Nabiullina threatening yet another hike in the future. Despite increasing rates by 500 basis points this year, the central bank has struggled to stabilize the ruble, which has lost nearly 25 percent of its value against the dollar in 2023.