The costs of an invasion of Ukraine will reach Russia

Over the past year, some currencies have depreciated Russian ruble. Last September, A US dollar I bought a little more than 60 rubles. Currently, you can buy almost 100. Fall is both a symbolic blow Ordinary RussiansThis is because he equates a strong currency with a strong country Tensions It contains Russian government. It blew away the consensus among Russian policymakers last year Central Bank And this Treasury They worked side by side. Now, with the increase inflammation and recession Development, the two entities are turning against each other. The country’s ability to wage war effectively is at stake.

In the early stages of the conflict, Russian officials had a simple task: prevent the economy from collapsing. Immediately after starting Invasion, this meant preventing people from taking money out of the financial system, applying capital controls and doubling the official interest rate. He Ruble reached 135 dollar, before recovering. The Economy Collapsed and then recovered. Thanks to the juicy income from the sale Petroleum And gasHe Treasury He conducted the program briskly protect And welfare.

Strong exports Petroleum And gas They also caused Ruble valueThis brought prices down import And, in turn, The inflammation. It allowed Central Bank to accommodate Financial expansionCutting Interest rates Down to where they were Invasion. Throughout 2022, the Consumer prices 14% higher and Real GDP It fell 2%, a weak result but better than analysts had predicted. last week, Vladimir Putin “The recovery phase of the Russian economy is over,” he noted.

New platform of Economic warfare This leads to difficult decisions for the authorities. With one eye Presidential election March, The Ministry of Finance Wants to support the economy. news service Bloomberg reported that Russia Plans to increase spending protect 3.9% to 6% GDP. He Ministry of Finance He also wants to increase spending on social security. Putin likes Economy Go from strength to strength. He recently boasted about a very low unemployment rate Russiacalls it “one of the most important indicators of the effectiveness of our entire economic policy” (helped by conscription and immigration, of course).

Putin Circle and protect Ruble No new fare hike. He therefore asked his political leaders to find creative solutions. Two main ideas are explored: managing and inflating the currency Export of energy. Neither seems to work.

First, currency. He Government He wants to force exporters to hand over more money and make it harder for them to leave the country. In August, officials began preparing “guidelines” that would “recommend” companies to return not only the sales proceeds but also the payments. Dividends and foreign loans. September 20, Alexey Moiseev, Deputy Minister of FinanceHe pointed out that there are possibilities of imposition Capital restrictions Even those who are supposed to be “friends” should stop leaving for all countries.

These activities are excellent. Russian export industries are powerful Pressure groups. The experience of the last 18 months is that companies dominating the energy, agriculture and mining sectors are experts at finding loopholes. Currency controlsIt says Vladimir MilovDeputy Minister of Energy in the early days of the regime Putin. Exceptions abound. At the end of July, Putin Promulgated the Permitting Ordinance Exporters Operated under intergovernmental agreements, it covers a large part of the trade China, Turkey itself And other countries, keep income abroad.

He The Kremlin It wants to force other countries to create an artificial demand for the ruble Russian export In that currency. The Central bankers They think this plan is very stupid. “Contrary to popular belief,” he noted Nabiullina In a speech on September 15, he said the monetary structure of export payments “will not have a significant impact” on exchange rates. Change is only the moment of change. The exporter who pays in dollars uses them to buy rubles, or the customer buys rubles. Which can help a lot Russia To pay a large part of them Imports To save foreign currency in national currency, and Foreign sellers They will be with them Ruble. But there is no indication that this will happen.

Russia You may consider using your own Foreign exchange reserves To intervene in currency markets. However, that’s more than half of its $576 billion ReservationsDeposited West, they are frozen. The rest is difficult to use as most Russian companies are subject Obstacles It limits your performance transactionsIt says Sophia DonetsFormer Officer Russian Central Bank. And this Reservations are available 20% of the country, which was reduced before the war, could only To protect the ruble for a time.

The only viable option is to maintain without raising rates Ruble is encouraging Export of energy. In theory, two factors work in favor Russia. One is the rise in oil prices. From July onwards, production slows down Saudi Arabia And a fearful retreat Global recession They contributed to Brent crude prices rising by almost a third to $97 a barrel. The other factor is reducing the difference between prices UralsStar quality RussiaAnd this BrentIt has gone from $30 in January to $15 today (see Diagram 3) and this difference is likely to decrease further. From December, members G7 have banned Carriers And Insurers Unless it sells for less than $60 a barrel, it will help transport the fuel to countries that still buy it. The answer is Russia A “shadow” fleet of oil tankers owned by oil brokers is to be created. Asia And this Gulfand use State Finance To protect exports.

However, Russian revenue Export of oil Do not increase further. Higher prices may reduce consumption America; Recovery China Because zero parallelism seems to be over. Read L’AnsonFrom data company KplerCalculate that USA, Brazil and Guyana Together they could increase their output by 670,000 barrels a day next year, which would offset about two-thirds of the current cuts. Saudi Arabia. Futures markets suggest prices will continue to decline through most of 2024 Russia More oil can be exported to compensate, and doing so will accelerate the decline.

Another bad news Russia It now needs to earn more from oil to keep its total export earnings flat because of a slump in gas sales after its main sector was shut down. Gas pipeline to Europe. In the fortnight to September 19, these fell to 73 million euros ($77 million), compared with 290 million last year. In EU There is talk of stopping imports of Russian liquefied natural gas. European nuclear producers are also reducing their dependence on Russian uranium.

All this, as inflationary problems persist. Russia, the struggle between the government and the central bank will intensify. A desire to play in front Presidential election That could stoke tensions next year, forcing the central bank to raise rates to debilitating levels or abandon the fight against the resulting inflationary spiral. Alternatively, Putin He could cut military spending, but his plans for 2024 show he has little interest in doing so. The longer your battle lasts, the more likely you will have to fight at home.

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