Mocking US and European Sanctions... Russian Ruble Recovers to Pre-War Levels

Early Last Month, Fell to an All-Time Low, Facing Default Crisis
Quick Recovery as Demand for Russian Raw Materials like Crude Oil Maintained
"Current Account Surplus is the Source of Ruble Stability"
Bloomberg Forecasts Russia's Energy Exports at $321 Billion This Year

[Asia Economy Reporters Kim Hyun-jung, Jung Hyun-jin] Despite successive economic sanctions from the West, the ruble exchange rate against the dollar has returned to pre-Russia's invasion of Ukraine levels, regaining its value. It is analyzed that Russia's internal control over foreign currency outflows and sustained demand for Russian raw materials such as crude oil and natural gas have neutralized the West's attempts to isolate Russia.

According to Bloomberg on the 7th (local time), the ruble exchange rate in the Moscow foreign exchange market recorded 75.75 rubles per dollar, surpassing the ruble value before Russia's invasion of Ukraine.

◆The Power of Energy Overwhelming Sanctions= Until last month, the West, which had been forecasting a Russian default, predicted a sharp drop and irreversible collapse of the ruble's value. U.S. President Joe Biden even mocked the ruble as ‘Rubble’ after announcing sanctions. In fact, the ruble, which traded at around 80 rubles per dollar on the 21st just before the invasion, plunged to an all-time low of 121.5 rubles per dollar in early last month following economic sanctions from the U.S. and the European Union (EU).

However, the ruble quickly regained value based on steady demand for Russian crude oil and natural gas. According to Bloomberg, Russia is expected to earn $321 billion (approximately 392.4225 trillion KRW) from energy exports this year, which is more than a 36% increase compared to last year's $235.6 billion.

Although the world is outraged by Russia's invasion of Ukraine and pressure for ceasefire continues, the news agency analyzed that Russia has achieved a ‘major victory’ in terms of currency. Brendan McKenna, strategist at Wells Fargo Securities, said, "A current account surplus is the source of ruble stability," adding, "If demand for energy and raw materials maintaining high prices continues, the current account surplus will be sustained." Guillaume Tresca, senior emerging markets strategist at Generali, France's largest insurer, evaluated, "The fact that sanctions had no effect is the best political propaganda tool."

Russia's attempts to control the exchange rate, such as requiring companies to convert 80% of their foreign currency holdings into rubles and blocking foreign investors from selling stocks, have also been effective. Russia's current currency trading volume is at its lowest level in 10 years.

Some point out that the ruble's value recovery due to coercive monetary policies is not sustainable. U.S. Treasury Secretary Janet Yellen also urged on the 6th, "Do not draw any conclusions from the ruble's rebound."

[Image source=Yonhap News]

◆U.S. Passes Energy Import Ban Bill= Following the so-called ‘Bucha massacre,’ the West continues sanctions against Russia, but there are criticisms that these are insufficient to deliver a fatal blow. On this day, the U.S. Congress passed a bill to revoke Russia's Most Favored Nation (MFN) trade status and ban imports of Russian energy. Last month, President Joe Biden had already implemented or announced plans to implement this bill through executive orders, and now the bill has passed with overwhelming support in both the House and Senate.

The bill includes revoking the ‘Permanent Normal Trade Relations (PNTR)’ status for Russia, which invaded Ukraine, and Belarus, which aided Russia. Losing MFN status means higher tariffs can be imposed on Russian and Belarusian products. Experts predict tariffs, currently averaging about 2.8%, could rise to around 20%.

Senate Majority Leader Chuck Schumer (Democrat) criticized, "Countries whose militaries commit war crimes do not deserve to trade freely with the U.S.," adding, "Immoral thugs like Putin do not deserve to stand on equal footing with other free world leaders."

Considering Europe's dependence on Russian energy, the European Union (EU) also belatedly agreed on this day to ban imports of Russian coal. This is the first time the EU has sanctioned Russian energy since the invasion of Ukraine. After agreement among EU member state representatives, the U.S. and the U.K. also agreed, and after a period for objections, the ban is expected to be finalized on the 8th.

However, this measure will not be implemented immediately but is expected to take effect from August after a four-month grace period. Since major European countries, including Germany, heavily depend on Russian energy, an immediate embargo would cause significant damage, so a grace period was decided.

EU member states are also discussing bans on Russian oil and natural gas imports following coal. However, there are significant disagreements on this matter. According to the Associated Press, the ban on Russian coal imports is considered an easier option for EU member states compared to bans on oil and natural gas.

This content was produced with the assistance of AI translation services.