Early last year, just after Russian tanks started rolling into Ukraine, a whole host of nations responded quickly with sanctions against Russia.
At the time, it felt like Russia’s economy was suddenly in big trouble. In one day, the Russian ruble plummeted against the dollar, dropping 30%.
Russian citizens flocked to ATMs hoping to withdraw their money, fearing that the country would face cash shortages.
But then, going into April of last year, the ruble seemed to bounce back. But now, once again, the Russian currency has been in a free fall. Last week, the ruble reached its lowest point against the US dollar since the start of the war in Ukraine. That could have implications for the Russian economy.
Rachel Ziemba, follows sanctions and the Russian economy at the Center for New American Security.
Russia, she said, “hiked interest rates sharply, and they also imposed capital controls; they made it very difficult for people to take money out of the country, plus the fact that Russia continued to sell oil and gas, helped to stabilize Russian currency.”
So, in the face of sanctions, the Russian economy was staying afloat.
This continues to be something that Russian President Vladimir Putin likes to talk about.
Speaking last month in St. Petersburg, Putin said that “Russia’s economy continues to be robust and ambitious.”
He acknowledged “difficulties” and “problems” encountered by Russia but said they’re just making Russia’s economy stronger. But that positive spin on the sanctions can’t paper over certain realities.
Last month’s attempted mutiny by Wagner mercenary fighters led by Yevgeny Prigozhin brought a level of political uncertainty that Putin had never dealt with. And that’s when the ruble started tanking.
Ziemba said that “with currencies, it’s always that precipitous nature of a decline that's, you know, more concerning. We have heard evidence suggest that Russians did accelerate their pulling of assets outside of the banking system.”
According to the country’s Central Bank, Russians withdrew 100 billion rubles — that’s more than a billion dollars, from banks over the course of just a few days during the panic of the Prigozhin mutiny.
Kremlin spokesman Dmitry Peskov tried to downplay these concerns last week, saying: “there is no question of economic stability here.”
That interpretation was echoed on Russian state TV.
TV presenter Yevgeny Popov declared “nothing dramatic is happening here,” referring to the plunging ruble. He then said that this is a natural process of Russia’s economy transitioning from Western markets to the east.
Ziemba said that process is taking place.
“Much of Russia’s oil goes to India and China, other emerging markets. So, when we look at it, both Russia’s supplies and the commodities Russia sells are going to a different set of countries than they were two years ago.”
And that’s a direct result of economic sanctions imposed against Russia. The question remains, are the sanctions strong enough to undercut Russia’s economy and have a real impact on Russia’s war in Ukraine?
“This is a case where the restrictive tools can only do so much, especially where as a global economy we still rely on Russian oil and gas. And I think it’s very difficult for a country that is as committed to this sort of military action, it’s very difficult to sway them just on economic terms,” Ziemba said.
The US, along with the G7 countries, have tried implementing an oil price cap to limit Russia’s oil revenues. But it’s still unclear how well that’s being enforced.
Ultimately, Ziemba said that Ukraine’s fate will not just depend on the success of economic sanctions against Russia. It will have a lot more to do with what happens on the battlefield in Ukraine.
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