Russian rouble's recovery questions impact of sanctions

Economic sanctions against Russia are not having the desired effect for Western leaders. Although the rouble suffered a sharp plunge last month due to the freezing of reserves and the expulsion of several Russian banks from the SWIF system, the national currency is recovering and even trading at pre-war levels.

In early March, days after sanctions were imposed, 100 roubles were worth just $0.72, according to El Economista. By the end of the month, however, the Russian currency had recovered to 0.99 dollars. What measures has Moscow taken to achieve this improvement and avoid the effect of sanctions?

First, the Central Bank of Russia has raised interest rates to 20%, a move that helps Russian citizens keep their money in the national currency. On the other hand, the government has ordered 80% of foreign currency income to be exchanged into roubles, according to CNN. Bank transfers outside Russia have also been banned.

As part of the decisions taken to boost the value of the local currency, Russian President Vladimir Putin demanded that countries described as "unfriendly" pay for gas in roubles. These "hostile" nations include all EU countries, as well as the UK, Norway and the US, among others. However, in the face of the refusal of European leaders, who have described the move as "blackmail", Putin has allowed Europe to pay in euros, but through Russian banks. 

"If such payments are not made, we will consider it a default by the buyers, with all the consequences that this entails. Nobody sells us anything for free, and we are not going to do charity work either, existing contracts will be suspended," Putin warned after signing the decree, which comes into force on 1 April.

For this reason, countries wishing to purchase Russian natural gas will have to open special accounts at Gazprombank, a state-controlled bank, to make it possible to exchange foreign currency into roubles for each transaction.

The favourable situation of the rouble calls into question the effect of Western sanctions. These measures, in addition to damaging the economy, also seek to put economic pressure on Russian oligarchs close to Putin. However, this objective has not been achieved either, since, according to The Guardian, the sanctions have not prevented private planes linked to these tycoons from continuing to fly from airports in the European Union and the United Kingdom.

The joint investigation by the British newspaper together with the Organised Crime and Corruption Reporting Project (OCCRP) has revealed that the aircraft of several oligarchs, including Roman Abramovich, Alisher Usmanov and Igor Shuvalov have used European airports after London and Brussels announced sanctions. In particular, a Bombardier Global Express linked to Shuvalov, registration LX-ABC, made several flights between Geneva, Munich, Paris, Milan and Helsinki. 

Usmanov's Airbus A340, the commercial version of which seats 370 passengers, also left Munich on the night of 28 February, days after Russia's invasion of Ukraine. Another of the oligarch's planes left Florence on the same day for Uzbekistan.

While the Russian economy seems to be recovering and Russian oligarchs are avoiding sanctions by fleeing to countries such as the United Arab Emirates, Europe is experiencing economic problems.

"The EU's actions will not go unchallenged. Brussels' irresponsible sanctions are already negatively affecting the daily lives of ordinary Europeans," Nikolai Kobrinets, a senior foreign ministry official, told Russia's RIA news agency. However, Europe had already warned before the war that sanctions against Russia would also have an impact on the EU economy.

If energy and commodity prices remain high due to the conflict and sanctions, according to OECD figures reported by El Economista, eurozone growth will fall by about 1.5 percentage points, while inflation will rise by two percentage points.

In Germany, Europe's largest economy, inflation reached 7.6% last month, an all-time high since the country's reunification in 1990. The figure is even higher in Spain, at 9. 8%, the highest since 1985. Prices also rose by 5. 1% in France, while in Italy inflation reached 7%. 

But this problem affects all countries using the euro. According to the latest figures from the European Union's statistics agency, Eurostat, consumer prices in the 19 eurozone countries rose by 7. 5% year-on-year in March.

This high inflation will negatively affect the EU's economic growth, something that the vice-president of the European Central Bank, Luis de Guindos, has acknowledged. The Spanish economist admitted that growth in the first quarter of this year "will be slightly positive". "We will have very low growth," he revealed, according to Reuters.

As the world fears a possible food crisis due to the conflict in Ukraine, Russia has banned the export of sunflower seeds until 31 August. Moscow has also imposed an export quota on sunflower oil to avoid shortages and ease pressure on domestic prices, the Agriculture Ministry announced.

"With the strong growth in world prices for sunflower oil and oilseeds, there is now greater demand for the Russian product," the ministry said in a statement reported by Reuters. The war between Russia and Ukraine, the world's largest producers of sunflower oil, has already led to an increase in the price of the product, as well as rationing in supermarkets. 

One of the countries most dependent on this commodity is India. According to the news agency, New Delhi has already purchased 45,000 tonnes of Russian sunflower oil at a record price for shipments in April, as the value of the oil rose sharply in the country after supplies from Ukraine were halted. "Since it is not possible to load ships in Ukraine, buyers are trying to get supplies from Russia," said Pradeep Chowdhry, managing director of Gemini Edibles & Fats India Limited, a company focused on trading edible oils.

India is the country where Russian Foreign Minister Sergei Lavrov is currently staying. The Asian country is one of the countries that have not condemned Russia's invasion of Ukraine. China, which was visited by Russia's foreign minister earlier this week, is also in this line. 

Russia is seeking to strengthen its economic ties with New Delhi and Beijing, which remain Moscow's trading partners. In this regard, Lavrov has heralded the emergence of a "new world order". "We, together with you and our supporters, will move towards a multipolar, just and democratic world order," he declared before meeting his Chinese counterpart Wang Yi. 

Russia continues to look east. Aiming to strengthen relations with Asian countries, Lavrov this week took part in a meeting on Afghanistan in the Chinese city of Tunxi with the country's neighbours: China, Pakistan, Iran, Tajikistan, Turkmenistan and Uzbekistan.