In recent weeks, the Russian ruble has experienced a significant decline, with a combination of factors contributing to its nosedive. According to experts, the outflow of Western companies and low oil prices are the primary culprits behind the struggling currency.
Late last week, a dollar cost Russians a staggering 82 rubles, while a euro set them back 90 rubles. Such low rates had not been witnessed since last April, underscoring the severity of the ruble’s recent slump.
The Russian currency had previously experienced a significant plunge, reaching as low as 113 rubles for a dollar, after Russia launched its “special military operation” in Ukraine last February. However, the recovery was relatively quick, aided in part by intervention from the country’s central bank. For a while last summer, the ruble remained relatively stable at around 50 to a dollar.
However, towards the end of last year, the ruble began to fall again, with Russian Finance Minister Anton Siluanov attributing the recent decline to changes in imports and exports. Imports have increased, while exports have continued to fall, exerting pressure on the ruble.
Following the start of the Ukraine invasion, imports of foreign goods came to a virtual standstill as Western companies ceased supplies. Meanwhile, exports, mainly of raw materials, remained flat, with revenues initially increasing. This unprecedentedly positive trade balance supported the ruble.
Last year’s “special military operation” in Ukraine drove up the price of oil to unprecedented levels, but the price fell again in March of this year. Given that Moscow traditionally fills around 40% of the treasury with oil revenues, the decline in oil prices has dealt a significant blow to the ruble. High state revenues typically ensure a strong currency and vice versa.
Even the slightly rising oil prices seen in early April could not prevent the ruble’s further demise. On April 3, the Opec+ countries voluntarily decided to reduce oil production by 1.66 million barrels per day, which led to an 8% increase in Brent oil prices. However, this had no positive impact on the ruble exchange rate, as four days later, the dollar broke through the 83 ruble mark, with the euro also surpassing the 91 ruble mark.
In addition to low oil prices and changes in imports and exports, experts are now pointing to the departure of foreign companies from Russia as a key factor contributing to the decline of the Russian ruble. When these companies sell their assets in Russia, the transactions are typically carried out in the currencies of “unfriendly” countries, which the central bank needs to shore up the ruble.
For instance, oil giant Shell recently sold a stake in the Sakhalin-2 project to Russian gas company Novatek, with Russian President Vladimir Putin agreeing that Shell would receive 94.8 billion rubles and withdraw this money from Russia, as well as potentially some of the dividends. According to Bloomberg news agency, foreign companies that left Russia last year collectively sold assets worth between $15 billion and $20 billion.
Economist Grigori Bazhenov noted on Telegram that the low liquidity of the currency market, coupled with the lack of transparency in approving such deals, could increase the volatility of the ruble against the dollar and the euro.
Despite the negative impact on the Russian economy, some experts suggest that the Russian government may actually favor a gradual decline in the ruble’s value, as it could potentially increase budget revenues without causing inflation. Aleksandr Harutyan, chief economist at Russ Invest, warned that without intervention, the ruble could continue to fall, with the prospect of reaching a value of 84.5 to 86.5 rubles per dollar in the coming weeks.