RUBEL has staged a comeback, defying sanctions

Russia’s currency has staged a surprising recovery to pre-war levels, Bloomberg reports. The RUB closed at 79.7 to the USD on Wednesday, signaling that waves of measures against Russian banks, businesses and individuals are “largely toothless” as long as Europe and others continue to spend massive sums on Russian energy imports, the business information service says.

The latest package of US sanctions, triggered by the Bucha atrocities, target President Vladimir Putin’s two daughters as well as Foreign Minister Sergey Lavrov’s wife and daughter, according to a statement. Major Russian banks Sberbank and Alfa Bank will also be completely blocked.

Since that low point on March 7, however, the Russian ruble has staged a dramatic recovery. At the time of this writing, it was trading at 84 to the dollar, which is right back where it was at the time of the war. And this is no dead cat bounce. It's a sharp and sustained recovery that made the ruble the world's top-performing currency in March.

Perhaps the biggest factor juicing the ruble is a risky ploy by President Vladimir Putin that we mentioned at the top of this story: telling certain buyers of Russian natural gas that they must henceforth pay their gas bills in rubles.

Natural gas contracts are usually written requiring payment in euros or dollars, and the countries that buy natural gas — EU nations, the U.S., Canada, Australia, New Zealand, Japan and South Korea — tend not to have big reserves of rubles on hand.

So if Putin is successful in forcing these countries to pay in rubles, they're going to have to go out and buy them. A lot of them. Demand for the currency will surge, and the price of the ruble will naturally rise. It's the anticipation of that rise that has helped drive the ruble's market value higher.

The sanctions are designed to restrict Russia's ability to acquire foreign currency, dollars and euros in particular. But several European countries continue to buy Russian gas because they have become so dependent on it and because there are not enough alternative suppliers to meet demand.

Add to that the increase in oil and natural gas prices, as well as the resilience of Russia's trading relations with other big economies such as China and India, and the net result is that there is still a steady flow of foreign currency into Russia. This has eased concerns that Russia would become insolvent, and it has helped put a floor under the ruble.