Guess what? 1,000 days after the full scale invasion of Ukraine by Russia, the G7 have finally found the sense to recognize that sanctions can actually work. With a bit of effort.
In recent weeks, we have seen a serious increase in pressure through new measures against Russia’s key sanctions-evasion and energy finance house, Gazprombank and six international subsidiaries, a host of sanctions-busters hit by secondary sanctions, a focus (finally) on Russia’s shadow crude oil fleet and measures aimed at Moscow’s main FX exchange (MOEX.)
And hey presto, the ruble has fallen around 7% this week and 15% over the past month. At over 113 against the dollar, Russia’s currency is at its weakest level since the market shock suffered just after the full-scale invasion in 2022.
And now, Russia seems finally to be in the midst of a currency crisis — partly the result of the latest sanctions but also the gradual erosion of Russia’s buffers, including the loss of $330bn in Central Bank reserves frozen in the West, that would have provided the ruble’s first line of defense.
The Biden administration’s belated recognition that the US still has unused weapons in the financial armory able to inflict severe pain on the Kremlin reflects a realization that the war in Ukraine is at a critical juncture.
Ukraine is on the back foot on the front line, and the West is eager now to force Russia to the negotiating table — and to put Ukraine in the most advantageous position beforehand.
Notable perhaps is China’s unspoken assistance of the G7 position — it has made no visible effort on the markets to bail out Putin and the ruble from their current predicament. China may be annoyed by Putin’s increased reliance on North Korea that has given Pyongyang more financial and political room for maneuver.
It may also be eager to win a few brownie points with the incoming Trump administration, proving its ability to exercise leverage over Russia and force Putin to the negotiating table. That would help deliver Donald Trump’s big peace deal — the quid pro quo would be tariff moderation from the new administration.
For Russia however, there are no silver linings — a weaker ruble means higher inflation, resultant higher policy rates (already at an eye-watering 21%), and lower growth. It will crimp living standards and potentially risk social and political cohesion.
All of which increases the risks to Putin of continuing the war, and might just push him to the negotiating table. Perhaps anyway.
Why did it take the Biden administration so long?
Timothy Ash is a Senior Emerging Markets Sovereign Strategist at RBC BlueBay Asset Management. He is an Associate Fellow at Chatham House on their Russia and Eurasian program.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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