The rouble is melting, finally
Pressure on Putin to negotiate
The rouble seems now to be in free fall, down around 6% this week and close to 15% lower this month. At close to 112 against the US dollar, the rouble is now at its weakest level since the panic which set in after the “surprise” full scale invasion of Ukraine in February 2022 - not a surprise to some, such as yours truly who had been predicting the full scale invasion as far back as 2015.
The rouble seems to being driven weaker as a result of the decision of the Biden administration to tighten the sanctions regime around Russia. This was seen over the summer in the sanctioning of the MOEX Moscow based FX exchange, then a tightening of secondary sanctions around Russia, and then over the past week with the US finally sanctioning Gazprombank - the latter being the main conduct for Russia to transact for oil and energy. We have also had efforts this week from the G7 to tighten sanctions around Russia’s shadow oil fleet. All this is making it harder for
Russia to transact trade.
The driver for recent G7 actions seems to be a concerted effort to increase the economic costs of the war in Ukraine and to force the Putin regime to the negotiating table with the incoming US administration - to weaken Russia’s negotiating position in those talks to the advantage of Ukraine.
It feels also as though China is working to assist the G7 herein, not going out of its way to help Russia to alleviate pressure on the rouble. China likely has been annoyed by Russian actions to bring North Korea into the conflict, pulling North Korea further out of Beijing’s strategic orbit. China also probably wants to be seen as being helpful to the Trump administration mindful to try and win friends in the new Trump administration to help secure tariff moderation on its own behalf.
All these latest Western sanctions efforts come as Russian reserves have been eroded through over 1000 days of war - and the CBR lost access to at least $330 billion in FX reserve held in G7 jurisdictions. It hence has less FX reserves from which to defend the rouble.
For Russia, and Russians, a weaker rouble means higher inflation, resultant higher CBR policy rates (already at 21%), lower growth and ultimately lower standards of living for Russians. It will make the costs of the war finally bite on the Russian population - which might make Putin think twice over continuing the war. Already Putin’s move to resort to using North Korean troops in Kursk shows that he is nervous about the human and social costs of the war in Russians. He is showing vulnerability.
Thanks. I think the reality is both Ukraine and Russia can fight a long war, but there are risks there for both. I think at this stage both would prefer some kind of peace, it’s just a question of what that will be. For Ukraine security is key, as the state can only move forward with recovery and reconstruction if there is safety for investors. Putin obviously wants the opposite, he wants to ensure that Ukraine is as insecure as possible to give him future options for intervention. The issue of NATO membership is something of a side show. Putin never invaded because of the risk of NATO enlargement - as we can now see NATO was never in a rush to give that to Ukraine. He invaded because he wants Ukraine, full stop. It’s a colonial ambition for Putin. Ukraine can be given security without NATO membership - Israel seems to be pretty secure, even in a conventional sense because it gets the full list of Western conventional kit, to F35s. Give Ukraine the military tech and it can defend itself.
it's very interesting. as a complete outsider who simply reads what is available on the Russia situation from a variety of sources, your take is very different than that of Simon Hunt, who seems to believe that Putin and Russia have the upper hand in any negotiations that will be upcoming by virtue of their superior military power and the nuclear threat. certainly they are superior to Ukraine, but vs. all of NATO that seems a stretch.
quite frankly, both sides make a persuasive case, so I'm not sure what to believe, the one thing that is consistent, though, is that mainstream media cannot be trusted given their history of pushing a narrative rather than reporting news. it is why I seek outside sources like yourself and others.
thanks for the continued updates