22

The Russian ruble has plunged to its weakest level since the spring of 2022, trading above 105 rubles per US dollar this week. This continued devaluation reflects deepening economic struggles for Russia, compounding the challenges of sustaining its military operations in Ukraine. The ruble’s decline has become a growing concern for President Vladimir Putin’s government, as global sanctions and internal financial strains weigh heavily on the economy.

The Ruble’s 2024 Decline

Since the start of 2024, the ruble has depreciated by over 17% against the US dollar, ranking among the world’s weakest currencies. Losses against the euro and Chinese yuan further underscore Russia’s worsening financial position.

Experts attribute the currency’s sharp decline to several factors:

• Diminished energy export revenues: Sanctions and reduced demand for Russian oil and gas have slashed income.
• Tightened international sanctions: Restrictions have limited Russia’s access to global markets and foreign reserves.
• Depleting currency reserves: The country’s financial isolation has made maintaining reserves increasingly difficult.

Rising Inflation and Consumer Hardship

As the ruble weakens, inflationary pressures have intensified, with Russia’s inflation rate surging to 8.5% in October—far exceeding the Central Bank’s target. To combat this, the Central Bank raised its key interest rate to 21%, a measure that has further tightened economic conditions.

The weakening currency has caused essential goods to skyrocket in price. For example, potatoes have risen by 64% since January, with dairy products, bread, and butter experiencing similar increases. These rising costs are straining Russian households, creating widespread discontent as many struggle to afford basic necessities.

Impact on Businesses and Economic Stability

High interest rates are squeezing Russian businesses, making borrowing prohibitively expensive. This is particularly damaging for small and medium-sized enterprises, which rely on credit to operate. The increased cost of capital is eating into profits, leaving many companies vulnerable to bankruptcy.

Even major industry leaders have voiced concerns. Sergei Chemezov, CEO of defense giant Rostec, recently criticized government monetary policy, reflecting growing unease within Russia’s corporate sector.

Sanctions and Energy Sector Struggles

The ruble’s continued fall is closely tied to tightening international sanctions, particularly those targeting the energy sector. The recent US sanctions on Gazprombank, Russia’s largest bank still operating without restrictions, have further strained the country’s financial system. Gazprombank plays a critical role in financing military operations and facilitating payments for energy exports.

Sanctions are also affecting gas exports, one of Russia’s main revenue sources. These restrictions are reducing the government’s ability to fund its war efforts, adding to the economic strain.

Financing the War and Future Challenges

Russia’s war in Ukraine has heavily relied on revenues from oil and gas exports. However, the combination of falling energy revenues, a weakening ruble, and limited access to foreign markets is making this financial model unsustainable.

Putin’s government has tried to bolster its war economy, but the current environment suggests that maintaining military operations and economic stability will become increasingly difficult. The economic pressure is expected to grow, testing the government’s ability to balance its military commitments with internal economic demands.

Outlook: A Precarious Future

The ruble’s devaluation, rising inflation, and the growing impact of sanctions paint a grim picture for Russia’s economic future. As consumers, businesses, and the government face mounting challenges, the country’s ability to manage both internal instability and the financial demands of war remains uncertain.

With the ruble in freefall and economic conditions deteriorating, Russia is entering a precarious period where the strain on its war economy could prove unsustainable, raising questions about its long-term strategy and resilience.