Russian ruble: How resilient against sanctions is Russia's economy?

The “world's most sanctioned nation” seems to be suffering less than many people anticipated.

Russia’s currency was recently branded the strongest in the world. The country just posted a record trade surplus. And anyone craving a double cheeseburger and chicken nuggets can simply stop by the “Tasty & that's it” restaurant replacing their recently-vacated local McDonald’s.

Five months after Russia’s invasion of Ukraine, its economy appears in many ways to have successfully weathered the massive sanctions levelled in response.

A higher price of oil has certainly cushioned the blow for the world’s third-largest oil producer. And Russia had already been de-dollarizing its economy in a way that buffers it against pushback from a dollar-dominated global economy, while emergency measures like barring residents from sending money abroad have propped up the ruble.

The eagerness of some countries to continue buying Russian energy has also been cited for watering down sanctions. China’s oil imports from Russia reached a record level in May. India’s hit a new high last month.

Still, the full impact of these economic weapons has likely yet to be felt. Germany, traditionally one of the biggest importers of Russian coal, said it will quit cold turkey next month. The EU aims to phase out Russian oil imported by sea by the end of this year, as does the UK. The US recently banned Russian gold, its second-most-valuable export after energy, and the EU will follow suit.

Russia’s trade surplus is expected to further increase, but in tandem with dwindling imports – as sanctions make it harder to buy Western goods.

One expert likened the situation to the blockade of Nazi Germany roughly eight decades ago, which prompted that country to make up for erstwhile imports by plundering occupied territories (including Ukraine).

Longer-term, the ruble’s resilience may not be sustainable. And Russia's overall economic output is expected to contract sharply this year.

While many countries aiming to send a message to Russia with sanctions still depend heavily on its natural gas, the re-ordering required to wean them from that export may yet become less intensive. So far, efforts to build new gas terminals and wind farms to replace Russian energy supplies have run into obstacles including unexploded bombs left over from World War II.

Still, gauging the true resilience of Russia’s economy may be difficult, not least because public access to the government's economic statistics like trade data has been blocked.

Indicators for the countries applying sanctions to Russia may be more accessible, but not necessarily uplifting. The US appears to be in a recession of sorts, and the EU expects to post a sharp slowdown in GDP growth – from 5.4% last year to 2.3% by next year.

One official representing Germany’s chemical industry recently worried that a complete cutoff of Russian gas supplies in response to sanctions could trigger a “heart attack” for that country’s economy. And a study estimated that the Russia sanctions may halve projected economic growth for the UK this year while denting disposable incomes; in the US, the sanctions are contributing to a rising cost of living that could have political implications.

Each side is therefore engaged in a sort of game of chicken. Allied countries continue pressing the accelerator on sanctions in hopes of ending the war in Ukraine in a satisfactory way, as Russia speeds ahead with the countermeasures at its disposal.

In the meantime, many people will likely suffer.

Russia’s inflation rate is expected to top 20% this year, jacking up the costs of food and essentials as real wages and real disposable incomes decline.

While inflation in Russia has dipped lower recently, its invasion of Ukraine continues to push inflation steadily higher for the EU and elsewhere – including in developing countries, where an estimated 71 million additional people have been pushed into poverty.

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