Western sanctions will sink Russian ruble, but unlikely to end war in Ukraine: experts

The latest rounds of sanctions from Canada and other western nations will put “sustained” pressure on Russia’s tumbling currency in a move experts say is likely to hurt the country’s citizens but not yet hamper its war in Ukraine.

The Russian ruble fell as much as 30 per cent compared to the U.S. dollar on Monday morning, as the West launched new sanctions against the aggressor in eastern Europe and cut off ties of some Russian banks to the SWIFT banking system.

The ruble recovered somewhat before markets closed in Europe thanks to swift action from the Russian central bank (CBR), but fresh action from Canada and its allies to restrict the CBR’s access to international reserves will only put more pressure on the struggling currency.

In new sanctions announced Monday, western nations will restrict the Russian central bank from accessing billions in funds held in financial institutions outside the country.

The move will limit Russia’s capacity to buy up its own currency in an attempt to raise its value, constraining its ability to stem the ruble’s free-fall.

Karl Schamotta, chief market strategist at Corpay, says the new sanctions put a “sustained downward pressure on the currency itself.”

“That is the biggest collapse that we’ve seen since the end of the Soviet Union. And the biggest drop that we’ve seen in a major currency since at least 1990,” Schamotta, whose company facilitates cross-border transactions, told Global News.

Russian consumers, who already lined up in droves outside ATMs in the country to withdraw cash on Monday, will be hit hard by the ruble’s decline, said Dane Rowlands, a conflict economics professor at Carleton University.

With Russia already facing a sharp decline on trade, consumers could soon be paying inflated prices on the scant goods that make their way into the country in the weeks to come, he says.

“I expect that a number of goods will disappear from Russian shelves, that the prices of those goods will go way up. The average Russian consumer is going to have a hard time being able to afford that,” he says.

But Rowlands cautions that attempting to hit the Russian war efforts — powered by a largely “home-grown military complex” — through the country’s financial system will probably not have much short-term success.

Trending Stories

A prolonged conflict could mean Russia’s military reserves will eventually dwindle, with some need to restock supplies, Rowlands says, but the country’s internal war effort can likely be self-sustained in the near term.

“This is going to hurt Russian consumers. Is it going to hurt their war effort? My guess is no,” he says.

A suffering populace could put internal “pressure” on Russian President Vladimir Putin to call off the assault on Ukraine, Schamotta says.

But both he and Rowlands believe there are other economic screws that western nations can still twist on Russia, though such action could have major implications for the Canadian economy and consumers.

Possible sanctions on Russian oil and gas are one of the West’s last resorts. Some 50 per cent of the country’s exports come from the energy sector, Schamotta says, and much of Europe remains heavily dependent on Russia to keep the lights on.

Cutting off the country’s energy exports would not only kneecap Russia’s economy but also deal a blow to European nations, such as Germany, which rely heavily on Russian natural gas.

“If they basically say, ‘we’re going to turn off the pipelines,’ that would be a huge blow to Russia because that’s the main source of income that they have. And it would take them a while to divert that to places like China or others who might buy it,” Rowlands says.

Even though Canada is a major energy producer in its own right, constraining the supply of oil is likely to put even more upward pressure on prices around the world.

Such a move could see Canadian producers earn more in the short term and in the long run, too, if the country is increasingly seen as a more secure source of energy. Though Rowlands says prices would also be passed on at the pumps, especially since the Canadian dollar has not kept pace with soaring oil prices.

Major movement on these sanctions would have to come from Europe and other nations more reliant on Russian energy, he adds, as Canada does not get significant oil imports from the region.

In 2019, 2.6 per cent of Canada’s crude oil imports were from Russia, according to Statistics Canada. That figure was even lower in 2020.

“It’s really not for Canada to pull that trigger,” he says.

But Prime Minister Justin Trudeau announced Monday that the country would still take steps to limit its exposure to the Russia’s energy exports.

“Today, we are announcing our intention to ban all imports of crude oil from Russia, an industry from which President Putin and his oligarchs have hugely profited,” he said in a press conference.

Trudeau gave no immediate indication on the timeframe for such a ban, and did not indicate whether other western allies will follow suit.

“The big challenge here, and this is clearly what policymakers have been trying to do, is to apply these sanctions to put pressure on the Russian leadership without triggering really negative effects for the rest of the global economy,” says Schamotta.

“It’s a very delicate balancing act and we don’t know how it’s going to pan out just yet.”

— with files from Global News’s Anne Gaviola