If Russia’s In Such Distress, Why Are They Cutting Interest Rates?

Remember how Biden was going to destroy Russia with economic and financial sanctions? Biden actually did impose sanctions and they were the most extreme sanctions ever used. So, how are they working out?

Not very well. Here’s a report card: The Russian currency has returned to its pre-war level, even a little stronger after a brief dip. Russia’s oil and natural gas are still flowing to Europe and Europe is still paying for it with hard currency. In cases where Europe has to pay for the energy in rubles, they have to buy the rubles with euros, so Putin still gets the hard currency and Europe helps support the ruble at the same time.

Seizing assets of oligarchs is a boon to Putin because he considers oligarchs to be rivals and likes them cut down to size. Some oligarchs are even bringing their assets back to Russia as a new safe haven against a hostile West; which helps Russia’s capital inflows.

Now, according to this article, the Central Bank of Russia (CBR) is even cutting interest rates at the same time the Federal Reserve is raising U.S. interest rates. The CBR is even signaling they may cut rates further in the near future as a response to the strengthening ruble.

China, India, and others are lining up to buy Russian energy exports in case the Europeans decide not to buy anymore. It’s not clear how Europe can make up the energy deficit that would result (they probably cannot in less than three years), but they’ll be paying higher prices in any case.

The officials in the U.S. and EU who are imposing these sanctions don’t seem to understand that basic commodity, such as oil and natural gas, trade on world markets. If Europe can replace the energy, they will have to pay the world price even as Putin receives the same world price from India or others. That’s how commodity markets work.

The only difference is the price will be higher for everyone, including drivers and homeowners in the U.S., because of the boycotts and sanctions. The biggest winner is Putin because he’s a net seller, not a buyer.

The same dynamic will play out with strategic metals like aluminum, titanium, palladium, and platinum; in precious metals like gold and silver; and in commodities markets for wheat, barley, and corn.

The U.S./EU sanctions are causing disruption to global markets and imposing some costs on Russian citizens. Still the big winner in Russia itself. Too bad the Biden sanctions team is clueless about how global markets actually work.

Corporate leaders and institutional fiduciaries looking to incorporate state of the art predictive analytics to their risk mitigation and strategic analysis should click the link to learn more about Raven Predictive Analytics®.