U.S. sanctions may inadvertently be helping Russia’s economy by boosting the price of its top export commodity and putting downward pressure on its currency, a combination that plays into the Kremlin’s hands.
On one hand, impending sanctions on Iran’s energy sector have already cut into its oil exports, contributing to a rise in global prices, the Wall Street Journal reported Tuesday. The price of oil has risen 14 percent since August, when President Donald Trump re-imposed sanctions on Tehran as part of the U.S. withdrawal from the Iran nuclear deal.
At the same time, the ruble has fallen 15 percent against the dollar since April, when the Trump administration hit Moscow with sanctions for meddling in the 2016 presidential election and its military interventions in Ukraine and Syria. (RELATED: Trump Approves New Sanctions On Russia That Could Reach ‘Potentially Hundreds Of Millions Of Dollars’)
The confluence of those factors means Russia’s dollar-denominated oil sales are worth more when they’re converted to rubles at home. As WSJ report noted, a barrel of exported oil returned 3,835 rubles for Russian sellers at the end of 2017, but brings in 5,262 rubles today, a 40 percent increase.
The biggest winners from U.S. sanctions have been Russian oil majors Rosneft and Lukoil, which are easily besting the profits of their Western counterparts. Their shares are up 56 and 39 percent this year, respectively.
Those results illustrate how U.S. sanctions often do little to change a disfavored government’s behavior, especially when prevailing global economic forces are working to prop up the targeted country’s main source of revenue. In Russia’s case, the Kremlin is particularly well-suited to withstand U.S. sanctions because of its light sovereign debt burden — just 17 percent of GDP — and massive foreign currency reserves of about $500 billion.
And with the value of the ruble declining against the dollar, Russia’s dollar-denominated oil exports easily pay for social spending priced in rubles, according to Andrey Movchan, a scholar at the Carnegie Moscow Center.
“Although Western politicians love to talk about the falling value of the ruble, the 25 percent drop in the currency so far this year is actually a blessing for the state budget,” Movchan wrote in Foreign Policy in September. “Luckily for President Vladimir Putin, Russia’s dollar inflows are driven by hydrocarbon exports, and the government’s social spending and pet projects are priced in rubles.”
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