By Anjan Roy
The clawing back to the exchange rate of the Russian rouble to the US dollar in the recent days is not too much of a mystery. It is simply because there is no demand for the US green back from the holders of the Russian rouble. Simply speaking, the Russians are not demanding any US dollar for their purchases or the government of that country is not seeking that currency for meeting its own requirements or for funding essential imports.
When the Russians had moved militarily into Ukraine, the western nations triggered their much vaunted sanctions against the aggressor. These included the confiscation of the massive foreign exchange reserves of the Russian central bank, running upto some $600 billion. Besides, Russia’s largest bank was also put on sanctions list and barred from the international system for secure communications among banks, commonly known as the SWIFT system.
The western nations had also sanctioned the famed Russian oligarchs, or moneybags of the country, who hold immense wealth in their personal accounts. All their assets outside of the country and in the western economies were being frozen. So their demands for dollars for their multi-million dollar purchases have also just evaporated.
Consider it. Some of the oligarchs have luxurious yachts, running into $500 million to $700 million. Most of them have gadgets installed which cost huge sums of money on a recurring basis. The proper maintenance of these pleasure gadgets for the big boys alone would generate demands for greenback as much as those of entire nations. These vessels are so sophisticated and technologically advanced that only a few ports in the developed countries could carry out their essential maintenance and repair works. And these call for huge fees for special skills and engineering..
However, pursued by the authorities in western countries, where these yachts were docked, the tight lipped crews of these vessels are seeking refuge in friendly waters where the local authorities would not confiscate these big boys’ play things as part of the sanctions implementation. They are not seeking even the basic maintenance and repair works now, which could have meant raising large sums in hard currencies.
As for essentials, Vladimir Putin’s warring Russia has to do with the basic minimum of life. Whatever is available at home is enough for them, even when prices are sky high. When at war, in Russia’s internal information black-out regime isolated from the rest of the world, all you can do is to survive rather than demand more. That explains the lack of demand for US dollar from Russian end.
But for anything, price (that is, exchange rate, when it comes to relative value of one currency to another) depends on both demand and supply. Russia carefully has devised ways of getting that minimal supplies of dollars for some of the essential needs of imports.
By offering deep discounts — running to 20% and more — Russia has been able to keep selling its oil and gas to eager buyers.
For some time, the oil and natural gas — which are the two staple export articles of Russia— prices were ruling high. The oil and gas prices have recovered from abysmally low levels in the midst of the global pandemic to stratospheric highs recently. Take for instance the Brent crude prices on the one hand touched $140 for a barrel. Remember, these had drifted below $50 per barrel in not too distant a past.
Now a high price for oil and gas means that even when selling smaller quantities, your earnings on exports are rising. This is exactly what was happening for Russia. At a very high price of oil — say, above $100 per barrel — Russia could afford to offer some discounts and yet its total take remains same or even more than previously.
Recent Bloomberg market reports indicated that all over Asia, buyers are eagerly picking up discounted Russian crude. India, for one, kept on contracting Russian oil deliveries at the discounted prices. Initially, there were talks that such purchases of Russian oil should come under the purview of global sanctions on Russia.
What of India, even European countries have continued to buy Russian oil and gas even though some of these countries were at the front lines of those professing to go by sanctions against Russia.
Germany, in the heart of Europe and directly in the forefront of the battle between Russia and Ukraine itself has continued to by Russian gas for fuelling heating of the home and hearth. They talk of Russian brutalities on ground in Ukraine and keep their own homes warm with Russian gas. They are paying for their gas purchases from Russia in hard currency like the euro or the dollar.
These flows are, adequate for the Russian state to fund its essential imports adequately. Rather, the Russians have talked of imposing strict conditions on their oil and gas sales,, demanding rouble payments for these. However, for the Russians it was only vacuous talk, because jolly well they would like to receive payments for oil and gas in hard currencies to fund their imports and keep their economy going.
The western countries’ and NATO double-speak so far as Russia’s Ukraine aggression and brutalities are concerned, are blatant. They are most often bleaching fire against Russia. They are afraid to hit Russia most in the area of oil supplies as that will paralyse European economy. Russia knows it and Putin is taking advantage of that.
No wonder, that the Ukrainians have said that the Europeans and others are paying “blood money” for their fuel imports from Russia. It is these fuel imports money which are keeping the Russian economy floating and Vladimir Putin to keep on with his horrendously murderous regime with their criminal acts of murder of Ukrainian civilians.
There is no magic in Russian rouble gaining ground. Every drop of blood of murdered Ukrainians is shoring up the currency. (IPA Service)
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