RUSSIAN Ruble Warning

Ajouté : 2026-05-11

[00:00:00]Hi, welcome back to the channel. In today's episode, I want to talk to you about what's going on with the Russian ruble and why this is causing serious problems for the Russian economy. The ruble is now trading at its strongest level for more than 3 years, which on the surface sounds like really good news for Russia. Normally, when a country has a strong currency, it suggests that the economy is booming, foreign investors are pouring money in, exports are strong, and global demand for that currency is rising. But none of that is happening right now in Russia. In fact, the Russian economy is facing mounting problems. Growth is slowing sharply. The economy contracted in the first quarter of 2026. Oil and gas revenues are under pressure. Sanctions continue to bite.

[00:00:46]Inflation remains high and the budget deficit is widening. So why is the ruble suddenly so strong and why is it actually becoming a major problem for the Kremlin? Well, before we get into all of the details on that, could I ask anybody that hasn't subscribed yet to please hit that subscriber button? It really does help me with the algorithm and also puts a smile on my face. Now, let's start by looking at this chart.

[00:01:10]And anybody that's been missing the charts, here's one for you. And it's quite large. If we pull up the exchange rate for the US dollar against the Russian ruble over the past 12 months, you can clearly see that the ruble has been strengthening steadily and that's around 74 rubles to one US dollar. This is the strongest level that we've seen at any point in the past 12 months. But if you expand the scale of this chart to show the last 5 years, what becomes more interesting is that this is now actually the strongest level since March 2023.

[00:01:44]So more than 3 years. So the obvious question is why? Because logically this doesn't really make sense. Traditional economics tells us that when a currency is strong, it usually reflects a strong economy. If foreign companies are buying lots of goods and services from your country, then they need your currency to pay for those goods. That creates demand for your currency. And simple economics tells us that when demand rises and supply stays roughly the same, prices go up and currencies work in exactly the same way. So normally a strengthening currency is viewed as a sign of economic confidence. But Russia's economy is not performing strongly right now. And that's the key point here. The Russian economy is facing major structural problems. We've already seen first quarter figures showing economic contraction. Russia remains the most sanctioned major economy in the world.

[00:02:38]The country has effectively lost the majority of its European energy customers. Oil and gas revenues, historically Russia's two most important sources of foreign income and revenue, have fallen dramatically since the invasion of Ukraine. The government is running massive military spending programs. Inflation remains stubbornly high. interest rates are still elevated and many sectors of the economy are under severe pressure. So if the economy isn't strong, why is the currency strong? Well, the answer is that the normal relationship between the economy and the currency has effectively broken down. And one of the main reasons for that is that the international market for the ruble has largely disappeared.

[00:03:21]Before the war, Russia had much deeper integration into the global financial system. International companies traded with Russia. Foreign investors bought Russian assets. Russian banks operated internationally. There was genuine demand for rubles in the global market.

[00:03:37]But sanctions have changed all of that.

[00:03:39]Many countries and companies no longer want to trade with Russia at all. And even the countries that are still trading with Russia often don't want to use rubles. China prefers to use yuan.

[00:03:51]India prefers to use United Arab Emirates dirhams or other settlement mechanisms. and many international counterparts still prefer US dollars wherever possible. So, ironically, despite Russia continuing to export oil and commodities, there is actually far less genuine international demand for the ruble itself. And that means the ruble exchange rate is no longer functioning like a normal free market currency. Instead, it's being increasingly managed and influenced by the Kremlin and the Russian central bank. Capital controls have played a huge role in this. restrictions on moving money out of Russia, requirements for exporters to convert foreign earnings into rubles, tighter control over banking flows, reduced currency trading volumes, and a collapse in foreign participation in Russian financial markets. All of these factors mean that the exchange rate itself is now being driven by a much smaller and more controlled market. So, the ruble strength we're seeing today is not necessarily a reflection of economic strength. It's more a reflection of market distortion. And you might then think, well, does that actually matter?

[00:05:00]Does anybody care? If the ruble market is largely artificial now, who cares what the exchange rate is? But it absolutely does matter because Russian companies still have to report all of their revenue and profit in rubles.

[00:05:14]Their accounts are posted in rubles. And this is where the strong ruble starts creating huge problems. So let's take a simple example. Imagine a Russian oil company sells a cargo of oil overseas for $1 billion. If the exchange rate is a h 100red rubles to the dollar, that company receives a h 100red billion rubles in revenue. But if the ruble strengthens to 74 against the dollar where it is now, that same billion dollars suddenly only converts into 74 billion rubles. So even though the company sold exactly the same amount of oil for exactly the same US dollar price, it reported rubal revenues collapsed and then that flows directly through into its profits and taxes and dividends and government revenues. This is one of the biggest problems facing the Kremlin right now because Russia's budget is heavily dependent on oil and gas revenues and most of those exports are priced internationally in dollars or other currencies. So when the rubles strengthen sharply, the government effectively receives fewer rubles from every barrel of oil sold at exactly the same time that Russia is trying to fund a hugely expensive war in Ukraine. And that's why a strong ruble can actually become a major fiscal problem for Russia. It reduces the amount of ruble income flowing into the economy. It squeezes exporters. It pressures company profits. And it reduces tax receipts.

[00:06:42]And that's before you even factor in the sanctions and discounts that Russia's already facing on its energy exports.

[00:06:49]Because Russia is still selling much of its oil at discounted prices compared with global benchmarks, transport costs are higher, insurance costs are higher, shipping routes are more complicated, and many trades are now happening through secondary or gray market arrangements. So exporters are already under pressure and the strong ruble makes those pressures even worse. Now normally there are benefits having a strong currency. Imports become cheaper being the main one. Customers gain more purchasing power. Businesses can buy foreign products at lower prices and inflation can sometimes ease. But Russia has another major problem. The sanctions. Many Western products are no longer directly available in Russia.

[00:07:32]Imports often have to come through secondary countries. parallel import systems, complex logistical routes, gray market traders, and all of those extra layers increase costs significantly. So, even though the ruble is strong on paper, many Russian consumers are not actually experiencing the full benefit of that strength, and inflation remains a serious issue. Official inflation is still well above the central bank's target level of 4%. So, prices remain elevated for food. Consumer costs have risen sharply over the past few years and real purchasing power for many ordinary Russians remains under pressure. So once again the exchange rate is telling a very different story from the real economy and this creates a very strange situation. On paper, Russia is one of the strongest performing currencies in the world over the past 12 months. But underneath that headline number, the economy is slowing, revenues are being squeezed, sanctions remain extensive, inflation is high, and the government is under growing fiscal pressure, which is why many analysts now argue that the rubal exchange rate no longer provides a reliable picture of the health of the Russian economy.

[00:08:43]Instead, it's increasingly a politically managed number operating in a highly restricted market environment. And the big question now is how long can this situation continue? Because if oil revenues continue to weaken, if the budget deficit continues widening, and if economic contraction accelerates, then maintaining a strong ruble may ultimately become too expensive for the Kremlin itself. So, I'll keep you posted on any further movements on the ruble that I think are notable and worth mentioning to you. But hopefully, you found today's video useful, informative, and most importantly, thought-provoking.

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