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The Kremlin’s blatant interference in the Belarusian revolution is reminiscent of the clash by proxy in Ukraine between Europe and Russia. And the stark reaction to Navalny’s poisoning has already provoked some of the strongest rhetoric from German Chancellor Angela Merkel, who is threatening to halt the construction of Nord Stream 2 gas pipeline. Plus the price of oil fell below $40 this week, down from recent highs of $45.
“The key question is whether international leaders respond and if so, what form sanctions take. So far, the US has been relatively silent on the Navalny poisoning while EU leaders have been more vocal. It is worth noting that it took US lawmakers five months to impose sanctions after the UK Novichok poisoning in March 2018 and it may take longer this time to target those responsible as the poisoning occurred in Russia,” says Peach.
Sanctions imposed since 2012 have, on average, resulted in falls in the ruble of 7% against the dollar between the period when sanctions were first proposed and later introduced and caused a long-lasting impact thereafter, reports Capital Captial Economics.
In 2018 when a major set of sanctions was imposed the ruble fell by 15% between April and August, even as oil prices were rising. Past sanctions have focused on asset freezes and travel bans on individuals as well as broader measures limiting access to US financial services, but this time Germany is threatening to go further and strike at major strategic assets that would represent a major souring of relations between Berlin and Moscow.
“The US imposed sanctions independently in December against businesses building the pipeline, which delayed the project and came despite opposition from Germany. But now that Germany has indicated that it would consider targeting the pipeline, this could be an opportunity to unite with the US on a previously thorny topic. This would be a major headache for Russia and add to the pressure on local financial markets,” says Peach.
At the start of this year economists at Capital Economics were predicting the ruble recover to RUB67 to the dollar, but now they are saying it will probably sink further to RUB80 before the year is out.
“The Russian ruble looks set to lose further ground over the coming months as geopolitical tensions and the threat of international sanctions ratchet up. We expect the ruble to drift towards 80/$ by year end, before rebounding to 72/$ (previously 65/$) by the end of 2021,” said Liam Peach, an economist at Capital Economics, in a note on September 8.
The closest November futures for a barrel of Brent fell 5% on September 8 and for the first time since the end of June costs less than $40 ($39.8 per barrel by
17 RUSSIA Country Report October 2020 www.intellinews.com
