Skip to content
Paul J. Davies

Russia Exploits Two Big Holes in Financial Sanctions

The country can sell all the fossil fuels it likes and use the earnings to support the ruble or import the tools of war.

Sanctions against Russia’s central bank have gaps.

Sanctions against Russia’s central bank have gaps.

Photographer: Andrey Rudakov/Bloomberg

The sanctions against Russia for its invasion of Ukraine were swift and punitive. Freezing the Russian central bank’s holdings of dollars, euros and other top currencies was especially aggressive. It was designed to crash the ruble and raise panic among citizens and companies worried about access to their own foreign currency savings.

Except this didn’t really work. The ruble did drop 40% against the dollar in the week after the reserves were frozen, but 10 days later it had recovered more than half that loss. The ruble is now down less than 25% against the dollar and only 18% against the euro since Feb. 25. Financial conditions in Russia have also recovered significantly, according to the Institute of International Finance in Washington. Some of this is more guesswork than normal because the country’s stock and bond markets aren’t fully trading.