Ruble hits 8-month low against dollar, as falling oil prices and sanctions bite

Russia’s currency hit an eight-month low Thursday, adding to sharp declines in December as global oil prices fell, and Western sanctions targeted Russia’s energy sector.

The ruble hovered below 72 to the dollar, down 18% from the start of the month, and its weakest level since late April.

After almost halving in value in the first weeks of the war, the ruble has held up remarkably well for most of the year, trading within a narrow range. The ruble has been helped by measures from Russia’s central bank, which more than doubled interest rates at the start of the war, introduced capital controls, and forced exporters to convert 80% of their earnings into rubles, artificially creating demand for the currency. It later rolled back some of those policies as the exchange rate stabilized.

But with the price of oil, Russia’s biggest export, down by about a third from its June peak, and an EU embargo on seaborne oil, and Western price cap mechanisms now in place, Russia’s oil export revenues are likely to fall. This means less foreign currency to prop up the ruble.

The International Energy Agency said this month that Russian oil export revenues fell by $700 million in November because of falling prices.

President Putin signed a decree this week banning oil sales to countries or entities complying with the price cap, and his deputy Prime Minister warned the country may have to cut oil production by up to 7% in 2023.

Russia’s Finance Minister Anton Siluanov said Thursday that the exchange rate was stabilizing, though “small fluctuations” remained.

“The point is, our imports are increasing” he told Russian state TV in an interview that aired on Thursday. “Our exchange rate is floating and depends on the situation with the balance of payments.”

He said Russia’s new budget rule in force from next year would allow it to use excess oil revenues to stabilize the currency if necessary.