The real frontline in the Ukrainian War has not been on the ground, where, in recent weeks, Ukrainian forces have made cautious and hard-fought gains. The real battle line has instead been in the financial markets, where a relentless attempt to crush the Russian economy has been waged for over a year now.
Quite simply the West has been attempting to bring its economic muscle to bear on the aggressor state, while Russia, bolstered by lukewarm support from China and a few other dubious nations, has been struggling to shore up its economy long enough to drive the war into a stalemate.
The key indicator in all this is the value of the Russian rouble. Before the war started the US dollar could buy around 70 roubles. Soon after the invasion, this quickly soared to 134, before Russia intervened heavily in the markets to bring it down to even below pre-war levels. This was helped in large part by soaring gas and oil prices caused by the war.
In recent months and weeks, however, the damage to the Russian economy has been slowly mounting while the strength of the Russian state to intervene effectively has been weakened, leading to the latest slide.
In recent months and weeks, however, the damage to the Russian economy has been slowly mounting while the strength of the Russian state to intervene effectively has been weakened, leading to the latest slide.
In such scenarios, psychological barriers are all-important, so the rouble hitting 100-to-a-dollar after months of steady decline is liable to trigger a general collapse in confidence in the rouble and the Russian economy, which is still connected in a very brittle manner to global markets.
There is little Russia can do except issue long-term bonds with brutal yields that will saddle Russia with unpayable future debt. Already Russia's benchmark 10-year OFZ bond has soared to 11.72%. Next week when the markets open should be an interesting time.
There is little Russia can do except issue long-term bonds with brutal yields that will saddle Russia with unpayable future debt. Already Russia's benchmark 10-year OFZ bond has soared to 11.72%. Next week when the markets open should be an interesting time.
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