Russia spends more on war and makes less money from oil.

The fluctuation in the value of the Russian ruble revealed a weakness in President Vladimir Putin’s tight-lipped economy, which the Kremlin’s economic staff promptly patched up, allowing the currency to at least temporarily regain its footing.

The Russian economy is beset by a conundrum: how to finance the military without weakening the national currency and overheating the economy with destructive and politically embarrassing inflation. However, the patch—an emergency interest rate increase—cannot solve this problem.

Despite extensive sanctions related to the Ukraine conflict and the departure of hundreds of well-known Western enterprises, life in Moscow appears to be going on as usual.

On a recent evening, Bolshaya Nikitskaya’s famed restaurants and bars had a line out the door as well-dressed locals took advantage of the warm August weather. DJs’ loud music was blasting from an adjacent courtyard restaurant. On first glance, malls don’t appear to have altered, but consumers now find new apparel companies Maag and Vilet where Zara and H&M once had a presence.

Additionally, the Krispy Kreme that once occupied the space in the Evropeisky mall could be confused for the doughnut vendor Krunchy Dream because even the branding is identical. Banks offer stickers with a chip that allow mobile payment in the absence of Apple Pay.

Important economic indicators are within normal bounds. Economic growth has exceeded expectations, unemployment is low, and inflation, which was 4% in July according to Russian standards, is high for those with low incomes.

People in Moscow showed a mixture of uneasiness and resignation, despite the fact that criticizing the military can result in jail time and some simply gave their first names.

Vladimir Cheremesyev, a retired 68-year-old, recounted how the problems following the fall of the Soviet Union in 1991 were postponed.

Despite being a senior and having a limited income, Cheremesyev claimed, “I don’t feel much yet, but there is anxiety — sometimes my blood pressure rises.”

Others pointed out the price fluctuations.

Entrepreneur Yuliana, 38, was more worried: “Our condition has drastically worsened, it’s no good…. It won’t end today, tomorrow, or the next day. I believe that this story will be valued by more than one generation.

Businesses are looking to alternatives when they require supplies.

Because he utilizes “quite a lot” of imported products, Smile Atelier dental clinic owner Andrei Lavrov claimed he’s had to purchase sutures and silicone from Asia.

However, he added, “No catastrophe occurred. “If something is no longer supplied, parallel channels can easily replace it.”

He claimed that certain Russian-made sutures are “very high-quality material,” noting that local business is stepping in to fill the gap: “A certain substitution is taking place.”

Nevertheless, imports into Russia are increasing again as commodities bypass restrictions by passing through neighboring nations like Kazakhstan and Armenia. Money is being distributed to people and businesses through government spending on the military and social programs, some of which is being spent on imported goods.

Salaries are also being supported by labor shortages brought on by emigration, while government-backed mortgages encourage real estate activity.

A few economic setbacks are clear, particularly for the auto sector when Western manufacturers stopped doing business in Russia. However, Chinese auto imports are expanding.
Although it is exorbitantly expensive and constrained by visa and airline restrictions, the wealthy continue to manage it and those on low incomes couldn’t afford it to begin with.

Russia, one of the largest oil exporters in the world, is under pressure to devalue its currency because of Western sanctions that are reducing the amount of money it makes from exporting its oil. As a result, the country’s trade surplus with the rest of the globe is decreasing. Additionally, Russian consumers and businesses are purchasing more goods from overseas.

The ruble is usually supported when export revenues exceed import expenses. While the ruble has progressively fallen due to the shrinking trade surplus, Moscow has gained because a lower exchange rate actually makes it easier for the government to pay its expenditures.

This is due to the fact that dollars made from the sale of oil may be converted into more rubles, which can then be used to fund government operations, employee wages, and pensions.

However, the Russian ruble fell too low on August 14—below 100 rubles to the dollar, a psychologically significant level—for the Kremlin’s tastes. The result was a significant emergency interest rate increase by the central bank of 3.5 percentage points intended to reduce local demand for imports.

interest rates being raised to support the ruble Janis Kluge, a Russian economy expert at the German Institute for International and Security Affairs in Berlin, claimed that this policy “throttles the private economy, or the part of the economy that is not related to the war and the defense industries, so that there are enough resources left over for the war to continue.”

The administration clearly prioritizes this conflict over the welfare of homes, he claimed.

According to Kluge, Putin’s decisions will have a longer-term negative impact on economic growth and the ruble. Without the foreign investment necessary to develop complicated commodities, Russia will be forced to import more and produce less of what it needs.


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