Russia's war economy shows new cracks after ruble plunges

The Russian economy, surprisingly resilient through two-plus years of war and sanctions, has suddenly begun to show serious strains.

- Georgi Kantchev

The ruble is plunging. Inflation is soaring, and President Vladimir Putin told the Russian people this week that there isn't any reason to panic.

The catalyst for the change in economic fortunes was a decision by the Biden administration to ratchet up sanctions on Russia's Gazprombank, the last major unsanctioned bank that Moscow uses to pay soldiers and process trade transactions, as well as more than 50 other financial institutions.

Gazprombank had been carved out of previous rounds of sanctions to allow allies in Europe to pay Russia for critical supplies of energy. It was a vital conduit for inflows of hard currency in exchange for Russia's exports.

The ruble fell to a 32-month low this week, and remained near its weakest point since the days after Moscow invaded Ukraine, according to LSEG data, trading for about 108 rubles to the dollar.

The free fall was stopped after Russia's central bank intervened in currency markets late Wednesday. The bank said it would stop buying foreign currency for the rest of the year, which it does when the government has an oil-and-gas surplus, a move that should help alleviate a critical shortage of hard currency available to businesses and consumers.

Putin said Thursday that "the situation is under control and there are certainly no grounds for panic." Economy Minister Maxim Reshetnikov said Wednesday that concerns about how the sanctions were affecting Russia's foreign trade were behind the ruble slump.

The new sanction measures could gum up Russia's already constrained trade routes with other countries, Russian officials and analysts say.