As of January 1, one US dollar was equivalent to around 75 Russian Rubles. After Russia invaded Ukraine in February, its exchange rate plummeted. Following the announcement of outright war, Ruble’s value further deteriorated, as sanctions were issued against the country and many individuals. By around March 7, Ruble’s value halved, with each US $ equivalent to around 140 Russian currency. However, over time, the tables have turned and the currency has gained all its losses and is now placed at 80 Rubles per Dollar.

How did the Russian currency manage to claw its way back to pre wartime exchange rate, despite sanctions? Especially given that the Russian economy was already suffering from high inflation.

One answer seems to be that the Russian central bank doubled the key interest rate to 20% immediately after its President Vladimir Putin went to war with Ukraine. It has clearly helped. But on the long run, it may prove detrimental.

However the major reason behind Ruble’s rise is Russia’s oil and gas income which has never stopped growing despite the sanctions. European countries are dependant on Russia for its coal, gas, oil and petrolum products and this has helped Russia.

High Dependency on Russia

For instance, Germany imports over 30% of its crude oil from Russia. The figure is as high as 83% for Finland, 72% for Hungary and 97% for Slovakia. Germany also imports 34% of its coal from Russia. The figure is as high as 89% for Denmark, 89% for Greece and 99% for Lithuania. When it comes to Natural gas, more than 90% of imports for Latvia, Slovakia and Estonia come from Russia.

And precisely due to European Union’s high dependency on coal, oil from Russia, they are afraid to sanction them on fuel products. The German Finance Minister, Christian Lindner, has on multiple occasions expressed his country’s inability to stop gas supplies from Russia. Dutch Prime Minister Mark Rutte recently said that he was not in favour of cutting off Russian oil and gas supply.

Despite sanctions on other products, Russia’s oil and gas exports have only increased after the war started. While the United States has banned oil imports from Russia, no major European country has followed suit.

Hungary is Hungry for Oil

Russia also forced the European countries to buy their oil in Rubles. Hungary said that it has no issues in buying oil from Russia using Rubles. Hungary imports 72% of its crude oil and 52% of its natural gas from Russia. Since the war started, Hungary has been opposed to sanctions against Russian gas and oil, given its high dependency on the country for its energy needs. Other European countries are still figuring out the Rubles payment system and may soon follow suit. Germany, Italy and Austria have long opposed sanctions against Russia’s fuel imports.

Hungarian foreign minister Peter Szijjarto has argued that this move will not hurt sanctions against Russia. However European Union and Ukraine are not happy with Hungary’s decisions and have accused the country for actively aiding Russia’s war.

This tactic of asking EU countries to buy oil and gas in Rubles and not in Dollars have worked well for Russia. Its currency has since improved much and is near pre-war levels.

So, given the high dependency on oil, coal and natural gas, Russia’s exports won’t decline in the near future, despite the sanctions against it. And this is the primary reason for its currency to make up for its initial losses.