Westerners step up economic and financial pressure on Russia

In the financial markets, last week ended in an almost surreal atmosphere with very strong rises in the equity markets, so much so that the flagship index of the US stock market (the S&P 500) recorded a weekly gain. This optimism was based on the idea that the sanctions imposed on Russia would not affect energy transactions and would therefore have limited consequences on Western countries (and probably also for the unavowed reason that the conflict would not last). But the Ukrainians are resisting the Russian army and Vladimir Putin has announced that he is putting his deterrent force (including nuclear) on alert. In parallel, the EU and the US have announced new sanctions that exclude some Russian banks from the Swift payment system and freeze the assets of the Russian Central Bank, thus preventing it from selling much of its huge foreign exchange reserves. For the moment, energy transactions are spared but they are disrupted and one could even imagine that the head of the Kremlin prefers to sacrifice his income by cutting off gas supplies to Europe for example. It is worth noting that this weekend also saw a historic turn in German foreign policy: after the freezing of Nord Stream 2, Germany decided to send arms to Ukraine and to boost its defence spending. The German government had previously also stopped opposing measures banning Russian banks from accessing Swift.

In Russia, the consequences of the new sanctions have already been seen this morning as the ruble opened 28% lower against the USD, forcing the Bank of Russia to raise its key rate to 20%.

This should trigger a panic among the Russian population who will seek to recover their savings. The financial markets are also likely to suffer in Europe. Long-term interest rates are falling and the dollar is strengthening: the EUR/USD exchange rate rose to 1.1275 on Friday. It has fallen back to 1.1150. A sharp correction in the stock markets is expected in a particularly uncertain environment.