Donald Trump's tariffs punishment on Russia may emerge as victory for Putin

Russian markets reacted cautiously to U.S. President Donald Trump's threat to impose new sanctions, with analysts saying on Wednesday a weaker rouble and higher oil prices as a result of his measures may support the economy in the short term. Trump said on Tuesday the United States would start imposing tariffs and other measures on Russia "10 days from today" if Moscow showed no progress toward a peaceful settlement in Ukraine. Oil prices gained more than 3 per cent on his remarks. The rouble has dropped 4.3 per cent since July 24 to 81.9 to the U.S. dollar on Wednesday.

Boost for Russian Currency

Russia's stock market has fallen by 3.4 per cent since July 24. A weaker rouble boosts export competitiveness by making Russian goods cheaper globally and increases revenue from oil exports priced in dollars. "The uncertainty of new U.S. sanctions will continue to weigh on the sentiment of Russian investors," said Alexei Antonov from Alor brokerage.

The rouble has rallied by up to 45 per cent against the dollar this year, thanks to the central bank's tight monetary policy and hopes for easing tensions between Russia and the U.S. after talks held in Saudi Arabia in February.


The rouble's appreciation lowered the revenue of Russian commodity firms from oil and gas majors to metals and fertilizer exporters. Such firms make up about 60 per cent of the stock market, which is off-limits to Western investors because of sanctions.

Support for Russian Economy

Shares in some exporting companies rose after the rouble started sliding, with oil firm Rosneft, Russia's biggest, gaining over 2 per cent since the start of the week, and nickel producer Nornickel rising by over 5 per cent on July 29.

"Fundamental support for the Russian exporters' stocks is provided by soaring oil prices and a significantly weakened rouble," said BCS brokerage analyst Mikhail Zeltser.

The central bank's decision on July 25 to cut its key interest rate as inflation eased also helped the rouble's fall.

A weaker rouble will support the state budget, the main target of Trump's measures, by increasing the rouble-denominated value of Russia's energy revenue even if that shrinks due to new sanctions.

Energy made up 27 per cent of Russia's state budget revenue in the first half, down from around 30% in 2023 and 2024.

Although some weakening of the rouble to around 90 to the dollar is welcomed by the market, a more significant slide towards 100 and beyond is seen as harmful for the economy.

Some analysts recalled November 2024, when the rouble weakened sharply after the U.S. imposed new sanctions. The rouble lost 11% between November 22 and November 27.

Finam analysts said Russian investors were lining up to buy foreign currency to hedge the risk of falling export revenues in case Trump imposes secondary sanctions on buyers of Russian oil, such as China and India.

"In part, the concerns are not unfounded. It was precisely (former U.S. President Joe) Biden's farewell sanctions package at the end of last year that caused the rouble to plummet," Finam analysts wrote in their research note.

FAQs

Q1. Who is President of USA?
A1. President of USA is Donald Trump.

Q2. Who is President of Russia?
A2. President of Russia is Vladimir Putin.