Russia's risk to remain elevated

RUSSIA ECONOMICS - In Brief 22 Feb 2022 by Alexander Kudrin

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As expected in the previous reports of the Russia Economics series, the Russian markets remained volatile in February. The ruble traveled shortly to above R/$ 80 territory last night while markets were awaiting the political decisions in the aftermath of the country’s Security Council meeting. As the Russian authorities announced that the breakaway Donetsk and Luhansk republics will be recognized within their current borders the markets got some relief, and the ruble appreciated to around R/$ 79. However, nothing can be ruled out at this stage, even though the recognition of these republics as independent states was one of the possible scenarios (including military support to these regions). Still, too many actors are involved and too much uncertainty remains as many accidents might happen.Note that there is another area, Transdniestria, the breakaway Moldovan region where some Russian troops are currently located at a base full of weapons and ammunition that was moved there after the Soviet Block in Eastern Europe collapsed in 1990. Russia has no direct access to this territory as it is located between Moldova and Ukraine. Ukraine is likely to break diplomatic relations with Russia and it may create additional problems for the base in Transdniestria. In response to mentioned above decision of Russian authorities, EU introduced restrictions against three Russian banks (including VEB and Promsvyazbank), while UK did the same in respect of five financial institutions (including Promsvyazvank; other participants are less known on financial markets). It is yet to be seen what other sanctions the Western countries will impose on Russia right now but irrespective of what hap...