“Black swans” threaten the Russian economy: dollar exchange rate, gasoline, sanctions

The official dollar exchange rate fluctuated in the range of 90-93 rubles throughout March. Neither the Russian presidential elections, nor drone attacks on oil refineries, nor the Central Bank’s decision on the key rate could knock him out of this corridor. The foreign exchange market even ignored the terrorist attack at Crocus. Maxim Osadchy, head of the analytical department of BKF Bank, told MK about why this happened and what news could affect the exchange rate.

Let us recall that the author of the concept of a “black swan” (a difficult to predict and rare event that has significant consequences) is the economist, philosopher and former trader Nassim Taleb. He drew attention to the harmful confidence of people that the future can be calculated based on the experience of the past. In reality, “black swans” happen regularly. Terrorist attacks also include them; just remember the panic reaction of the world market to the events of September 11, 2001 in the United States.

— On the evening of Friday, March 22, the most terrible “black swan” in recent times “flew” into our country: a terrorist attack occurred at Crocus. However, on the first day of trading after the tragedy in Moscow, the dollar exchange rate increased by 50 kopecks, to 93.25 rubles, but then dropped below 93 rubles, where it remained until the end of the week. The Moscow Exchange index initially fell by 0.6%, but quickly recovered the fall on the same day. Why did financial markets react so poorly to this monstrous event?

— Indeed, neither the currency nor the stock market noticed this event. No matter how cynical it may sound, they count money, not dead people. For all the enormity of what happened at Crocus, this event almost did not affect the financial system, trade, or the economy as a whole. And the small fluctuations that were observed on Monday can be explained by the emotions of currency speculators who did not realize what consequences the tragedy that happened on March 22 would lead to. However, everyone very quickly realized that there were no fundamental reasons for panic in the financial markets.

All this greatly distinguishes this event from what, for example, happened after the start of the SVO. Then the West imposed sanctions and froze Russian assets worth $300 billion; international rating agencies have withdrawn credit ratings assigned to Russian issuers; Mosbirzha was closed for about a month; trading was stopped on the OFZ market, which is closely related to the foreign exchange market; there was complete uncertainty regarding foreign trade; The exodus of Western companies began from our country. It is not surprising that in such conditions the dollar exchange rate broke through the 120 ruble mark. The country’s economy was on the verge of collapse, but thanks to the prompt actions of the government and the Bank of Russia, it quickly moved away from the dangerous line, and by mid-summer 2022 the dollar had almost halved in price.

– Let’s return to the events of recent months. Which ones are closest to the definition of a “black swan”? What impacted the ruble and the economy?

— On the night of January 18, a new stage of the conflict began – drone attacks on Russian oil refineries. The consequences of this new strategy turned out to be, although not critical, quite sensitive for the market for petroleum products and the foreign exchange market. As of February 1, 2023, the register of Russian refineries (maintained by the Ministry of Energy of the Russian Federation) indicated 36 commissioned refineries (excluding mini-refineries). A quarter of them – 9 refineries – were damaged as a result of drone strikes. The price of AI-92 gasoline on the stock exchange on January 17 was 42.9 thousand rubles per ton, on January 31 it increased to 50.8 thousand rubles, and on March 22 it reached 54.2 thousand rubles.

— But the collapse that Russia’s opponents were counting on didn’t happen?

— The Russian authorities have taken appropriate measures. So, in order to suppress the rapid rise in prices for goods that are extremely sensitive for the economy and the population, and even in a very sensitive period of time, before the elections, a ban on the export of gasoline was introduced on March 1 for a period of six months.

However, a direct consequence of both drone attacks and the embargo on gasoline exports is a decrease in foreign exchange earnings of exporters. Accordingly, the decrease in currency supply caused a weakening of the ruble, and less than a week after the first blows, on January 23, a fairly stable trend of weakening of the domestic currency formed. If on January 22 the exchange market closed at 88.6 rubles per dollar, then this week the rate began to test the level of 93. Continuing this trend may lead to the fact that in 2024 the level of 100 rubles per dollar will be broken again, as happened in 2022 and 2023.

— How can problems in the fuel market affect Russians’ wallets, in addition to the rising cost of gasoline?

— A decrease in fuel production may also have a negative impact on the sowing season, which, in turn, will lead to an increase in food prices. In addition, rising fuel prices contribute to increased inflation due to increased transport costs. It is possible that this logical chain was taken into account by the Bank of Russia when making the decision on March 22 to maintain the key rate at a high level of 16%.

To some extent, these drones can be considered “black swans,” at least at the very beginning of attacks on refineries. After all, it is clear that oil refineries are the most “tasty” targets, the economic effect of their destruction is very large, and it is extremely difficult to protect them. Objects worth tens of millions of dollars are affected at a disproportionately lower price of a drone.

Of course, these drones are not very fat “black swans”, not as well-fed as those that arrived in flocks of sanctions in February-March 2022.

— After this, the Financial Times newspaper reported that the United States called on Ukraine to stop attacks on Russian refineries due to fears of rising world oil prices and Russian retaliatory measures. Can all this together be called a “black swan” for our opponents? It turns out that the “black swans” of different parties to the conflict can “peck”, that is, neutralize each other?

“Indeed, there have been no reports of new attacks this week, but let’s not rush yet. In addition, the less oil is processed, the more it is exported.

— What other threats could negatively affect the Russian economy in the near future?

— In the context of the escalation of the geopolitical conflict, “black swans” will inevitably circle over Russia in flocks. Disruptive but unlikely events being discussed include a direct conflict with NATO, as well as the imposition of sanctions against the Moscow Exchange and the National Clearing Center (NCC). Let’s hope that these “swans” will not reach us.