Ildar Davletshin, head of Russian research at investment bank Wood & Co, said: “These sanctions are definitely as severe as they have ever been and probably caught even the authorities by surprise.” Since sanctions were announced over a week ago the impact in Russia and beyond has been marked with the ruble plummeting in value and scenes of Russian’s queuing outside banks and currency exchanges to withdraw and change money. Since Monday the Moscow stock exchange has been forced to close over fears of a major sell-off in stocks while Russian companies listed abroad have seen their share prices suffer. In the UK, after days of collapsing share prices, 28 Russian companies were suspended from the market by the London Stock Exchange Group.
One former central bank official told The Telegraph: “The hit received from sanctions/counter-sanctions was by far larger than we expected.”
Tatiana Orlova, Lead Emerging Market Economist at Oxford Economics, described the sanctions as a “huge shock” to the Russian economy, drawing comparisons to Russia’s 1998 financial crisis.
The crisis at the time saw the ruble devalued and Russia default on its debt as well as inflation reaching 84 percent.
While not quite at this level yet the fallout of the sanctions seems to have come as a bigger shock to Russia than expected.
As well as closing the stock market, the Bank of Russia has tried to prop up the falling confidence in the ruble by hiking interest rates to 20 percent in a bid to keep money in accounts.
Despite this, evidence of a bank run has continued with impacts even being felt outside of Russia after the European arm of Russia’s largest bank, Sberbank, was forced to close by the European Central Bank after warnings it was at risk of failing.
Russia is no stranger to sanctions with measures being placed on it after its last hostilities with Ukraine in 2014, however the current measures have proved significantly harsher and wider ranging.
Since 2014 Russia had been increasingly trying to sanction proof itself by becoming more self reliant and adopting a ‘fortress Russia’ approach.
However Ms Orlova said “sanctions have breached the wall of the fortress”.
She explained during previous crises the central bank would have deployed foreign reserves to support businesses however with large amounts of its assets now frozen this is no longer possible.
Although the central bank had been trying to increase its resilience she explained they hadn’t expected to lose around 65 percent of foreign reserve access, with this being the most significant sanction.
“The Russian central bank for years has been reducing the share of US dollars for example, I think that they didn’t quite expect that the sanctions would cover euros as well”
With most of its foreign reserves now inaccessible the Russian central bank is mainly left with gold and the Chinese yuan.
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Another sanction has been loss of access to global financial messaging system Swift which Ms Orlova said “will cause a lot of disruption.”
However she warned this would also hit the Russian middle class and small business owners “very, very hard” as well, with some potentially unable to make payments to foreign companies.
This could “misfire” she said, if they proved too harsh on ordinary Russians.
Mr Davletshin shared this concern, adding: “The new sanctions may not trigger the change in social mood and demand for changes internally, among the general public.
“Many other cases have shown that sanctions have limited impact on the policy and cannot change political regime (eg Iran, Venezuela, Cuba, North Korea).”