Russia says its economy is taking 'serious blows' as isolation grows
The Russian economy is taking "serious blows," the Kremlin acknowledged Wednesday, as the country's growing isolation piles further pressure on its tottering financial system.
Apple (AAPL), ExxonMobil (XOM), Ford, (F) Boeing (BA) and Airbus (EADSY)joined a list of companies shutting down or suspending their operations in Russia in response to its invasion of Ukraine and ensuing Western sanctions, and the European arm of Russia's biggest bank collapsed following a run on its deposits.
The ruble weakened again to trade at 113 to the US dollar, and shares in Russian companies listed overseas crashed.
"Russia's
economy is experiencing serious blows," Kremlin spokesman Dmitry Peskov
said in a call with foreign journalists. "But there is a certain margin
of safety, there is potential, there are some plans, work is underway."
Peskov was responding to a question about US President Joe Biden's remark in his State of the Union speech that the Russian economy had been left "reeling" from sanctions.
Sberbank (SBRCY), Russia's biggest lender, said Wednesday it was quitting Europe, with the exception of Switzerland,
after banking regulators in Austria forced the closure of its
Vienna-based EU subsidiary. The European Central Bank had warned earlier
this week that Sberbank Europe was likely to fail after depositors
rushed to withdraw their money following the imposition of Western
sanctions on much of Russia's financial system.
Sberbank
said its subsidiaries had faced "an exceptional outflow of funds and a
number of safety concerns regarding its employees and offices," the
group said in a statement, adding it had been prevented from bailing
them out by an order from the Russian central bank.
The
banking sanctions are part of a broader package of measures the West
has taken, unprecedented in scale against an economy of Russia's
importance, with the aim of cutting off funding for Russian President
Vladimir Putin's war effort. France estimates that $1 trillion worth of
Russian assets have been frozen, including about half of the Russian
government's war chest of reserves.
Moscow
has responded with a series of emergency measures aimed at preventing
financial meltdown, halting the flow of cash out of the country and
preserving its foreign currency reserves. The central bank more than
doubled interest rates to 20%, and banned Russian brokers from selling
securities held by foreigners.
More capital controls
The
Russian stock market was shuttered Monday and hasn't reopened since.
The central bank said it would remain closed Wednesday. The
London-listed shares of Sberbank (SBRCY) plunged 83%, while those of Russia's leading oil company, Rosneft, were down 68%.
The
government has ordered exporters to exchange 80% of their foreign
currency revenues for rubles, and banned Russian residents from making
bank transfers outside the country.
On
Tuesday, the government said Putin was working on a decree that would
prevent foreign companies exiting their Russian assets — a bid to
prevent an exodus that has gathered pace this week. Putin also signed a
decree banning people from taking more than $10,000 or equivalent in
foreign currency from the country, state news agencies TASS and RIA
reported.
The
central bank went further on Wednesday in its attempt to staunch the
flow of money out of the country. It suspended transfers abroad from
accounts held by non-resident corporate entities and individuals from a
number of countries. The restriction does not apply to Russian citizens.
"Conditions
in the Russian financial system and wider economy are likely to
deteriorate further in the days and weeks ahead as the already announced
sanctions take their toll and future sanctions add to the sustained
negative shock," wrote Berenberg senior economist Kallum Pickering in a
research note Wednesday.
"For the foreseeable future, Russia will remain isolated from the western world and major global markets."
Oil companies lead corporate exodus
Russia's
energy riches haven't been directly targeted by Western sanctions, but
many of the world's biggest oil companies are quitting the country or
halting new investments in projects to explore and develop fields.
Moscow
is also finding it harder to sell shipments of Russian crude oil to
traders and refineries worried about being caught in the net of
financial sanctions. Tanker operators are also wary of the risk to ships
in the Black Sea.
ExxonMobil
said Tuesday that it was quitting its last project in the country,
Sakhalin-1 — which was billed as "one of the largest single
international direct investments in Russia." An Exxon subsidiary was the
project's operator, and the company's decision to walk away will end
its presence of more than 25 years in Russia.
BP (BP), Shell (RDSA)
and Norway's Equinor have all said this week they intend to exit their
Russian businesses at a likely hit of billions of dollars to their
balance sheets. France's TotalEnergies (TOT) has halted new investments.
Apple,
the world's most valuable company, announced Tuesday it had stopped
selling all of its products in Russia due to the invasion of Ukraine.
Apple also said it has moved to limit access to digital services, such
as Apple Pay, inside Russia, and restricted the availability of Russian
state media applications outside the country.
Ford
said Tuesday it is suspending its operations in Russia, effective
immediately. The carmaker has a 50% stake in Ford Sollers, a joint
venture with Russian company Sollers.
Boeing
is suspending support for Russian airlines. A company spokesperson said
Tuesday that Boeing was pausing "parts, maintenance and technical
support services for Russian airlines," and had also "suspended major
operations in Moscow and temporarily closed our office in Kyiv."
Airbus also said it was suspending support services and supply of spare parts to Russian airlines.
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