In a remarkable show of force and unity, western powers cast aside all their previous concerns about Russian energy export dominance, and uniliaterally announced the nuclear option of imposing sanctions on the Russian central bank coupled with targeted exclusions from SWIFT of key Russian banks.
- *EU APPROVES BANNING ALL TRANSACTIONS WITH RUSSIAN CENTRAL BANK
The move has sparked a bank run in Russia, as locals scramble to pull out whatever hard currency they can get their hands on before it runs out, and is certain to trigger chaotic moves in FX and commodities when markets reopen on Monday. Already some Russian banks are offering to exchange rubles for dollars at a rate of 171 rubles per dollar on Sunday, compared to the official closing price of 83 on Friday before the European/US announcement about targeting the Russian central bank. In other words we are looking at a 50%+ devaluation of the Ruble. Additionally, widespread announcements of divestments in Russian equities by the likes of BP pls and the Norwegian sovereign wealth fund mean that the Russian market will be a bloodbath on Monday.
As Bloomberg notes, commodities are also heading for a manic start to the week as investors scramble to assess how the West’s latest sanctions on Russia will affect flows of energy, metals and crops.
The coming days are fraught with event risk for crude, even aside from the sanctions fallout. There’s a midweek meeting of OPEC+ on output; the Biden administration may tap stockpiles; and Iranian nuclear talks look to be nearing a conclusion. On top of that, American crude inventories at the key Cushing hubcould sink to the lowest since 2014 if there’s another modest draw.
Meanwhile, Goldman Sachs said that despite the rally in prices, it’s unlikely OPEC+ will choose to quicken the pace at which the alliance has been restoring supplies, citing Russia’s “essential role” in the grouping.
And while Europe’s moment of unity is certainly inspiring, it doesn’t answer the question just how the continent will replace the massive amount of energy that flow every single day via the countless Russian pipelines into Europe, which are now for most intents and purposes shut.