The surprising resiliency of Russia's economy (and why it won't last)

Russia's economy has been isolated, its billionaires have been sanctioned and hundreds of foreign companies have either left the country or cut back on operations there.

And yet the Russian economy has emerged surprisingly resilient; its currency has bounced back and this week found a way to avoid defaulting on its foreign debt. 

"All things considered, it's holding up better than initially expected," said Art Woo, a senior economist with the Bank of Montreal.

The Russian economy is still projected to fall into a recession later this year, Woo said. But so far, it has managed to blunt the harshest economic consequences of the Western sanctions, brought in amid the country's invasion of Ukraine.

The Russian ruble collapsed by 30 per cent in late February when Western sanctions were first introduced. A month later, U.S. President Joe Biden said the sanctions were working and that the Russian economy was on track to be cut in half.

"As a result of our unprecedented sanctions, the ruble was almost immediately reduced to rubble," tweeted Biden in March.

But since then, the value of the currency has almost doubled — largely the result of some deft moves from the country's central bank as it took quick steps to bolster the ruble.

The Central Bank of the Russian Federation severely restricted the ability of Russian citizens to sell rubles and buy foreign currencies. It has demanded that foreign countries pay for Russian energy products in rubles. And it's forcing Russian companies still exporting to sell 80 per cent of their foreign-currency revenues and buy rubles instead. 

Experts say that has essentially created an artificial demand for the currency, which has boosted its value and kept a floor under the ruble. As the Wall Street Journal put it, the ruble is in "a central-bank-induced coma."

Meanwhile, the Russian job market has remained solid — and the state has shown its willingness to step in to keep the domestic economy functioning, Woo said.

"We suspect that the government will rely on Soviet‐era tactics (when unemployment was effectively outlawed) and encourage employers to lower salaries/reduce working hours instead of cutting head count," he told CBC News in an email.

At the heart of that strength is Russia's much vaunted oil and gas exports. Since the invasion of Ukraine on Feb. 24, oil and gas prices have surged. 

"The sky-high fossil fuel prices and continued imports into Europe have provided the Kremlin with a major windfall and undermined the effect of economic sanctions," said Lauri Myllyvirta, lead analyst with the Centre for Research on Energy and Clean Air.

His organization tracked shipping patterns to determine just how much money Russia has made since the beginning of the war, finding that Russia made about $65 billion for its oil, gas and coal over the past two months alone. That's more than $955 million a day.