“The economic fallout Russia is facing is severe: high inflation that will only increase, and a deep recession that will only deepen,” the official told reporters during a conference call.
Among other things, the Western powers have frozen about half of Russia’s foreign exchange reserves, banned certain Russian banks from the highly secure SWIFT banking network and blocked the export of key technology to Russia. The United States has also banned the import of Russian oil, natural gas and petroleum products.
The goal of the sanctions is to weaken Russia’s economy enough to weaken the country’s ability to deploy its military, the senior Finance Ministry official said.
“Russia has been backed into a corner to become a closed economy and Russia is actually one of the worst equipped countries to succeed as a closed economy,” said the senior finance ministry official.
The official predicted that Russia will have major problems being isolated on the world stage because it has long relied on the sale of commodities to purchase consumer goods and sophisticated equipment for production.
Of course, there is a risk that sanctions will exacerbate the supply chain crisis that has pushed inflation in the United States to levels not seen in 40 years.
U.S. officials are keeping tabs on U.S. and European supply chains, including the supply of key metals and minerals needed in critical manufacturing processes, the senior Treasury Department official said.
Likewise, Western powers have granted humanitarian exceptions to limit the impact on food prices, which were already high before this crisis began.
The senior Treasury official left the door open to further tightening of sanctions against Russia if these supply disruptions are minimized.
Western powers also granted a license that allowed Russia to make $117 million in interest payments on its debt last month, avoiding a widely feared default.
The goal of this license is to mitigate the impact that a default would have on Western banks, bondholders and other creditors, the senior Treasury Department official said.
The license expires on May 25 and the senior Treasury Department official said no decision had yet been made on whether or not to extend it.
The ruble’s artificial recovery is masking Russia’s economic devastation
Russia’s economy is being devastated by Western sanctions and the ruble’s rapid recovery has only been made possible by Moscow’s efforts to prop up the currency, the senior finance ministry official said.
The comments come after some have argued that the ruble’s quick rebound from its initial plunge is a sign that Western sanctions have not gone far enough to punish Russia for its invasion of Ukraine.
The senior Treasury official said Russia’s economy was slipping into recession and being crushed by crippling inflation.
Although the ruble has returned to pre-invasion levels, the Treasury official argued that the currency’s purchasing power has been decimated by skyrocketing prices in Russia.
As CNN previously reported, officials in Russia have tried to prop up the ruble, in part by ordering exporters to convert 80% of their foreign exchange earnings into rubles, banning Russian brokers from selling securities, and banning Russian residents from making bank transfers outside of Russia and other steps. The moves artificially boosted demand for the ruble.
A black market for exchanging the ruble for foreign currency has sprung up in recent weeks as a sign of the ruble’s underlying weakness, the senior finance ministry official said, adding that the ruble is depreciating significantly on this black market.