Russian Oil Embargo: Europe Faces Manageable Cost Squeeze; Russia’s Long-run Growth Prospects Worsen

The embargo agreed by the EU comes as Russia’s war in the Ukraine and the war’s impact on aggravating inflation have already diminished the region’s growth prospects for this year and next. We revised down growth projections for the EU’s central and eastern Europe region to 2-3% for 2022, from a December forecast of 4.6%. Similarly, growth in Germany is projected to moderate to 2.3% this year (our December forecast for this year was 4.4%), recovering to only 3% in 2023.

Downside risks to said macro views remain high in case of further intensification of inflationary pressure or evidence that core inflation has become further entrenched. Further significant fiscal support near term is likely even though most governments have already announced budgetary support measures to help cushion households and businesses from rising energy prices and broader inflationary pressure.

The EU’s move increases risk that Russia will expand economic retaliatory measures

The EU’s move significantly increases risk that Russia will expand economic reprisal against EU member states, including through further interruption of energy supplies before the EU’s boycott takes on full effect.

Medium run, pressure on public finances, already stretched by the pandemic crisis, will rise as governments foot part of the bill for the building of alternative energy infrastructure, from storage facilities to new renewable and nuclear generating capacities to natural gas distribution networks.

A temporary exemption for the Druzhba pipeline through central and eastern Europe illustrates difficulties of finding a consistent EU approach under current EU rules when individual countries are particularly dependent upon Russian energy (Figure 1). While this reduces overall effectiveness of sanctions, it does not signal a broader lack of political commitment on the part of the EU as three quarters of Russian oil imports to the EU will be impacted immediately, rising to 90% by end-2022.

Reaching agreement will prove even more challenging when gas embargos are considered.

Figure 1. The reliance on Russian oil varies across the EU

Share (%) of Russia in national extra-EU imports of oil, 2021

Source: Eurostat, Scope Ratings; *no data available for Latvia, Luxembourg and Slovenia

Energy crisis highlights urgency for the EU of creating an energy union for its member states

The energy crisis highlights an urgency for the EU of creating an energy union for its member states to better coordinate countries’ energy policies and enhance energy security. This, however, will prove challenging given differing starting points in terms of an underlying energy mix.

Europe has relatively good oil-import, transport and storage infrastructure and crude is more easily sourced from other regions given international oil markets are more liquid than natural gas markets. Cutting reliance on Russian oil imports is therefore easier than cutting natural gas.

Improved diversification of energy supplies and climate agenda ought to enhance EU energy security

Longer term, the improved diversification of energy supplies coupled with realisation of an ambitious climate change agenda ought to help enhance the EU’s energy security and sustainability of energy supplies.

For Russia, the embargo could drive oil prices even higher, but any export gains will be partially offset by the steep discounts Russian oil producers will have to offer to buyers located in Asia – principally in China and India – in order to compensate for risk of secondary sanctions and cost of developing new infrastructure.

For Europe, completely replacing Russia is out of reach any time soon

A complete replacement of the European market for Russia is out of reach any time soon, especially given EU and UK plans to ban Russian oil insurance. Firstly, Russia’s energy infrastructure is predominantly geared towards the west. Immediate expansion of pipeline oil supplies to China is limited due to capacity constraints.

Secondly, oil has historically been much more important than gas for Russia’s state finances, hence greater effectiveness from an EU perspective of an oil rather than a gas embargo. Last year, oil and gas together generated 36% of Russian federal budget revenue (and 48% over the first four months of this year), with oil accounting for 80% of this total. The embargo raises costs for Russia’s energy sector and real economy not least in terms of rouble convertibility longer run.

Nevertheless, Russia has generated more export revenue from gas than oil since escalation of this war due to soaring gas prices and discounts on Russian crude – income which could be, moving ahead, used to support the domestic economy. In the first four months of 2022, Russia’s federal budget collected 50% of RUB 9.5trn (or USD 132bn) in oil and gas revenue planned for the year.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH. Eiko Sievert, Director in Sovereign and Public Sector ratings at Scope Ratings, contributed to writing this commentary.

Are Gold & Commodities the Answer to the Western Currency Crisis?

In this episode of ‘Live from the Vault’ Alastair Macleod joins Andrew to thoroughly analyse the measurable benefits of backing a currency with gold, showcasing the PetroRuble as a working example of currency commoditisation.

Drawing a sequence of historic parallels, the famed economist contemplates the tactical steps taken by Russia and China to shield themselves from inflation that seem to be progressively corroding the Western currency system.

The collapsing Western currency system

With the PetroRuble continuously strengthening its value against the dollar, it is becoming increasingly noticeable that Russian-centric sanctions imposed by the West have never brought the expected results in penalising the country’s aggression on Ukraine.

By pegging their currency to gold in exchange for oil and commodities, Russia has in fact managed to expose some of the foundational insufficiencies of the Western currency system, which seems to be already balancing on the brink of a collapse.

Moving to a commodity-based currency system

In fact, it is the Western and Eastern approaches to commodities – especially physical gold – that might play a major role in how efficiently both hemispheres will face the upcoming food shortage and further currency debasement. By designing and issuing a commodity-based currency, China enters the path of gaining economic independence from the dollar, protecting its citizens from the shortcomings of the Western financial system in the long run.

As the prices keep rising unceasingly across America and Europe It might be worth questioning the Federal Reserve’s preferred narrative on the inflation surge being a transitory occurrence and asking whether the fiat system is capable of sustaining itself any longer.

History always repeats itself at some point

With the purchasing power of Western currencies sinking, the idea of creating and issuing yet another, new central bank currency might appear tempting. However, history is filled with the government’s failed attempts at creating a sustainable financial solution that would gain enough public confidence to stand the test of time and resist inflation.

It might be worth drawing a parallel between how China has recovered from post-war economic destitution and elevated itself into the position of one of the world’s wealthiest nations, simply by reducing the states’ intervention in the private sector.

As Alastair explains:

“The problem is that the central bank does not understand money. In British law, money is not currency. The currency is a matter of the users, it is us who actually make that decision. This is why gold and silver have always been money because they’re the basis for coinage. And currencies are something different.“

Reintroducing sound money as the centrepiece of the Western currency system might require central banks to perform an acrobatic somersault. The irony of the Russian sanctions is that they might have actually opened the gold window of opportunity for amassing physical reserves, and accelerated this process.

Russia: Tougher Sanctions Widen Disconnect Between Rouble and Economy, Increasing Retaliation Risk

The EU’s proposed new sanctions are likely to inflict further damage on the Russian economy depending on details of a final agreement, with increasing risk of retaliatory measures from Russia.

To take stock of Russia’s economic fortunes in the third month of its full-scale war in Ukraine, I address several questions around prospects for growth with the sanctions in place, the factors explaining the rouble’s recovery, what impact new aEU sanctions might have and what the Russian authorities could do in response. Download the full report

Rouble recovery – Is it sustainable?

Two main factors explain the recovery of the rouble. First, high foreign-currency inflows from oil and gas exports – as energy prices have soared – create steady demand for the Russian currency.

Secondly, efforts of the Central Bank of Russia to prevent capital flight through capital controls and higher interest rates, while they are working for now, come at cost of tighter financial conditions than before the sanctions due to elevated credit spreads and low market liquidity, decoupling economic and financial-market activity from the currency’s fortunes.

Russia: rouble exchange rate vs sovereign credit default swap (CDS) spreads

Source: Central Bank of the Russian Federation, Refinitiv Eikon, Scope Ratings

What are Russia’s near- and medium-term growth prospects?

We project Russia’s economic output to contract by at least 10% this year – the steepest decline since 1994 – and stagnate in 2023, knocking the economy back to levels last seen on the eve of the global financial crisis of 2008. To blame are the collapses in private consumption, in investment and in imports as sanctions have taken hold.

Russia’s important non-extractive industries – machinery and electrical equipment, computers, cars, pharmaceuticals – are reliant upon imported components. The share of foreign value added exceeds 50% in these industries, with about half coming from the EU, the US, the UK, Canada and Japan, much of which cannot be easily replaced, by imports from China or local alternatives.

In the absence of significant economic restructuring, and assuming sanctions remain in place, Scope Ratings expects Russia’s medium-run growth potential to moderate to 1-1.5% a year (from 1.5-2.0%), far below that of most of central and eastern Europe where living standards are far higher.

The EU proposes new sanctions – How tough are they?

In the short term, possibly higher energy prices should help offset the impact of an EU embargo on Russian oil imports.

In the longer term, an EU boycott of Russian oil is likely to imply significant costs for the Russian energy sector and real economy in terms of rouble convertibility, depending on the details of a final agreement, with some EU member states objecting to a full boycott of Russian oil, suggesting the final agreement might be softer than initially expected.

Countermeasures: What steps might Russian authorities take?

Russia is likely to expand economic retaliation against EU members as it seeks alternative buyers of its energy in Asia, but a complete replacement of the European market is out of reach any time soon due to significant transport and logistical constraints.

Russa’s energy infrastructure is predominantly geared to the west. Immediate expansion of pipeline oil supply to China is limited due to capacity constraints. As for oil supplied by tanker, while China’s independent refiners may be attracted by Russian oil at discounts, state-owned commodity traders may be less so due to concerns around secondary sanctions.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

If Only Inflation Took a Recess…

Global Macro Analysis for April 2022

The same concerns as in previous months called the shots, but in a much more extreme and pessimist way since it is beginning to look like a possible trend. The peaking inflation resulting in increasing rates, the conflict in Ukraine and China’s Covid outbreak, are all the main factors driving the market’s negative momentum.

Things didn’t get better during the last days of the month, after data showed the US GDP contracted in the first quarter, compared with the small increase that was expected. It caused panic selling at first with increasing fears about a potential recession. When one investigates it a bit deeper however, one can see that it has mostly resulted from a trade deficit (more imports than exports), while consumer demand, businesses’ investment growth and housing market stayed resilient during the last quarter.

Federal Reserve Meeting

This week, the Fed’s policy meeting is expected to be a turning point: an aggressive rate hike of 50 bps is expected (and is already priced in) as well as the start of the Fed’s balance sheet reduction, at the largest scale ever, since it reached an incredible record of $9 trillion. Of course, each and every comment of Fed chairman Jerome Powell will be broken down, in order to assess if markets recently overreacted or not, when pricing the bad news. Markets will no doubt adjust accordingly if necessary.

ECB Meeting

From its side, the ECB meeting did not provide a clear time frame yet regarding its own tightening policy. As of today, the market is pricing an 85-bps rate increase in the Euro interest this year, and the yield of the 10-year German Bund returned to close to 1%, something that has not occurred since 2014.

Ukraine War and Fertilizer Prices

Still in Europe, the war in Ukraine is continuing, and beside a humanitarian disaster, a huge energy crisis is threatening Eastern European countries. Russia blocked gas flows to Poland and Bulgaria, expecting payment from them in Rubles. Russia already stated that more countries will be cut off from its gas if there is no sanctions’ reversion on its currency.

Moreover, Finland and Sweden are considering joining NATO, decisions that could possibly end in World War III, according to Putin. Finally, Russia, together with China, is one of the most important global suppliers of fertilizers. Both countries supply the world with close to one quarter of global fertilizers. Now Russia has stopped providing fertilizers to some countries as a response to the sanctions that have been imposed on it.

To put things in perspective, 96% of the US’ potassium fertilizer is imported from Russia, meaning the latter has the power to put the Western food industry at a high level of risk. And as time is passing and no positive outcome is taking shape from this conflict, the risk for a huge global food crisis is increasing.

French Elections

Another major event in Europe in April, was the French Elections, with Macron securing a second term. If it was relatively good news for markets, it also brought attention to the fact that 50% of the French people voted for extremes and so basically half the country said it is not happy with the current regime.

Zero Covid Policy in China

China continues to suffer from its zero Covid policy, a property crisis, the consequences of last year’s crackdown on techs and now, on top of that, the depreciation of its currency. In order to resolve the latter, the People’s Bank of China announced that it will cut the Reserve Requirement Ratio for foreign exchange currencies, from 9% to 8%.

US Earnings Season

Last month also marked the kickoff for the Q1 earnings season. So far, about half the S&P 500 companies have reported. This quarter again, the surprise rate is above the historic average, but we clearly see lower corporate earnings and how higher costs put pressure on profit margins. Also, the growth forecast for this year is sharply lower than last year. Overall, even if earnings calls have been kind of depressing, inflation apart, it fits the process of normalization we all expected.


In this context, our call would be to stay defensive as long as volatility remains high, and the bearish momentum continues. To do so, we suggest building cash position on each technical rebound, and continue to favor value over growth companies.

As always, risk-management combined with rigorous sector and geographical diversification will remain key factors for investment performance.

You are more than welcome to contact us to discuss our investment views or financial markets generally.

Sweetwood Capital Investment Team

Russia: Record Current Account Surplus Disguises Longer-term Impact of Economic Sanctions

Russia’s current account surplus – a broad measure of the country’s trade, investment earnings and transfer payments with the rest of the world – widened to USD 58.2bn in Q1 2022 (Figure 1), equivalent to nearly 10% of the Central Bank of Russia (CBR)’s USD 609bn of international reserves as of 8 April (including sanctioned and frozen reserves), which are down from a record high of USD 643bn on 18 February, before the full-scale invasion.

The wider surplus reflects soaring revenue from Russia’s oil and gas exports – largely spared from international sanctions for the present.

Figure 1. Russia recorded its highest ever current account surplus since at least 1994

Source: Bank of Russia, Ministry of Finance of the Russian Federation, OPEC, Scope Ratings

Absent broader EU sanctions, Russia’s current account surplus could end the year above USD 200bn

Without broader EU sanctions of Russian oil and gas, Russia’s current account surplus could end the year well above USD 200bn, up from about USD 120bn in 2021, due to collapse of imports and the surging value of its commodity exports. This would essentially enable the CBR to rebuild a large segment of international reserves that sanctions have frozen.

Russia will speed up “de-dollarisation” of its reserves and foreign trade, including via increasing its exposure to Chinese renminbi, while maintaining exposure to euro. Russia currently conducts trade with China more in euro than in dollar, with EUR being the settlement currency with respect to half of Russian exports to China, compared with around one-third for USD.

We are yet to see the full impact of sanctions on the Russian economy

However, we are yet to see the full impact of sanctions and resulting consequences of the war on Russian foreign trade and the domestic economy, even if there is no near-term oil or gas embargo. First, sanctions are leading to a painful adjustment of imports for the Russian private sector, disrupting more than half of imported high-tech goods as well as a significant segment of imported machinery and equipment key for industrial production.

A loss of access to foreign technology weakens Russia’s already moderate medium-run growth potential, which we had estimated of around 1.5%-2% annually before the war’s escalation, while we expect Russian GDP to contract by at least 10% this year.

Secondly, an acceleration of European efforts to diversify energy imports away from Russia exacerbate medium-run economic challenges given lack of an ambitious government policy addressing the economy’s reliance on its energy export sector. The EU, which is, overall, Russia’s largest trading partner, recorded imports of Russian petroleum, natural gas and other related products of EUR 100bn last year. The EU’s plan to shed its dependence on Russian gas by 2030 could be brought forward – driven by German ambition to substantially cut dependence by 2024 – via diversification of gas supplies through increased liquefied natural gas and pipeline imports from non-Russian sources.

Full substitution of Russian energy exports to Europe is out of reach near term

We expect to see an acceleration of Russian efforts to counteract European measures partly through greater energy cooperation with China. Full substitution, however, is out of reach any time soon.

Importantly, today Russia does not have the infrastructure capacity to redirect pipeline gas from its west to the east. The capacity of Russia’s eight pipelines suppling gas to Europe is circa 220bcm/year, nearly six times that of its one pipeline to China, Power of Siberia, which is not operating at full capacity and is expected to reach only 38bcm/year by 2025.

In February 2022, Russia signed a 25-year agreement with China for supply of a further 10bcm of natural gas per year. Additionally, Russia is currently planning to develop the Power of Siberia-2 pipeline to deliver an extra 5 bcm/year of gas to China. The construction of the pipeline, however, is expected to conclude only by 2030.

Under this context, Russia’s demand to so-called “unfriendly countries”, including EU member states, to exchange dollar and euro for rouble to pay for Russian gas via a Russian bank reflects extension of a strategy to curtail reliance on western financial systems. This seeks to reduce risks to the Russian economy should accumulated gas revenues become subject to western sanctions in the future.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.

USD/RUB and Brent Analyses. Daunting Correlations

Ruble and Brent Fundamental Analysis

Throughout the past week, the ruble has been strengthening, in particular, against the backdrop of news from the start of Russian gas exports for rubles. It is noteworthy that the plan to release oil contributed to the decline in oil prices on the global market, but also weakened the dollar against the ruble.

By the end of last week, namely on the closing day of April 8 this year, the dollar against the ruble fell to 75.98 on the global market, according to IDC, and even to 75.087 on the Moscow Exchange. Brent oil continued to fall, falling below $99 per barrel, but managed to bounce back by the close of the markets and closed just above $102.

On April 11, the price of Brent oil fell by 2.9%, the ruble reacted negatively and lost a little more than 5% against the dollar.

The reason for this fall of the ruble was the publication in The Times of an article about the entry of Finland and Sweden into NATO. The fall of the ruble continued as the noise around this message increased. The market immediately reacted and judging by the dollar versus ruble and oil charts higher, the market expected an escalation of disagreement between the Alliance and Russia.

Historical Correlation and Recent Changes

Pay attention to the last two candles on the charts of the dollar against the ruble (above) and oil (below).

Under normal conditions, a healthy correlation between the price of oil and the ruble was as follows: the price of oil rises, the ruble strengthens. However, in this case we see a complete opposite, and this opposite is justified precisely by the aggravation of the conflict between Russia and NATO. Videos appeared on the network about the rapprochement of military forces near the borders of Finland, which stated that its air borders were violated several times by the Russian Air Force.

US Dollar, Ruble and Crude Oil Forecast

So far, uncertainty keeps the price of oil and the dollar in a very tight range, but the likelihood of growth in both assets remains quite high. The dollar, as well as the price of Brent oil, is at critical resistance, dollar against ruble at 85 and Brent 105. MACD and RSI on both daily USDRUB chart and daily Brent crude oil chart are bullish. If they close above these levels, the dollar will rise to 88.2 – 90 and Brent to 108 this week.

Russian Ruble Closes at Two-Month High

But what President Joe Biden called “rubble” has surprisingly recovered since its low level on March 7th, as the Russian currency is now buying 1.3cat the time of writing, right back where it was.

USD/RUB Daily Chart – ActivTrader platform from ActivTrades

Investors are wondering why the currency is strengthening while there are still so many uncertainties surrounding the Ukraine-Russia conflict, as many thought the loss of value of the Russian currency would be a rather long-term issue…are we seeing a dead cat bounce? Or is it rather a sustained recovery? How come the RUB is so resilient? Why was the Russian Ruble the top-performing currency last month?

Let’s try to understand the reasons behind the sharp and quick recovery of the Russian currency.

Aggressive capital controls & Central bank actions

As an answer to the international sanctions against Russia, the country took several measures to fight capital flight.

That includes the limitation of money transferred abroad by Russian citizens, the banning of brokers selling securities and other assets held by non-residents, and the mandatory conversion into the Ruble of 80% of the foreign currencies received by all Russian exporters to avoid significant outflows from the Russian financial markets and minimize losses.

Measures are also imposed on foreign-currency Russian bank accounts, as they aren’t allowed to withdraw more than $10,000 in dollars, the rest has to be kept in Rubles.

On February 28, the Russian central bank increased its key interest rate to 20% to support its financial system, providing an incentive to Ruble owners to save money in the local currency rather than to try to convert it into foreign currencies. On April 8, interest rates were lowered to 17%.

These massive capital control rules have somewhat rescued the Russian Ruble by putting a floor under the price, therefore limiting the depreciation of the local currency thanks to fewer Rubles going up for sale.

A steady flow of foreign currency coming into Russia

Despite sanctions to restrict Russia from acquiring foreign currencies like the US Dollar or the Euro, several countries are still buying commodities like oil, natural gas, and coal from Russia because they are very dependent on Russian energy sources.

As these countries are paying Russia in foreign currency, they provide a steady flow of foreign currency, which has eased concerns about Russia becoming insolvent and helped control the Russian fall.

“Unfriendly countries” might have to pay for Russian energy in Rubles

In retaliation for international sanctions after the Ukraine invasion by Russian forces, Putin decided that “unfriendly countries” will have to pay for their gas in Russian Rubles. If he is successful, this decision would force buyers to convert their foreign currencies into the local Ruble, therefore supporting the Ruble.

While the European Commission has asked concerned countries to refuse and stick to the original contracts, Hungary broke ranks with Europe by saying it was prepared to pay its gas in Rubles.

But insisting on payments in Ruble would mean negotiating contracts, which might help buyers exit from Russia altogether. Even if Russia is the world’s largest natural gas producer, and the biggest exporter, there are still other suppliers out there buyers might want to consider buying from. With rising energy prices and worsening relationships between Russia and the West, most countries are considering the need to reduce their dependence on Russian energies, speed up their transition to cleaner energies, and diversify their sources of energy.

Final word

Sanctions need to be adjusted over time in order to be effective, and Russia is quickly adapting to a new balance of capital controls, managed prices, as well as economic and financial self-sufficiency, so it isn’t that surprising that domestic markets are somewhat stabilizing, pushing the Russian ruble higher.

But everything is still shrouded in uncertainty and new potential action against Russia, especially around its energy sector, could significantly impact the Russian economy – and the RUB by extension.

Russia’s Deputy Energy Minister Demands Legalization of Crypto Mining

Key Insights:

  • Russian Deputy Energy Minister wants to legalize crypto mining.
  • He stated location discovery for mining should be set at the regional level.
  • Mining must also be regulated along with regional development plans.

As the Russia and Ukraine war has continued for more than a month, the dynamics of the Russian economy have shifted dramatically.

However, crypto was seen as one way to prevent the sanctions, but even they were banned soon after. So is this the next escape method by the Russian Government?

Russia Needs Crypto Mining

As reported by a Russian news agency, Tass, Evgeny Grabchak, the Russian Deputy Minister of Energy, wants to make crypto mining legal. According to him, the existing legal vacuum when it comes to the mining of cryptocurrencies is not beneficial to the people.

He instead recommended organizing a set of clear rules and regulating this field. Iterating on the same, Grabchak said,

“This legal vacuum needs to be [eliminated] as soon as possible. If we want somehow to get along with this activity, and we have no other options in the current reality, we must introduce legal regulation, adding the concept of mining to the regulatory framework.”

Adding on to this, Grabchak stated that instead of determining mining sites at a federal level, it would be better if the same was done on a more regional level. This would make the entire process more efficient.

This is an interesting development in the ongoing crypto debate in Russia since the central bank first decided to ban cryptos and mining. But the resistance from the Government and the people resulted in crypto being approved in the country.

So Why Legalize Mining Now?

A huge reason behind this could be the sanctions mentioned above against the country. Since many countries announced these sanctions, the value of the Ruble decreased significantly.

And with the blocking of crypto accounts of sanctioned individuals, Russians might begin banking on the opportunity of mining. 

Due to the decentralized nature of crypto, mining cannot be controlled. If Russians can mine cryptos, it will allow them to hold a portion of cryptocurrencies.

And since the price of the crypto will remain the same, they will have the same amount of money before and after it is exchanged into fiat.

Russian Demand for Rouble Payments for Gas Further Complicates EU-Russia Energy Stand-off

Russian President Vladimir Putin has asked the government to instruct state-controlled gas monopolist Gazprom to amend existing contracts such that “unfriendly countries”, including EU member states, start payment in rouble for imports of Russian natural gas. The Bank of Russia (CBR) is to develop a mechanism for processing such payment.

The near-term support for rouble will come at the cost for Russia of further encouraging the European Union to reduce its reliance on Russian energy imports as fast as possible – though that will take time given the infrastructure bottlenecks in the natural gas sector especially.

Financial gain looks moderate for Russia

Russia has already required exporters to sell 80% of forex revenue to support rouble since sanctions froze around half of Russian international reserves. Asking buyers of Russian natural gas to exchange hard currency for rouble increases this rate of rouble conversion to 100% as regards gas exports.

However, the foreign-currency sale requirement on Gazprom could have been increased to 100% anyhow. The move to demand payments in rouble is a strategic retaliation against the EU based upon leverage that Russia exercises as the most important supplier of natural gas to Europe, with Russian supplies amounting to more than 75% of aggregate gas demand of some countries in central and eastern Europe.

The Russian administration is also trying to increase the CBR’s capacity to manage the currency by forcing trade in natural gas to take place in domestic currency and pushing major foreign-currency flows to take place via the CBR, a sign of how financial sanctions have damaged the role of the central bank in steerage of the Russian economy.

Rouble payments for gas could increase CBR capacity to function under a prevailing sanctions regime, given current limitations on the CBR’s scope to transact with central banks in the European Union.

EU faces further energy-trading complexity, risk of gas-supply disruption

Russia’s latest demand could result in gas-contract renegotiation and changes in the duration of gas contracts on top of legal challenges should EU countries argue that the conversion would be a breach of contract. Around 58% of Gazprom gas sales to Europe and other countries are settled via euro, with another 39% in dollar. Any legal stalemate increases risk of disruptions in Russian exports to Europe, which could be painful for select countries short term.

In the longer run, Russia’s new measures are likely to accelerate EU efforts to diversify away from Russian oil and gas. The European Commission has outlined a plan to make Europe independent of Russian fossil fuels before 2030. This plan could lower demand for Russian gas by two thirds before the end of the current year. In the near term, an outcome of the Russian move could be for the EU to specify lower purchase volumes of Russian gas.

For a look at all of today’s economic events, check out our economic calendar.

Levon Kameryan is Senior Analyst in Sovereign and Public Sector ratings at Scope Ratings GmbH.


Oil Longs in Major Retreat as Volatility Jumps

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, March 8. A week where the war in Ukraine, and increased sanctions against Russia dictated most of the market swings. The prospect for lower growth and even higher inflation helped send the MSCI World stock index down by 4.5%, bond yields rose while the dollar hit multiple month highs against several major currencies.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.


The Bloomberg Commodity Spot index jumped a massive 11.2% during the reporting week, with gains being led by industrial metals, and not least energy where crude oil surged higher by 20% before suffering a major correction the day after the reporting week ended. Overall it was another week where surging volatility across most commodities saw money managers cut both long and short position, the net result being a small 2% reduction in the overall long across 24 major commodities to 2.17 million lots. Increasingly difficult market conditions helped trigger a 180k lots reduction across oil, fuel products and natural gas while net length was added to most other sectors led by grains and softs.

During 2021 the 30-day volatility on the BCOM Spot index traded within a 10.5% range between 9% and 19.5% but since the war started on February 24, it has surged higher, thereby forcing many hedge funds targeting a certain level of volatility to cut their exposure. Led by the energy and industrial metal sectors it jumped 3% to 22% during the reporting week before finishing at 28.5% on Friday.

As long the volatility remains stable, trend and momentum following hedge funds will normally buy into strength and sell into weakness. The mentioned volatility surge partly helps to explain the current dislocation in energy between reduced positioning and surging prices.


Despite rallying by around 20%, speculators cut their combined length in WTI and Brent crude oil by 100.3k lots to a three-month low at 435k lots, the largest one-week reduction since last July. Brent which jumped 22% during the week saw the biggest impact with the 38% to 158k lots being the biggest reduction made by money managers in a single week since ICE started publishing the data in 2011.

The slump took the net in Brent close to the December low at 154k lots low point when oil briefly traded below $70/b in response to the rapidly spreading omicron virus variant. The move was driven mostly by a pullback in outright longs of 63.5k lots, but also by the biggest addition in short bets (+33.6k lots) since 2016.

Long liquidation across all three fuel futures added to the story of speculators booking some profit after a one-week gains up to 42% had taken all three to record highs.


Gold surged to near the 2020 record high during the reporting and the fear of missing out of further gains saw funds raise their exposure in gold, silver and platinum through a combination of fresh buying and short positions being scaled back. As the table highlights, all three metals saw their net long jump to levels not seen in many months. Gold buyers added to 5% to 176k, a 20-month high, silver 15% to 49k, a two-year high and platinum by 72% to a one-year high at 26k.

Continued gold buying during the past five weeks had lifted the net long by 113k lots or 180% and after failing to hit a fresh record high above $2075 the temptation to book profit helped trigger the subsequent sharp correction which only paused on Friday when support was found at $1960, the 31.8% retracement of the February to March 290 dollar rally.

In HG Copper the return to a fresh record above $5/lb last Monday helped support a 36% increase in the net long to 42k lots, some 49k below the December 2020 peak and an additional 34k lots below the 2017 record at 125k lots. Highlighting a market where money managers remain unconvinced about copper’s short to medium term potentials, not least given continued uncertainty about the strenght of the Chinese economy.


Speculators finally managed to turn their CBOT wheat position around after 27k lots of net buying flipped the net to a long of just 20k lots. However, the hesitancy towards buying wheat at record levels and following a one-week surge of 30% was clear to see in the behavior, with the bulk of the net change being due to short covering and not fresh longs. KCB wheat meanwhile saw a small reduction of 2% after speculators cut short and long positions. Corn was also bought while the soybean complex was mixed.

Following weeks of sugar selling, buyers suddenly returned to lift the net long by 135% to 140k lots. During the week, the price jumped by 6% with surging fuel prices raising the prospect of more demand for plant-based fuels such as sugar towards ethanol production. Net selling of coffee extended to a third week with a weakening demand outlook, as shipments to Russia are cancelled, helping to offset continued worries about weather related declines in the Brazil output this season.


Russia’s unprovoked attack on a sovereign nation entered a second week, thereby supporting continued broad dollar strength. The Bloomberg Dollar Index reached a 20-month high reflecting haven demand and the market beginning to price in a relative faster pace of US rate hikes.

Speculators using IMM futures contracts to express their views on forex ended up, despite the mentioned strength, reducing bullish dollar bets for an eight consecutive week. Albeit at a slowing pace than recent weeks, the combined dollar long against ten IMM futures contracts was nevertheless reduced by 3% to $7.3 billion, the lowest since last August.

Looking beneath the bonnet we the find the relative small net change hiding increased selling of EUR, GBP and CAD being more than offset by short covering in CHF and JPY. The minor currencies saw demand for MXN and BRL while particularly challenging trading conditions saw continued reductions in both Ruble long and short positions.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

MoonPay Freezes Operations in Ukraine, Russia, and Belarus

Key Insights:

  • MoonPay has suspended operations in Ukraine, Russia, and Belarus.
  • The firm has said that it’s impossible to continue operating owing to the sanctions.
  • However, Exchanges like Binance and FTX have argued against suspending payment options. 

In a direct statement released to customers, the MoonPay team informed that they have decided to suspend operations in Ukraine, Russia, and Belarus due to recent events in Eastern Europe.

The Miami-based firm no longer supports customers’ accounts with physical addresses in the regions mentioned above. 

Russia, Ukraine, Belarus see Another Ban

On March 10, the MoonPay team informed all customers that owing to the political tension and Russia’s invasion of Ukraine, the firm had suspended operations in Ukraine, Russia, and Belarus. 

Reportedly, the firm explained their recent move by saying that they couldn’t continue operating in these regions and adhere to the current sanctions by countries across the world.

Notably, nations worldwide are tightening their sanctions on Russia, the US, the EU, and the UK are among the few doing so. 

The US and UK are banning Russian oil, and the EU has pledged to end its reliance on Russian gas. Responding to these sanctions, Russia has banned the export of several foreign-made products.

Earlier this week, FXEmpire reported US-based exchange Coinbase blocking over 25,000 addresses related to Russian users who were supposedly engaged in illicit activities.

Additionally, in late February, crypto exchange Binance highlighted how it was looking to block the accounts of any Russian clients targeted by sanctions. 

However, more recently, exchanges such as Binance and FTX argued that preserving the access of Russians to crypto is essential as the ruble falls amid heavy sanctions against Russia. 

MoonPay and Its NFT Craze

MoonPay launched in 2019 powers more than 250 wallets, websites, and applications in over 160 countries. In November 2021, the firm closed a Series A funding round at $555 million, bringing its valuation to $3.4 billion.

The firm claims that the funding was the largest and highest valued Series A for any bootstrapped crypto company. 

Of late, user-friendly payments infrastructure provider has made some bold moves in the NFT space. Recently, the startup spent $754,340 at the London Evening Sale at Christie’s auction house for a rare item in the World of Women (WoW) collection. 

The price paid by MoonPay makes the piece one of the most expensive WoW pieces ever sold.

USD/RUB – 130 this Week, 150 by the Next Week

Despite the fact that Minister of Foreign Affairs Dmitry Kuleba said in advance that his expectations are restrained.

The experience of negotiations between the delegations of Russia and Ukraine shows us that both sides are currently insisting on their own and progress in resolving the conflict is still standing and is unlikely to move in the near future. In this regard, I do not expect a further downtrend of the USD/RUB pair.

The price of WTI oil also reacted to the beginning of the negotiations, which yesterday, on March 9, fell by 12.14% from $129 per barrel to $108 per barrel, today it is already trading at the 2011 high of $113 per barrel.

Gold also reacted to the beginning of the negotiations, the price of the precious metal yesterday fell by 2.87% from $2059 per ounce to $1991. As long as the conflict, in which the whole world is indirectly drawn in, continues, the prices of raw materials will rise, especially the price of gold.

Gold may regain its safe-haven status for investors, not only amid conflict but also amid soaring inflation. This cup and handle pattern on a monthly Gold chart suggests that the $2500 estimates are most likely to be achieved.

For Russia, it will be important not only to provide the domestic market with food but also to countries that support Russia in conducting the “special operation” in Ukraine. Turkey is one of the world’s top exporters of wheat flour, and Turkey buys wheat mainly from Russia and Ukraine, so losing export capabilities means losing grasp for Russia.

The pressure on Russia will continue, although it seems that all possible sanctions have been adopted, and now everything should gradually improve, but everything is not so. The West will now wait for the impact of these sanctions on the Russian economy, therefore, in the next month or two, this is still very optimistic, the parties will still insist on their own.

The dollar exchange rate, at the time of this writing, is traded on world markets in near 126.5.

The market is waiting for official statements by ministers Lavrov and Kuleba after the talks. I assume that both sides admit that no agreements have been reached, but there are some positive notes, which does not quite suit the market and the Russian ruble at the moment. In this regard, I believe that by the end of this week the dollar will return to 130, and at the beginning of next week we will again see the growth of the dollar to 150 rubles.

Could CBDCs, Crypto, Mining or the Digital RMB Save Russia from Sanctions?

Key Insights:

  • Crypto and crypto mining can’t protect Russia on a state level, but may help some individuals, experts say.
  • The digital yuan “isn’t a viable” way for Moscow to dodge sanctions.
  • The West is lagging behind Beijing, Moscow in the CBDCs race.

The West can not open fire on Russia in the battlefields of Ukraine, but it has certainly not held back in the economic sector, begging some to question whether World War III might be fought on balance sheets and across banking networks.

But just how heavily will Moscow suffer under a Swift ban – and could bitcoin, crypto mining, a digital ruble, or even a foreign CBDC help it overcome the coming economic maelstrom? Leading experts helped us to learn more.

The Swift Ban: A Swift Path to Economic Ruin?

Observers have warned that key Russian banks’ removal from the Swift network will hit the nation’s largest exporters, particularly those in the oil and gas sector, the hardest.

Alon Rajic, the Managing Director of, told FX Empire that without Swift access, banks “will have to rely on manual processes which are likely to result in severe delays on payments to and from Russia.”

He added: “These increased barriers to international trade will make Russian exporters less appealing on the international stage.”

And such delays could hit the Russian economy hard, he warned:

With large delays seen in payments, Russian exporters are likely to experience significant interruptions to their cash flow cycles. This could lead to increased borrowing at a time the Russian Central Bank has doubled its base rate to 20%, which has explosive potential for the Russian economy.

Kene Ezeji-Okoye, the Co-Founder and President of the UK-based digital finance infrastructure builder Millicent, explained that Swift bans can be highly effective – but suggested that there could be consequences for the countries issuing them.

He noted that a Swift ban was “largely regarded as being the key bargaining chip that led to the 2015 Iran nuclear agreement” but called “blocking key Russian banks from accessing Swift” a highly-effective short-term tactic, “in that it negatively affects everyday Russian citizens.” And this, he suggested, “makes the war more unpalatable to the Russian populace than it may have otherwise been.”

However, Ezeji-Okoye remarked:

It appears that the ‘financial nuclear option’, is working well. But nuclear bombs entail fallout, and this situation is no different – these sanctions may well result in unintended consequences for the West, including increased de-dollarization via the acceleration of CBDC issuance.

Ezeji-Okoye added that an “unintended effect” of previous Swift sanctions “was the opening of the world’s eyes to the economic sword of Damocles hovering above their heads.”

Swift alternatives

This economic sword did not go unnoticed in Beijing and Moscow, who have been quietly working on their own Swift alternatives in the shape of the Chinese Cross Border Inter-Bank Payments System (CIPS) and the Russian Financial Message Transfer System (SPFS).

The latter debuted in 2014, the year Russia annexed Crimea. The platform became fully operational in 2017. Although it has some 400 banking members, only a small fraction of these are foreign institutions.

However, as sanctions were announced, the Russian Central Bank’s governor last week reminded foreign banks that the SPFS is up and running, and open to overseas banks. This has not gone unnoticed in the few nations that have chosen to side with Russia over the conflict.

Andras Toth-Czifra, a Senior Analyst at Flashpoint Intelligence who specializes in European and Russian security and cybersecurity issues, claimed that both SPFS and China’s equivalent “have far less capacity than Swift” noting that “SPFS only operates on working days” for instance.

But the question remains: Will economic sanctions cripple or strengthen the resolve of those who feel the brunt of them?

Ezeji-Okoye stated:

This new volley of Swift sanctions only serves to remind the nations of the world that finance is now firmly in the domain of modern warfare, and that having an alternative to the Swift system is now a matter of national security.

Can Crypto Come the Kremlin’s Rescue?

Russians have reportedly been panic-buying crypto in a bid to ditch their ruble savings, but for some, crypto could provide more than a simple safe-have asset.

Rajic, the chief, claimed that “trading a major currency like BTC, ETH or the digital ruble could provide Moscow with “possible workarounds” to sanctions.”

But, Rajic conceded, this would require a major change in policy as Russia has been sending “mixed messages” on crypto adoption. Indeed, prior to the Ukraine crisis, the nation’s Central Bank had been at loggerheads with the Ministry of Finance over the issue. The latter favors “legalizing” cryptocurrencies, but wants to regulate them strictly. It also wants to legally recognize mining – and, crucially, tax the sector.

Putin has attempted to personally intervene in the standoff, and earlier this year noted that Russia’s surplus energy and its abundance of crypto and blockchain developers were assets that could aid adoption.

However, the only existing crypto-specific piece of legislation currently in existence explicitly bans the use of crypto as a form of payment. Moscow, thus, would need to enact a volte-face on this law to start allowing firms to pay using crypto.

Putin’s mention of Russia’s energy reserves has led some to consider Moscow’s possible pivot toward crypto mining as a source of income.

Jorge Pesok, the General Counsel for the United States-based compliance software company, Tacen, told FX Empire:

It’s certainly possible that mining could provide a taxable source of revenue for Russia – essentially limiting the intended effects of sanctions, although likely not to an extent that would make up for any of the severe economic impacts the country currently faces.

But with a diminishing customer base for its vast oil and gas reserves, could Russia put its energy resources to use by providing miners with more power to mine tokens, which could then be taxed?

Other states have previously gone further. The Venezuelan army, for instance, converted certain military facilities during 2020 into crypto mining data centers in a bid to boost the Treasury’s coffers.

Crypto adoption drives have led to the Venezuelan state, which has also been heavily sanctioned by Washington, reportedly amassing a vast stash of BTC and Ethereum.

Could the Kremlin follow Venezuela’s lead?

Pesok was skeptical, stating that he did not “foresee the unlikely strategy” of using Russian energy reserves otherwise earmarked for export to mine tokens. He added:

I expect the country to look to source income from taxing crypto platforms such as exchanges, intermediaries and over-the-counter desks, or other taxes on investments and income from crypto.

Toth-Czifra of Flashpoint Intelligence, concurred, explaining:

Even considering that the Russian government could legalize, tax and then ramp up this capacity, even with a tax rate close to 100%, even if the energy costs are disregarded and even assuming that Russia is still able to import equipment necessary for mining in the future, revenues from this would account for a negligible fraction of what the Russian economy is losing with the present sanctions regime.

A Russian decision to tax crypto mining, he added “would not make any tangible difference at all.”

What about the digital yuan?

Desperate times call for desperate measures. And while the digital ruble may only exist on the drawing board at this stage, one notable CBDC is much closer to rollout: the digital yuan.

Beijing, which has blamed the Western allies for the conflict, is in the latter stages of its own pilot. Onboarding the Russians would allow both nations to ditch the USD in their cross-border trade.

Rajic, meanwhile, added: “Questions would have to be raised as to whether importers would be willing to trade with Russia through a digital reserve currency from China. And it is not likely the idea would be appealing to most businesses and financial organizations.”

Pesok agreed, noting that even “short-term workarounds, such as cryptocurrencies and digital payment solutions for small amounts of sanctions evasion” were more appealing.

While Beijing may well welcome the idea of putting its digital token to the test on the international stage, it may think twice about the idea of debuting it in such a divisive manner. Already, the Asian Infrastructure Investment Bank, which is heavily backed by Beijing, has announced that it will freeze both Russian and Belarus lending. The bank claimed that it was acting in its “best interests.”

Toth-Czifra agreed that Beijing would likely back away from cozying up to Russia on the economic front for fear of a backlash, stating:

China has already signaled that it is wary of secondary sanctions. Chinese banks have already blocked the financing of Russian commodities sales. It is doubtful that Chinese entities would readily lend a helping hand to the Russian financial system, especially when the official position of the Chinese government is that Russia should revert to negotiations with Ukraine.

How about a digital ruble?

Rajic opined that a CBDC, and “the centralized control this would bring” was “likely to be much more appealing to the Kremlin” The Russian Central Bank is indeed working on a digital ruble, but this has not even appeared in pilot form. Rajic stated:

If the conflict was to end in a matter of weeks or months, I don’t think we’d see a Russian CBDC fast-tracked to this extent, but a couple of years down the line and this could be possible.

Although a digital ruble is unlikely to roll out in time to save Russia from the full force of Western and allied sanctions, the long-term effects of these moves could well end up changing the economic landscape – beyond recognition.

Ezeji-Okoye claimed that for many countries “diminishing the power of the dollar is an overt goal” even for nations such as Cambodia, which listed de-dollarization as one of its reasons for releasing its own CBDC, one of the world’s first digital bank tokens.

El Salvador’s President Nayib Bukele won’t admit that his own Bitcoin adoption drive was motivated by de-dollarization ambitions, but it has certainly emboldened him to effectively flip the bird at the global financial establishment.

And, Ezeji-Okoye remarked, the latest sanctions on Russia are “likely to have other central banks and governments thinking along the same lines” as countries that are trying to purge themselves of the dollar.

Russia itself has spoken openly about its desire to de-dollarize its economy and cross-border trade, with senior decision-makers repeatedly stating that removing the greenback is a “long-term strategy”.

Last year, Anatoly Aksakov, the Chairman of the Parliamentary Committee on Financial Markets and also the Chairman of the Council of the Association of Banks of Russia, called attempts to “phase out the dollar” part of Russia’s “long-term economic plan.”

Back in March last year, the Russian Foreign Minister Sergei Lavrov called on Moscow and Beijing to “reduce sanctions risks by bolstering our technological independence.” He urged that they prioritize “switching to payments in our national currencies and global currencies that serve as an alternative to the dollar.”

Lavrov added, “We need to move away from using international payment systems controlled by the West.”

For some, tools like crypto and CBDCs, both real-world tokens and early prototypes could provide nations with tools that could eventually allow them to break free from the constraints of the Washington-led financial system.

Kene Ezeji-Okoye summed the situation up thusly:

CBDCs aren’t inherently designed to be adversarial. But, much like SWIFT, they can be used as such, and will soon become increasingly important pieces in the geostrategic game of chess. The world has witnessed East vs West races for power in the past, but in this case, the East is years ahead of the West.

The bottom line

As the United States, the UK, and EU-led sanctions continue to pile up on Russia, the question of whether CBDCs, crypto and the like can come to Moscow’s immediate aid, the short answer appears to be “no.”

But in the longer term, both the Kremlin and its uneasy allies in Beijing will almost certainly look to speed up the rate of their digital currency progress. In the wake of the Russia-Ukraine conflict, most countries will likely look for digital ways to exit a Swift paradigm that allows Washington and its allies to pull the plug on national economies in a matter of days.

Coinbase Blocks Over 25K Russian Wallets Linked to Illicit Activity

Key Insights

  • Coinbase blocked 25,000 addresses related to Russians.
  • These users were allegedly engaged in illicit activities.
  • Coinbase’s CEO recently stated they would comply with the sanctions against Russia.

Amid several monetary sanctions imposed on Russia in light of the Ukraine invasion, there has been much debate around the country’s citizens’ usage of cryptocurrencies.

Following the sanctions, the US-based cryptocurrency exchange Coinbase announced that it blocked access to more than 25,000 addresses related to Russians suspected of engaging in illegal activities.

Coinbase Freezes Russian Wallets

In a blog post shared on March 7 by Coinbase, the company revealed that it is committed to ‘building a safe and responsible financial system that promotes economic freedom.’

Thus, complying with recent sanctions, the organization is developing a multi-layered, worldwide sanctions program.

Furthermore, the firm revealed that it had blocked over 25,000 Russian addresses supposedly linked to Russian individuals or enterprises engaging in criminal activities. The blog post read:

“Today, Coinbase blocks over 25,000 addresses related to Russian individuals or entities we believe to be engaging in illicit activity, many of which we have identified through our proactive investigations. Once we identified these addresses, we shared them with the government to further support sanctions enforcement.”

Coinbase further highlighted that the Russian central bank alone holds over $630 billion, mostly in immobilized reserve assets. The firm said:

“That’s larger than the total market capitalization of all but one digital asset, and 5–10x the total daily traded volume of all digital assets.”

What’s Next For Russians?

Recent coverage by FXEmpire pointed out that Russian denominated crypto purchases have dropped despite fears that Russians could use cryptocurrencies to evade sanctions.

The drop in crypto transactions in the Russian ruble debunks theories that the country could pivot to digital assets to avoid sanctions.

That said, Brian Armstrong, CEO at Coinbase, said:

“We don’t think there’s a high risk of Russian oligarchs using crypto to avoid sanctions. Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars cash, art, gold, or other assets.”

For now, the recent ban by Coinbase could potentially push Russians to different exchanges such as Binance.

Notably, after Ukraine requested significant crypto exchanges to a complete prohibition, Binance said ‘it would not freeze all Russian accounts.’ This could push BNB’s price if a transition from Coinbase to Binance is seen in Russia.

Toncoin Gains Popularity Amid Crisis in Russia

Key Insights

  • Toncoin grows in popularity in Russia amid harsh sanctions on the country.
  • This popularity fails to provide enough support to Toncoin. 
  • It remains to be seen whether recent developments will be positive for Toncoin, which declined from $3.00 to $2.00 in just a month.

The recent collapse of the Russian ruble due to harsh sanctions on Russia has pushed Russian users to search for alternatives in crypto. One of the coins that attracted interest was Toncoin, an offspring from the unsuccessful attempt of the popular messenger Telegram to launch its cryptocurrency Gram.

What Is Toncoin?

Toncoin was launched after SEC halted a $1.7 billion “unregistered digital token offering” of Telegram’s Gram. The TON (Telegram Open Network) blockchain, which was developed by Telegram team, had a high level of development. A group of enthusiasts continued to work on the project under the name Ton Foundation.

Currently, Ton Foundation aims to create a project that will unite the blockchains and the internet into one global network, and its coin is named Toncoin.

At this point, the coin is a bet on the project’s long-term success rather than on the immediate usability of the coin. While Toncoin is sometimes advertised in Telegram, it will not play a role in the popular messenger’s ecosystem, and it is not meant to replace Gram.

Recent Events Failed To Provide Enough Support to Toncoin

Toncoin has been moving lower recently and has stabilized near the $2.00 level. Notably, the recent events have not provided support to Toncoin.

The potential reason for this is the rapid collapse of the ruble. As Toncoin is denominated in U.S. dollars, its price in rubles has increased, and it has become more expensive for Russian users.

toncoin march 2 2022
Source: CoinMarketCap

From a technical point of view, Toncoin is moving lower in a downside channel, which was formed after Toncoin failed to settle above the $3.00 level. A move below $2.00 may lead to a sell-off as there are no material support levels in the nearby.

To have a chance to gain sustainable upside momentum, Toncoin must get out of the downside channel and move above $2.30. In this scenario, it will head towards the major resistance level, which is located just below $3.00.

According to the TON Community Telegram channel, the number of TON accounts grew from 84,177 in September to 312,000, a growth of 270% in just half a year. The number of searches for Toncoin in Russia’s Yandex increased from 976 in September to 105,450 in January, while the number of followers on CoinMarketCap grew to 180,000.

However, it remains to be seen whether this increase in popularity will help the coin in the current environment as Russian users may lack the money to increase the coin purchases. Meanwhile, users from other countries may focus on the multitude of other projects.

Crypto Whales Are Aggressively Buying Bitcoin

BTC showed resilience despite the decline in other risky assets and the growth of the dollar. World markets were declining following the banking sector, which felt the severity of Russia’s partial disconnection from Swift (by 80%).

However, this situation does little harm to the demand for cryptocurrencies. On the Binance exchange, the volume of trading in ruble pairs with BTC and USDT has increased significantly. Crypto funds recorded $36 million in net asset inflows during the week, up from $239 million over the past five weeks, according to CoinShares.

Chart, line chart

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Institutions are also looking for alternative vehicles amid mounting military tensions and government capital controls. According to Glassnode, crypto whales have been aggressively buying bitcoin over the past few weeks, which could signal a local bottom has been reached. The last time such a situation was observed was in May last year, when, after a two-month consolidation, the market resumed growth at the end of July.

Technically, Bitcoin started March with growth. Thus, BTC has risen in price by 1.9% over the day to $44,100. Ethereum has grown by 2.5%, approaching $3,000. Other leading altcoins from the top ten add with maximum momentum such as Solana (+6.7%) and Terra (+5.2%) The total capitalization of the crypto market, according to CoinMarketCap, grew by 2% over the day, to $1.94 trillion. The Bitcoin Dominance Index is hovering around 43%. The Cryptocurrency Fear and Greed Index added another point to 52 moving into neutral territory.

by Alex Kuptsikevich, the FxPro senior market analyst.

Conflict Causes Cryptos to Fly as Many Flee Fiat

The turmoil in Ukraine has caused many citizens in the countries involved (Russia, Ukraine) to flee traditional fiat currencies and turn to Bitcoin and other cryptocurrencies, namely stable coins such as USDT. The reasons behind the flight from cash are two-fold.

The first is that ATMs are either out of cash or out of order in cities across Ukraine. This is a common occurrence in any region where there is active warfare, or political power has been taken by force. One recent example is when the U.S. withdrew from Afghanistan. The banks simply did not have enough cash on hand to issue to the thousands of people wishing to withdraw their savings in preparation for the inevitable Taliban takeover to safeguard their savings from being confiscated by the brutal regime or simply to get out of the country entirely.

Second is the realistic fears that their native currency will face severe devaluation as the country’s GDP quickly dissipates as the factories once producing goods to be sold transform into factories producing armaments for the war effort. This is especially relevant to Russians as the Ruble swiftly fell to equal less than $0.01 at the time of writing.

Refusing the call from Ukraine’s vice prime minister asking cryptocurrency exchanges to block all Russian user accounts on the basis that the Russian citizens are innocent victims of their leader’s blind sightedness. One of the largest exchanges, Binance, told fortune magazine, “We are not going to unilaterally freeze millions of innocent users’ accounts,” the company told Fortune in a statement.

Crypto is meant to provide greater financial freedom for people across the globe. Binance did state that they will block accounts of Russians that have been hit with sanctions but that they won’t unilaterally freeze accounts of all Russian users. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.” Binance is not ignoring the crisis vowing to donate at least $10 million to humanitarian efforts in the region.

Kraken CEO Jesse Powell went one step further, “Our mission at [Kraken] is to bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation,” he wrote.

“Our mission is better served by focusing on individual needs above those of any government or political faction…Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, Step 1 would be to freeze all U.S. accounts. As a practical matter, that’s not really a viable business option for us.”

Bitcoin technical analysis

These fundamental tailwinds have boosted the bullish sentiment for Bitcoin, so what are the technical forces behind these moves? Well, as we spoke about yesterday, Bitcoin opened at the 78% support level ($37,500) and traded all the way to the next Fibonacci level at $44,275 before backing off slightly. In doing so, we broke through the 50-day moving average yesterday, and today intra-day highs touched upon the 100-day moving average currently sitting at $45,000.

A break above the resistance at $44k-$45k seems probable at this point if and when this does occur. The next area of major resistance comes in at $49,000 which represents the 50% retracement and the 200-day moving average.

Possibly the most encouraging aspect of the rally underway is that Bitcoin broke its correlation with major indexes yesterday. The connection between the Nasdaq and Bitcoin was possibly the biggest risk factor to cryptocurrencies as a whole. The index, which has been moving higher with few dips for the past decade hit its all-time high above 16,000 in November, only days apart from Bitcoin’s all-time high.

Bitcoin vs NASDAQ 100

Since that point both the Nasdaq and Bitcoin have been on the decline and with the ratcheting up of interest rates needed to fight inflation the major indexes are likely to remain on a downward trajectory. If Bitcoin can continue to make its own path decoupled from U.S. equities it would be very bullish indeed akin to dodging a bullet. For anyone interested in viewing more of my articles simply click this link.

Central Bank of Russia Launches SWIFT Replacement With 399 Users

Key Insights:

  • The Russian parallel of SWIFT will be the Financial Message Transfer System of the Bank of Russia (SPFS).
  • This network will be open to mostly Belarusian banks.
  • The SPFS network already has over 399 users, and Russia is in negotiations with China to join the SPFS.

Russia decided to counter SWIFT with its SPFS following its SWIFT ban due to its invasion of Ukraine.

The Financial Message Transfer System of the Bank of Russia (SPFS), which already has over 399 users, will now become the international payment settlement network.

Russia Fights the World

With every major power in the world condemning Vladimir Putin and his recent actions against Ukraine, the strain is falling on the economy of Russia. The myriad of sanctions placed on them is already looking brutal.

To add to that, the worldwide payment settlement service provider SWIFT also excluded Russian banks recently.

Thus to ensure that the Russian financial infrastructure does not collapse, the country launched the SPFS. While initially developed as an internal financial structure, the SPFS will also be extended for international payments.

The head of the Bank of Russia, Elvira Nabiullina, announced that SPFS is open to participants from abroad. She also stated that the cards of international payment systems would continue to work as usual.


Although the SPFS has existed for over six years now, it was restricted to domestic bank users. However, in April, over 20 Belarusian banks, the Armenian Arshidbank, and the Kyrgyz Bank of Asia joined it.

Currently, the network has 399 users. The SPFS also boasts of conducting over 2 million messages monthly in 2020, which would place it 20.6% ahead of SWIFT.

The only problem is that not many countries’ banks would want to join SPFS for multiple reasons. Firstly, the possibility of getting kicked off SWIFT would handicap their reach.

Secondly, SPFS doesn’t have a lot of mainstream international banks. Even its supporter China is yet to join SPFS. Thus this limitation would also limit their capabilities.

Besides, if the SPFS system fails, the Russian economy would collapse. As it is, the USD/RUB pair skyrocketed to 104.60 Rubles after yesterday.

And with more sanctions, bans to foreign reserves access, blocking crypto access to Russians, the situation will only worsen.

Many major crypto exchanges such as Binance, Coinbase, Kraken, and KuCoin previously outright rejected the appeal of banning accounts.

The White House and The United States Treasury Department are now officially asking these exchanges to block crypto access.

The ongoing peace negotiations between Russia and Ukraine are yet to conclude. And if that fails to happen, the Russian people will be the ones to suffer.

Russia’s Financial Troubles: Will They Cast a Shadow on Gold?

While gold continues to ride the bullish wave of geopolitical tensions, confusion has arisen over whether Russia’s financial woes will support or hurt the yellow metal. For context, I wrote on Feb. 28:

Even if the recent escalation uplifts gold in the short term, the fundamental implications of Russia’s financial plight support lower gold prices over the medium term. 

Please see below:

To explain, with Russia essentially blacklisted from many influential FX counterparties, the Russian ruble relative to the U.S. dollar was exchanged for a roughly 50% discount on Feb. 27. As a result, Russian’s purchasing power is nearly half of what it was before Sunday’s developments.

Furthermore, if you analyze the chart above, you can see that euros and U.S. dollars made up a large portion of Russia’s monetary base in 2013 (the green bars on the left). Conversely, those holdings dropped dramatically in 2021 (the blue bars on the left). 

In addition, if you focus your attention on the column labeled “Gold,” you can see that FX has been swapped for gold, and the yellow metal accounts for roughly 23% of Russia’s monetary base. Now, with the impaired state of the ruble offering little financial reprieve, Russia may have to sell its gold reserves to alleviate the pressure from NATO’s economic sanctions. 

As a result, while war is often bullish for gold, the fundamental implications of currency devaluation mean that gold is Russia’s only worthwhile asset outside of oil. Thus, with bank runs already unfolding in the region, the yellow metal could be collateral damage.

To that point, the USD/RUB closed at roughly 105 on Feb. 28. As a result, it costs 105 Russian rubles to obtain one U.S. dollar. With the spot gold price at around $1,900 per ounce, it costs roughly 199,500 Russian rubles to purchase an ounce of gold.

In stark contrast, the USD/RUB closed at approximately 75 on Feb. 16, which means that less than two weeks ago, it cost 142,500 Russian rubles to purchase an ounce of gold at the current price. As such, in currency-adjusted terms, the cost of an ounce of gold in Russia has increased by roughly 40% in recent days.

However, after Bloomberg posted an article on Feb. 27 titled “Bank of Russia Resumes Gold Buying After Two-Year Pause,” the revelation may have caused some anxiety about our short position (as a reminder, it’s not in gold, but in junior mining stocks). For context, an excerpt from the article read:

“The central bank will begin buying gold again on the domestic precious metals market, it said in a statement. The move comes after the monetary authority and several of the country’s commercial banks were sanctioned in response to Russia’s invasion of Ukraine.”

As a result, if Russia goes on a shopping spree for bullion, could the price skyrocket? Well, the reality is that the fundamentals don’t support the sentiment. As mentioned, the USD/RUB has surged in recent days, and the sharp decline in the value of the Russian currency is extremely bearish for the Russian economy.

Please see below:

Furthermore, while Russia may want to increase its gold reserves, it’s essential to focus on what Russia does and not what it says. For example, the Russian central bank increased its overnight lending rate from 9.5% to 20% on Feb. 28. While U.S. investors fret over a 25 basis point hike from the Fed (which, as mentioned previously, should occur in March), Russia had to increase interest rates by 10.5% to help stop the ruble’s bleeding.

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Reuters

For context, higher interest rates encourage capital flows, and with the ruble in free-fall, Russia is hoping that investors will buy the currency, invest in Russian bonds, and potentially earn a 20% return. Moreover, if the currency rallies during the holding period, the carry trade would be highly lucrative for an institution willing to incur the risk.

However, the story is only sanguine in theory. In reality, though, crippling sanctions from NATO and private companies divesting their Russian assets mean that buying the ruble and other Russian securities requires a gambler’s mentality. For example, Viraj Patel, FX and Macro Strategist at Vanda Research, summed up the dynamic in a few simple words on Feb. 28:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Viraj Patel Twitter

Thus, while Russia may claim it’s buying gold, and who knows, maybe it will, the financial destruction plaguing the region will likely make Russia a net-seller over the medium term. To that point, if we circle back to the Bloomberg article referenced above, Nicky Shiels, head of metals strategy at MKS PAMP SA, said in the same piece that investors would interpret the actions as short-term bullish.

However, aligning with our expectations, she noted that investors have misjudged the medium-term impact of Russia’s currency crisis.

Please see below:

Obraz zawierający tekstOpis wygenerowany automatycznieSource: Bloomberg

As a result, that’s why I wrote on Feb. 28 that while volatility may be the name of the game this week as investors struggle to digest the implications, the geopolitical risk premium that often supports gold may prove counterintuitive this time around.

Furthermore, we shouldn’t ignore the potential impact on the USD Index. For example, while the dollar basket defied expectations and rose materially in 2021, the momentum continued in 2022. However, after a sharp rally in January, investors repositioned their bets, and euro longs were in style once again. However, with the risk-on trade now disrupted by the Russia-Ukraine conflict, more downside for the euro implies more upside for the USD Index.

Please see below:

Source: Institute of International Finance (IIF)/Robin Brooks

To explain, the color blocks above track the non-commercial (speculative) futures positioning for various currencies versus the U.S. dollar, while the black line above tracks the consolidated total. If you analyze the right side of the chart, you can see that the black line has moved higher recently, which signals fewer U.S. dollar long positions.

More importantly, though, if you focus your attention on the light blue blocks on the right side of the chart, you can see that speculative euro longs have increased and remain in positive territory. However, with the economic impact of the Russia-Ukraine conflict much more troublesome for the Eurozone than the U.S., speculative EUR/USD positioning still has plenty of room to move lower.

To that point, Mark Sobel, Senior Advisor at the Center for Strategic and International Studies (CSIS), wrote on Feb. 28 that “the overall impact of Russia’s actions on the U.S. economy may not be significant, assuming oil prices don’t soar, though that remains a significant risk.”

“The challenges for the ECB will be much greater in its debates over balancing the stagflationary consequences of the Russian invasion. Europe is a large net energy importer and remains dependent on Russia for oil and natural gas.”

As a result:

“European Central Bank President Christine Lagarde will feel the strain more than Federal Reserve Chair Jerome Powell. Higher oil prices will boost inflation, weaken growth prospects and stoke stagflation fears.”

Furthermore, if you analyze the right side of the chart below, you can see that Russia’s monetary base includes more euros (the light blue line) than U.S. dollars (the dark blue line). As a result, if Russia swaps its other FX holdings for rubles (to help stop the decline), the euro has more downside risk than the greenback.

The bottom line? While Russia may put on a brave face and claim that gold purchases are on the horizon, the reality is that its materially weak financial position requires more attention to more pressing matters. With bank runs and a currency crisis already unfolding, combined with NATO sanctions and private companies divesting their Russian assets, the country’s leaders need to stem the tide before a depression unfolds.

As a result, Russia’s oil revenues and the securities it can monetize are more likely to be used to support the Russian economy, rather than to buy gold. Thus, while the yellow metal has enjoyed short-term sentiment high (and so did the silver price), the fundamentals imply a much different outcome over the medium term.

In conclusion, the PMs were mixed on Feb. 28, as the GDX ETF ended the session roughly flat. However, the recent rallies are far from troublesome. For example, I noted previously how gold rallied following the 2001 terrorist attacks and after Russia annexed Crimea in 2014. However, those gains were short-lived, and the latter resulted in lower lows in the months that followed. As a result, while the recent volatility will likely continue, it doesn’t change the bearish medium-term thesis.

Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


What Is Next for the Russian Economy?

The first round of peace talks between Russia and Ukraine failed to make any progress but the two sides agreed to meet again in coming days.

I’m not really sure if that means anything as Russia now has a 40 mile convoy of military equipment and troops headed directly for the Ukraine border. At the same time, most reports indicate that fighting on the ground is intensifying and that Belarus is now preparing to deploy troops to help Russia. It’s still not clear what impact the array of sanctions the West has slapped on Russia might have on global financial markets and trade flows but the Russian economy is already being wrecked.

Russian central bank

The Russian central bank more than doubled its benchmark interest rate to 20% as it attempted to curb a run on banks and stop the fallout in the Russian ruble. At least one major Russian bank is said to be on the brink of collapse.

Meanwhile, the Russian central bank faces being cut off from a large portion of its foreign financial reserves under new restrictions from the West which will make it tougher for Russia to defend its currency. Keep in mind, the Russian ruble fell -30% against the US dollar, making it now worth less than one cent.

Some economists predict the country could face a total economic collapse if the extreme measures are kept in place for very long. Russia is now said to be preparing countermeasures against countries supporting sanctions imposed by the U.S. and its European allies. Most experts think it’s unlikely that Russia will curb its oil or gas supplies as they account for a sizable portion of the country’s GDP. However, most Russia experts also agree that it’s hard to predict what Putin might do if he feels like he’s been backed into a corner and humiliated over his miscalculation that Ukraine would be an easy land grab.

Inflation in USA

The most immediate threat to the U.S. at the current moment is that the conflict will push inflation even higher and the Federal Reserve will eventually have to get more aggressive in its efforts to bring prices down, possibly pushing the economy into a recession.

A lot of bulls believe that the U.S. consumer is actually strong enough to weather a period of both elevated inflation and higher borrowing costs thanks to healthy savings and the strong increase in asset prices witnessed over the past year and a half. I question that perspective, as I’ve seen some recent data that shows the US consumers savings level is getting back to pre-Covid levels and the higher costs of energy and housing might soon start taking a bigger bite. In fact, many bears warn that inflation is already eroding savings as well as spending power with double-digit price gains for consumer goods adding an estimated $250 in expenses for the average American household.

Investors will be scrutinizing the ISM Manufacturing Index today for signs that factory level prices might be starting to ease. The gauge climbed in January after easing for two months in a row at the end of 2021. Construction Spending is also due today. On the earnings front, highlights include AutoZone, Dominos Pizza, Hewlett Packard, Hormel Foods, J.M. Smucker, Kohl’s, Ross Stores, Salesforce, and Target.