As Russian ruble rebounds, the pressure is on for more sanctions

The ruble is back. Russia's currency bounced back this week to roughly its pre-invasion value — but that doesn't mean everything's fine and dandy in the Russian economy.

Why it matters: Even if the West doesn't impose stricter sanctions, Russia's GDP is expected to contract by as much as 15% over the next year as the country enters a steep recession, according to a projection from the Institute of International Finance, which is tracking the country's economy.

• This is due in part to an expected sharp "demand contraction." In other words, in a sanctioned economy people have both less money and less stuff to buy.
• That means the Russian people are suffering economically, even if the ruble is stable.

Perversely, the demand contraction helps stabilize the Russian currency and bulk up its current account balance — especially if Russia is allowed to keep selling oil and gas.

• If Russia imports less and exports more, it gets to hold on to more cash (a lot of it in dollars) — that's called a current account surplus.
• Russia's surplus is projected to hit a record $200+ billion this year, according to IIF, thanks to rising oil prices. The country is using that money to prop up the ruble (more below).

What's happening: The Russian government helped stabilize the ruble by doing things like...

• Forcing Russian companies to exchange most of their foreign earnings for rubles. (All that oil and gas money is propping up the currency.)
• Restricting currency trading (so you have to hang on to your rubles).
• Raising interest rates to 20% to fight inflation.

What's next: In a less autocratic country, those kinds of maneuvers would get a government booted out of power, said Elina Ribakova, deputy chief economist at the Institute of International Finance. (Can you imagine if Biden forced American companies to change their dollars for bitcoin or something?)

• But in Putin's Russia, "It's not like anyone's going to protest," Ribakova said. "People will start at some point taking to the street, but we're not there yet."

Meanwhile: The currency's rise from the grave is putting political pressure on the White House to enact more sanctions. Some options...

• Cut more Russian banks off from SWIFT, the messaging system that underpins international banking. Seven banks (out of around 300 in the country) lost access in March. Two of the biggest did not.

• EU countries could stop buying Russian oil and gas (the U.S. already has), and use secondary sanctions to prevent others from doing so.
• Plus, there are other, harsher financial measures the U.S. and its allies could deploy, said Eddie Fishman, former Russia and Europe sanctions lead in the Obama administration's State Department.

"A lot of these measures haven't been taken because there's some level of satisfaction with the current level of sanctions on Russia," Fishman said. "Plus, you know, self-harm," he added, referring to the pain that an all-out energy embargo would inflict on the global economy.

• Germany has warned that an energy embargo would crater its economy.
• The U.S. is already struggling to deal with rising energy prices, with President Biden announcing yesterday unprecedented measures to bring oil prices down (more on that later).

The bottom line: The stock market isn't the U.S. economy. Likewise, the ruble isn't Russia's economy, which is in rough shape. Still, the war rages on — and there is more that can be done on the economic front. Stay tuned.