The ruble’s recovery has been falsely used as evidence that Russia is free from Western sanctions. But there are signs that the country’s financial sector is gaining ground after the initial slam of sanctions.

Economists Elina Ribakova and Benjamin Hilgenstock of the Institute of International Finance rightly point out The ruble’s rebound shouldn’t surprise anyone. Imports are crushed, interest rates have doubled, strict capital controls are in place, and Russia’s oil and gas sales mean it continues to accumulate foreign revenue.

These revenues are absolutely huge. The IIF estimates that Russia earned more than $1 a day in March, which, if no further action is taken on oil and gas sales, would help make up most of its central bank’s reserves frozen by the West:

While CBR’s reserves operations have been curtailed by sanctions, the current account surplus is at an all-time high – $39 billion in January-February, with an additional $3-40 billion likely in March and possibly over $250 billion for the full year (no energy embargo) – Russia should be able to regain “lost” reserves in a relatively short period of time.

The domestic banking sector also appears to have stabilized after a bank run early in the war. Demand for central bank liquidity has waned sharply, and the entire commercial banking sector may soon Notes from the Institute of International Finance.

Therefore, the IIF concluded that if the West wants to maintain pressure on Russia, let alone increase it, then sanctions must be constantly adjusted and expanded, such as removing more Russian banks from the Swift.

However, the next big move will be an oil and gas export embargo, which the IIF seems to think could be on the horizon. The focus of FT Alphaville is as follows:

To date, Western sanctions have largely focused on the financial sector, even though some sanctions have effectively become trade sanctions, in part because of self-sanctioning by international companies. However, as the Russian economy and financial sector adjust to a new balance of capital controls, price management and economic self-sufficiency, it is not surprising that parts of the domestic market have stabilized.

Furthermore, because of policy responses and potentially large current account surpluses, sanctions have become a moving target that will need to be adjusted over time to remain effective.

We believe that further tightening of financial sector sanctions could be the next step, potentially leading to more Russian institutions becoming disconnected from SWIFT. Finally, while resistance to the energy embargo in many European countries (including but not limited to Germany) remains significant, it is increasingly unlikely that this position will be sustained for much longer if more evidence of Russian war crimes emerges.