Russia’s economy could be choked off after Wagner chief Yevgeny Prigozhin’s coup attempt was launched from a vital export hub for grain and oil, economists have said.
Global grain prices could skyrocket by more than a quarter, with experts also predicting steep increases in the price of oil when markets reopen on Monday.
While the ruble is banned from global currency exchanges, ordinary Russians are reportedly having to pay more than double the rate to buy dollars from local currency shops compared to a day ago. Flights out of Russia have also soared in price, as President Putin’s grip on power appears to loosen.
One geopolitical expert warned that the loss of business confidence within Russia could be worse than during the initial invasion of Ukraine, which wiped $44.5bn (£35bn) from the country’s economic output during 2022.
The armed rebellion against Vladimir Putin began on Friday night in Rostov-on-Don, a key coastal city on the northern banks of the Sea of Azov. Instability there could threaten ongoing global supplies of commodities such as wheat and corn, economists have warned.
Warnings of global knock-on effects came as Moscow’s main IMOEX stock market dropped almost 2.5pc in after-hours trading on Friday as rumours of a rebellion began spreading.
Russia’s Wagner mercenary group staged a coup against Moscow on Saturday, with its chief, Vladimir Putin’s former chef Mr Prigozhin, saying his forces are “true patriots” as they captured Rostov before swinging north to advance on the capital.
Tatiana Orlova, lead emerging markets economist at Oxford Economics and a Russia specialist, said Rostov holds “a strategic position” as one of the country’s key export hubs.
It is also the headquarters of Russia’s Southern Military District, one of the nerve centres overseeing the invasion and occupation of Ukraine.
Russia is one of the world’s leading grain exporters and any disruption to supplies through Rostov and other affected ports will quickly ripple across the rest of the world.
Global prices for the likes of wheat and corn increased dramatically when Russia invaded Ukraine in February last year, more than doubling from pre-war prices by May 2022.
Maria Shagina, a senior fellow specialising in economic sanctions and strategy with the International Institute for Strategic Studies, said the situation is already “destabilising” Russia’s economy.
“Major banks have raised the rouble-dollar exchange rate; companies’ shares on the Moscow Stock Exchange have fallen slightly; and the price of outbound flights has soared,” said Ms Shagina.
“In the regions controlled by Wagner, panic has led people to stockpile food and diesel. There is a lot of uncertainty about how successful Wagner’s armed mutiny will be.
“But it’s one thing for economic technocrats to do damage control in an economy battered by sanctions; it’s quite another to manage the economic fallout when there’s no clear centre of power.”
Chris Weafer, chief executive of economic consultancy Macro-Advisory, predicted that grain prices could skyrocket by as much as 29pc following the Rostov insurrection.
Explaining that current prices are around 730 cents per bushel (approximately 27kg), Mr Weafer said that if the Rostov situation destabilises, “I would expect to see 1,000 cents fairly quickly… which would be double what it was in May.”
Around 200 miles south of Rostov-on-Don lies the city of Novorossiysk, which handles around 3 million tonnes of oil exports per month from Russia and central Asian countries alike.
Ms Orlova highlighted the Caspian Pipeline Consortium, whose flagship pipeline supplies oil to the port from Siberia and Kazakhstan.
If the Wagner uprising spills southwards, she warned, global oil markets could see knock-on effects.
“I think the oil markets are going to be worried about that kind of scenario on Monday when they open. I would not be surprised to see oil and grain futures going up,” she said.
Reports from the Rostov area on Saturday suggested that Chechen forces loyal to Vladimir Putin were advancing on the port city to retake it from Wagner forces, raising the spectre of mercenary forces fleeing south and potentially threatening Novorossiysk.
Macro Advisory’s Mr Weafer added that in a worst-case scenario, he expected to see oil prices increase by “three to five dollars a barrel”, up from its current price of $74. This would take it to highs last seen in April.
On Saturday the situation near Novorossiysk appeared stable, Ms Orlova said: “I don’t think, at the moment, there are signs that shipments are going to be constrained from the port of Novorossiysk, or other Russian Black Sea ports.”
Russia is one of the world’s largest oil exporters and appeared set to gain from a cut in oil production announced by the Arab-dominated Opec cartel earlier this month.
Its daily output of around 3.6 million barrels a day is mainly being purchased by China and India following sanctions from the US and EU that imposed a price cap on Russian oil products.
The economic impact of the Wagner rebellion on ordinary Russians appears to have been immediate. Local news outlets reported on Saturday that local bureaux de change were demanding up to 200 rubles to the dollar, a sharp increase from the previous day’s rates of around 85 rubles.
Although official currency markets largely suspended trading in the ruble after Russia’s invasion, semi-official exchange rates from sources connected to the government showed the ruble was flat against the dollar on Saturday.
Mr Weafer explained that Russia’s finance ministry now sets the exchange rate, meaning it does not respond to geopolitical events in the same way as other currencies.
The amount of hard currency in circulation within Russia has skyrocketed since September, when Mr Putin announced Russia’s first general mobilisation since the Second World War. This resulted in 2.2 trillion (£20.5bn) rubles being withdrawn from the country’s banks, Bloomberg reported.
Nigel Gould-Davies, the IISS’ senior fellow for Russia and Eurasia, added that the impact on business confidence would be “worse” than the hit Russia took after the February 2022 invasion of Ukraine.
“As far as Russia is concerned, this threatens the future of the regime. From the start of Putin’s presidency, the watchword of his rule has been stability and the unity of power, the power of vertical, as he calls it, a hyper-centralised state.
“Putin launched this violent and failed invasion. And that’s been an enormous setback. But that, in itself until now, had had only limited effects on Russia’s domestic stability.”
Source : TheTelegraph
