The Ruble Stopped Crashing Today. Russia Is Still Screwed.

Brace for the worst, buddy.

Photo by ALEXEY NIKOLSKY/AFP/Getty Images

After two days of financial chaos, Russia is enjoying a tiny bit of respite. The country’s currency has stopped crashing for the moment—in fact, the ruble is up roughly 11 percent against the dollar today. Apple may have shut down its online store in the country until it can figure out how to properly price iPhones and iPads. Shoppers may be rushing to buy furniture and cars before prices go up. The country’s business press might be worrying about a possible “full-blown run on the banks.” But at least the markets are (relatively) calm.

Don’t expect it to last. Russia’s currency seems to have stabilized today for a handful of mostly fleeting reasons. Early Wednesday, the country’s finance ministry announced that it would sell dollars and buy rubles to push up their value, which perked up investors. Unfortunately, it only has about $7 billion to spend—not enough to make a long-term difference. Meanwhile, Reuters reports that the country’s major exporters swept in and purchased rubles today “in preparation for monthly tax payments due this week.” And, perhaps most importantly, Russia’s central bank said it would inject money into the country’s banks to keep them financially sound.

In the end, Russia is still facing the same bleak scenario that set off this week’s panic. Its economy is stuck in a vise between low oil prices and Western sanctions over its invasion of Ukraine. Cheap crude is killing the economy, while the sanctions have cut off banks and energy companies from the credit markets.

That combination is crushing for Russia, because, as Carl Weinberg of High Frequency Economics points out in a client note this morning, the country’s public and private sectors owe roughly $680 billion worth of foreign debt, which has gotten harder to pay off as the ruble has fallen. There’s certainly not enough oil money flowing to safely cover those loans. And without full access to the world’s financial system, Russian companies can’t count on borrowing to roll them over either. As Weinberg writes, some businesses “may fail. Others may default.” All of Russia is starting to look like one giant subprime borrower, which may well drive even more investors away from the country, and drive its currency lower. The central bank’s promise to support Russian financial institutions helps. But unless it turns on the printing press (which would hurt its oh-so-fragile currency), it doesn’t have unlimited resources to spend.

Propping up the ruble would help. But how to do it? The Central Bank has tried the shock and awe approach of a massive interest rate hike this week, meant to tempt people to keep their money in Russian deposits. The move did nothing. And the higher rates go, the deeper the country is bound to sink into a recession, which will exacerbate its debt problems.

Some are hoping that the central bank will come to the rescue more directly, by using some of its $416 billion worth of cash reserves to simply buy rubles, much like the finance ministry said it would. Traders are already gearing up for it to start unloading some of its sizable gold reserves for that purpose. But that, too, doesn’t seem like a solution so much as a stopgap. The Central Bank has already spent $80 billion buying rubles in a vain attempt to stop its slide. Maybe even more money will help (the Financial Times quotes one estimate that $20 billion to $30 billion per day could add 15 percent to the ruble’s value). But as long as oil prices stay low—which could be a while—and sanctions stay in place, spending down the country’s reserves looks a little like burning furniture to keep the house warm. It can’t go on forever.

Many, like the Washington Post’s Matt O’Brien, are arguing that this all leads to one inevitable conclusion: Russia needs to put capital controls in place, which would essentially ban Russians from selling off their rubles. But that seems, at best, like a partial cure. Assuming they were successfully enforced—and in Russia especially, it’s an open question—it would stop money from leaving the country and keep the ruble stable. It wouldn’t fix the basic problem that, without expensive oil to rely on, Russia has lost its growth engine.

As long as Russia is stuck with cheap oil and painful sanctions, its economy will only get sicker, and its ability to repay its debts will remain in question. There’s no exit here. Except, maybe, getting out of Ukraine, and getting somewhere close to the West’s good graces.