Russian rouble weakens, stocks fall amid fuel shortages after Ukrainian drone attacks

Russia's stock market plummeted to a three-year low and the rouble weakened against the US dollar due to fuel shortages, Ukraine war talks stalemate, and global oil price drops.

The Russian ‌rouble ​weakened on Tuesday and stocks fell to their lowest level in three years, as people queued for fuel across the country following attacks by Ukrainian drones on Russian refineries in recent months. Analysts and traders also said sliding global oil ‌prices following talks between the U.S. and Iran, a lack of progress in talks to end the Ukraine war, and the central bank's smaller-than-expected key rate cut last week were behind the market selloff. Many regions across Russia, the world's third-largest crude oil producer, have reported restrictions on fuel sales and rising prices for oil products, creating long queues at ‌filling stations due to supply shortages in recent days. The Moscow Exchange stock index fell by 5% on June 22 before rebounding slightly and is now at ‌its lowest level since March 2023, while the rouble weakened past the 75-mark against the U.S. dollar for the first time since May 6.

"All this leads to genuine apathy on the market," said economist Evgeny Kogan, calling the selloff "a capitulation". Many blue-chip companies, including air carrier Aeroflot, diamond miner Alrosa, and retailer X5, faced margin calls. Traders told Reuters that Russian oil firms were still selling and repatriating their ⁠bumper foreign ​exchange earnings after a period of high ⁠oil prices and the temporary easing of U.S. sanctions during the Iran war, which provided some respite for Russia. The economy has demonstrated resilience against Western sanctions during the four-and-a-half years of war in Ukraine ⁠but started to lose steam last year, slowing down to 1% growth from 4.9% in 2024.

MARKET VOLATILITY The central bank said in a statement after last week's rate cut that a decline ​in fuel production created a risk that inflation could start rising again. The bank had tamed inflation by hiking interest rates at the expense of ⁠an economic slowdown and an investment crunch. President Vladimir Putin said on Tuesday that Ukrainian attacks on civilian infrastructure in Russia were an attempt to destabilise society. Shares of Russia's state-owned energy giant Gazprom, whose subsidiary Gazprom Neft ⁠owns ​a Moscow refinery that was hit by drones last week, fell over 5% below 100 roubles ($1.35) on Monday for the first time since 2009.

Analysts at Sinara investment bank said that June 22 was one of the worst days on the Russian stock market since 2022 when the war in Ukraine started. The Russian ⁠market was once a darling for foreign investors but is now off-limits due to sanctions. Prices for Russian government OFZ bonds have also been falling due to concerns about ⁠the rising deficit caused by increased military ⁠spending. The government cancelled a bond auction on Tuesday citing increased market volatility. Kremlin spokesman Dmitry Peskov, asked about the rouble's weakness and falling oil prices, dismissed concerns and said on Tuesday that there were no grounds for concern about the stability of ‌Russia's economy. "The stability of ‌the Russian economy, macroeconomic stability, is absolutely ensured," he said.