It goes without saying that the unfolding Russia-Ukraine conflict and the financial sanctions imposed by the West on Russia will impact Armenia’s economy.

To what degree and for how long will Armenia be impacted remains to be seen.

Russia is Armenia’s largest trading partner and its main source of bank remittances. The Russian ruble has already lost ground vis-vis the U.S. dollar and the Armenian dram. One ruble is now only worth one U.S. penny.

The Russian ruble is also sharply depreciating against the Armenian dram.

According to Central Bank of Armenia (CBA) data published on February 28, the average ruble exchange rate was 4.79 drams, decreasing by 0.99 drams as compared to the previous working day (February 25). For comparison, during the month before the Russian-Ukrainian war, one ruble fetched in the range of 6.2-6.4 drams.

During the day on February 28, according to the rate.am exchange rate website, the purchase of the ruble in some exchange offices decreased to 2.5 drams. At present, it is in the range of 3-4 drams.

The drop in confidence in the ruble has led many to sell off the Russian currency holdings and buy dollars. Thus, the price of a dollar has risen of late.

A devaluing ruble creates problems for Armenian exporters who are now being paid in rubles by their customers in Russia.

According to Armenia’s Statistical Committee, Armenia exported goods worth $847 million to Russia in 2021, an increase of 24.5% compared to the previous year. Armenia imported goods worth $1.782 billion from Russia in 2021, an increase of 19.2% compared to the previous year.

Exporters in Armenia who’ve signed contracts in US dollars appear to win in the short-term, but their Russian clients find it increasingly difficult to pay for goods with expensive dollars.

Sis Natural is one company in Armenia that has suffered from a devaluing ruble.

David Hakobyan, the company’s New Markets Development Director, told Hetq that Sis Natural has temporarily halted exports of juice and canned food to Russia  

“During these ruble fluctuations of the ruble, exports become unprofitable for producers if the contracts are in rubles. If there are contracts in dollars, the goods become more expensive for the Russian side, and they refuse, saying that the goods become uncompetitive. Price increases need time for the overall market to adjust. We have to stop exporting for a while until we understand what will happen," Hakobyan said.

He said the company will have to increase exports to other non-ruble markets if the problem continues.

"We export to America, Canada and different European countries. We can increase exports to those countries. In the case of Kazakhstan, where we export, we cannot increase the volume because that market is significantly dependent on the ruble.”

Economist Hayk Mnatsakanyan, Head of the Department of Finance and Accounting at Yerevan State University’s Faculty of Economics, notes that exporters who have long-term ruble contracts will suffer the most.

Families in Armenia who depend on remittances sent by relatives in Russia will also be impacted given the weakening ruble. The economist says that remittances in drams to Armenia are already decreasing

Before the war they could exchange a thousand rubles for 6,500-7,000 drams, sometimes higher. Today, they’re lucky to get a maximum of 4,000 drams.

In 2021, individuals sent some US$ 2.109 billion in bank remittances to Armenia. 41% of this came from Russia.   

In the same year, an amount equivalent to $1.226 billion was sent from Armenia abroad, of which 33% went to Russia.