CIS-4’s Dollar Hedge Backfires as Export Woes Mount

Betting against the greenback seemed like free money—until reality hit. The CIS-4 bloc (Russia, Kazakhstan, Belarus, Armenia) just got a brutal lesson in currency markets: even a wounded dollar bites back.

Exporters scream as local currencies surge. A classic ’be careful what you wish for’ moment for central banks that tried to outsmart the Fed. Meanwhile, Wall Street quants pocket the spread—some things never change.

Oil Dependence, Tariffs, And Inflation Cloud CIS-4 Dollar Hopes

Trade Exposure Heightens Vulnerability

The direct impact of US tariffs on the CIS-4 should be minimal, given that the US accounts for only about 0.5-2.0% of their exports, while commodities make up approximately 50-95% of their exports. Uzbekistan, which derives around 40% of its export proceeds from gold ($3-4 million per $1/oz), could benefit from high gold prices in this CIS-4 US dollar scenario.

However, trade relationships with the primary targets of US tariffs expose the CIS-4 to potential slowdowns in those economies. From this perspective, Armenia and Uzbekistan, with about 10-20% of their exports going to the EU and China, seem somewhat less exposed than Azerbaijan and Kazakhstan, which have rather significant 50-60% shares.

Energy Price Pressures

The pressure on energy prices is definitely a critical factor for fuel exporters in the current market. Azerbaijan is more dependent on oil, with 52% of fiscal revenues and also 88% of exports coming from oil, compared to Kazakhstan’s 22% and 55%, respectively. However, Azerbaijan appears more insulated with a breakeven oil price of approximately $63-64/bbl for its budget and current account, while Kazakhstan needs Brent at $80/bbl to balance its budget ($185/bbl net of non-tax proceeds) and an even higher $87/bbl for its current account.

The CIS-4-US dollar situation is further complicated by the differential impacts on energy importers and exporters in the region, and also by fluctuating Kazakhstan oil revenue streams.

Central Banks Turn Hawkish

Most central banks view current global tensions as pro-inflationary due to supply chain concerns. This adds to existing domestic pressures from generous fiscal policies in Armenia, Azerbaijan, and Kazakhstan, as well as utility tariff hikes in Kazakhstan and Uzbekistan, which are contributing to Armenia’s inflation concerns.

Dmitry Dolgin, Chief Economist for the CIS region, stated:

The CIS-4-US dollar challenges are pushing central banks toward more restrictive monetary policies, which might affect regional growth prospects.

Currency Outlook Remains Mixed

The foreign exchange outlook for CIS countries is rather mixed at this moment in time. While a weaker global US dollar might theoretically support their currencies, it is unlikely to offset other pressure factors. These include potential capital outflows from smaller countries and reduced export revenues for fuel exporters due to lower oil prices in the global markets.

Uzbekistan’s soum appears the most resilient, bolstered by gold exports and previous depreciation, whereas the Armenian dram seems most vulnerable to these economic shifts. Azerbaijan’s currency peg remains secure for now, supported by substantial monetary and fiscal buffers amounting to approximately 100% of GDP. In contrast, Kazakhstan’s tenge may experience higher volatility due to sensitivities to trade partner currencies, although state FX operations are expected to support the KZT over the next year despite Uzbekistan currency fluctuations.

The CIS-4-US dollar relationship continues to evolve as regional economies adapt to changing global trade patterns and commodity price fluctuations, with each country facing its own unique set of challenges in this complex economic environment.