Plummeting oil prices provide hope for the Russian economy
According to The New York Times, the Russian ruble was the second-worst performing currency in the world last year. A number of factors affects whether the currency has any chance of a quick turnaround. For one, there were sanctions levied against Russia by the United States and members of the European Union in 2014 in response to Russia’s hand in the Ukraine crisis.
These sanctions, stemming from the annexation of Crimea by Russia and suspected active support of pro-Russian separatists in Ukraine, do not show any sign of being lifted as negotiations between Russia and the West are said to be in the distant future. The sanctions have particularly hurt Russia’s state-owned banks and energy companies, which were put under further pressure by plummeting oil prices.
According to Monday’s edition of The Wall Street Journal, crude oil prices have reached $52.86 a barrel, dropping from a 52-week high of 107.26 per barrel and a 47.17 percent drop in prices from a year ago.
As one of the major oil producing countries, Russia’s economy is intrinsically tied to the price of oil and with the massive seven-month selloff in the commodity, it is now facing the issue of a recession. This fact has manifested itself in the devaluation of Russia’s currency.
The ruble has lost roughly 50 percent of its value over the last year and was trading at $65.816 to the dollar according to The Wall Street Journal.
However, there is hope for Russia that an oil price rebound, and in turn, a rebound in the ruble is possible and even likely. According to The Wall Street Journal, industry analysts said a “price rebound … seems inevitable” and would “spell relief across financial markets, which have been rocked by concerns that oil’s plunge signaled softness in global growth. The plunge has pummeled share prices of oil producers and currencies of oil-dependent economies.”
If oil prices do not return to their normal levels, then Russia may be in serious trouble. The Russian government has typically used oil and gas exports, which, according to a Newsweek article, account for 68 percent of the country’s export revenue to cover its government spending.
While Russia’s central bank is not going to sit idly, in mid-December it raised its key interest rate to 17 percent, a key move “aimed at limiting substantially increased ruble depreciation risks and inflation risks.” It may be too late to stave off a recession. The central bank has said “the economy is likely to contract in annual terms starting next year.”
Russia will continue to rebuild its economy and strengthen the ruble.
Feb. 13, 2015