• 3 minutes "Biden Is Running U.S. Energy Security Into The Ground" by Irina Slav
  • 6 minutes How Far Have We Really Gotten With Alternative Energy
  • 9 minutes "How to Calculate Your Individual ESG Score to ensure that your Digital ID 'benefits' and money are accessible"
  • 1 day GREEN NEW DEAL = BLIZZARD OF LIES
  • 7 days 87,000 new IRS agents, higher taxes, and a massive green energy slush fund... "Here Are The Winners And Losers In The 'Inflation Reduction Act'"-ZeroHedge
  • 5 days Energy Armageddon
  • 4 days "Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
  • 1 day "Forget Oil, The Real Crisis Is Diesel Inventories: The US Has Just 25 Days Left" by Zero Hedge - 5 Stars *****
  • 1 day "The Global Digital ID Prison" by James Corbett of CorbettReport.com
  • 1 day "Europe’s Energy Crisis Has Ended Its Era Of Abundance" by Irina Slav
  • 5 hours Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 1 day The Federal Reserve and Money...Aspects which are not widely known
  • 3 days Is Europe heading for winter of discontent with extensive gas shortages?
  • 11 days Wind droughts
  • 2 days Goldman Betting on Cryptocurrencies
  • 10 days Putin and Xi Bet on the Global South
Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Sanctions, Oil Prices Push Russia Into Currency Crisis

As oil prices show no sign of recovery, Russia is facing a sudden and acute currency crisis.

Oil prices have essentially dropped by half in just a few months, and the speed has caught many by surprise. Russia, one of the world’s largest oil producers, had already been bracing itself for a recession, admitting in early December that its GDP might fall by about 0.8 percent in 2015.

We have heard much about the breakeven points for many oil producing countries – for Russia, it needs somewhere in the range of $105 per barrel for its budget to breakeven.

But falling into a recession and running a fiscal deficit could seem like minor problems compared to the sudden currency crisis Russia finds itself in. Related: Putin's Luck Runs Out

On December 15, the Russian ruble dropped 10 percent. The sharp decline prompted the central bank to raise interest rates from 10.5 percent to 17 percent overnight. That came after a one percentage point rate hike just last week.

Russia’s ruble is now trading at an all-time low against the dollar, cratering from 58 rubles per dollar on December 12, to 64 per dollar on December 15. During intraday trading on December 16, the selloff continued – the ruble had fallen to 73 per dollar. The ruble has lost 45 percent of its value since the beginning of 2014.

In a sign that the central bank is losing control, the severe rate increase has not yet calmed the markets. Analysts expect Russia to start selling foreign currency at a much faster pace to further backstop the ruble, but it has shown hesitation. Most disconcerting is the possibility that the central bank is holding its fire because it is worried about running low on foreign exchange.

As The Economist notes, Russia’s massive $419 billion stash of foreign exchange reserves may not be all they’re cracked up to be. An estimated $170 billion is located in two separate wealth funds that may be difficult to access in a pinch. With much of its foreign exchange illiquid, Russia may only have about $200 billion on hand to weather the current storm. That is still a large sum, but the central bank may be worried that it might have to reinforce the ruble for an extended period of time if oil prices don’t recover.

How did this happen? How did Russia’s economy and its currency deteriorate so quickly? Western sanctions struck the initial blow. But sanctions passed in the spring and summer only had a modest effect on the ruble. Instead, the swift decline of oil prices, particularly since OPEC’s fateful decision on November 27 not to cut production, has pushed the ruble off a cliff.

Russia’s economy rises and falls with its oil industry – oil and gas make up 50 percent of government revenues and 70 percent of exports.

But while oil lies at the heart of the problem, the immediate catalyst for the currency crisis may have been Russia’s move to prop up state-owned oil company Rosneft. The Russian government has effectively resorted to a policy of printing money in order to assist the stressed oil giant, which is dealing with a worsening debt situation. Rosneft is struggling to roll over billions of dollars in debt that is coming due, prevented by western sanctions from working with western banks.

Related: Russia Expects Oil Price To Rise, But Not Enough To Balance Moscow’s Budget

The news that Russia is printing money likely sparked a sharp selloff over the last few days.

If the bank cannot halt the decline, the next step would be putting capital controls in place as a last-ditch effort to defend the ruble. But that could also make the markets panic even more.

“Russia is in the midst of a perfect storm,” Heinz Ruttimann, an Emerging Market Strategist at Julius Baer, told the Wall Street Journal. “Western sanctions hurt, the oil price is down, interest rates high and the economy falling back into recession. It cannot get much worse for Russia. The final step for the perfect storm would be the introduction of capital controls.”

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News