The relentless drop in the price of oil, Russia's principal commodity, has brought with it the value of the ruble, and there appears to be little Russia's central bank can do to rescue the currency.
On Jan. 13, the ruble lost more than 4 percent of its value, its lowest since a run on the currency in mid-December 2014, which left it at 80 rubles per dollar. There's been a slight recovery since then, but on Jan. 14, the value was a little below 66 rubles per dollar.
Global oil prices have dropped more than 50 percent since late June 2014. Benchmark Brent crude has plunged from an average of about $115 per barrel to below $50 in that period, basically cutting the Moscow government's oil revenues in half.
The situation has been made even worse by sanctions that the United States and the European Union imposed last year on Russia's oil and financial sectors, limiting the country's access to important drilling technology and to Western financial markets to keep the ruble stable.
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The sanctions were imposed because of Russia's involvement in Ukraine's internal affairs and its suspected role in a bloody uprising in eastern Ukraine. But because of the plunging oil price and the sanctions, Russia's ruble and Ukraine's hryvnia were the worst performing currencies in the world.
Russia's central bank has had to intervene several times, including setting its key interest rate as high as 17 percent, in an effort to restore the ruble's value by guaranteeing higher returns to foreign investors in the currency. The bank has also used its foreign currency reserves to buy rubles, depleting these reserves to below $400 billion for the first time since 2009.
In addition, the central bank has urged exporters to use their revenues to buy rubles in what, so far, has been a futile effort to increase demand for the currency. Some analysts say Moscow may go further, requiring rather than urging the exporters to buy rubles.
And those requirements may get even stricter, according to Per Hammarlund of the Swedish bank SEB's London office. He told The Wall Street Journal that the price of oil is certain to fall further, so "it's imperative for the central bank to maintain confidence in the ruble among households."
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No matter what the central bank does, it's already acknowledged that it expects a recession in 2015, with the economy contracting by as much as 5 percent. Independent analysts are more pessimistic. In December, Moody's forecast a contraction of 5.5 percent in 2015 and a further contraction of 3 percent in 2016.
Meanwhile, forecasts of the price of oil have led Goldman Sachs to cut its outlook for the ruble for the first quarter of 2015 sharply, from 46.2 to the dollar down to 70 rubles per dollar. By year's end, Goldman says, expect the ruble to stabilize a bit to 60 rubles to the dollar. But even that is lower than its previous forecast of 49.6 rubles per dollar.
This directly parallels the price of oil, according to the Goldman report. "We now expect Brent oil prices to fall further … to $42 per barrel by Q2 2015 before gradually recovering to a medium-term equilibrium of $70 per barrel in early 2016," Kamakshya Trivedi wrote.
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More