Russian Financial Crisis May Have Arrived

Russian Financial Crisis May Have Arrived

Since the US and the EU began imposing financial sanctions against Russia in response to its military interventions in Ukraine, there have been people predicting an economic collapse in Russia. Putin has attempted to maintain his sang froid posture by not intervening to protect the value of the ruble.

You can see here that beginning last Summer when sanctions were first imposed the value of the ruble against the US dollar was following a fairly steady rate of decline. What has happened is that the sudden drop in international oil prices has contributed to accelerated pressure on the ruble and it went into a crash dive.

Russia intervenes as crumbling rouble echoes 1998 debt crisis Collapse in Russian currency, which has been badly buffeted by a plunge of almost 40% in oil prices, prompts central back action

Russia’s central bank was forced to step in to defend the rouble on the foreign exchanges on Monday after fears over the economy’s vulnerability to a weak oil price sent the currency to a record low against the dollar.

Moscow was forced to abandon its hands-off policy towards the rouble amid heavy selling, unmatched since the Russian debt default of 1998.

The Russian central bank intervened when the rouble was down 6.5% on the day against the US dollar, and by the close of trading the currency had recouped more than half its earlier losses.

The decline in oil prices seems to be the result of a decline in global demand that some analysts see as a harbinger of a global recession on the horizon. The Russian economy is heavily dependent on energy exports. These economic developments will add to the political pressure on Putin. Indications are that he continues to enjoy strong domestic support fueled by keeping Russian xenophobia cranked up. The question is just how much belt tightening are Russian nationalists prepared to endure.