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Rouble Troble in Russia
Dec 22, 2014

Russian economy is in deep trouble. Crippled by sanctions and stung by slumping oil prices, the nation's currency has lost half its value against the US dollar since June. Because of the volatility of the Rouble, many foreign businesses are finding it impossible to operate in Russia, and they have either scaled back their operations or actually closed. Recently, technology giant Apple stopped selling its products online into Russia because it could not keep up with the Rouble's rapid decline.

However, the Russian crisis could extend far beyond its borders, and foreign companies that make or sell goods there. Russia is a big debtor to foreign banks and to foreign investors, and also it's a major trading partner to Europe.

Aside from the crippling effect of sanctions imposed by many Western nations in response to Russian intervention in Ukraine, the main factor driving the Rouble lower has been a slump in oil prices. This trigger of the Rouble crisis is also bad news for other energy exporters. The Rouble collapse came after a drastic 6.5 percentage point rise in Russian interest rates to 17 percent.

Many of Russia’s woes start abroad. The country is highly dependent on its oil-and-gas firms. Hydrocarbons contribute over half the federal budget and two-thirds of exports. The state has big stakes in many energy firms, as well as indirect links via the state-supported banks that fund them. The oil price has fallen by almost half in the past six months—it dropped below $60, its lowest level since the depths of the financial crisis. The Rouble has followed oil down.

The war that Russia has fomented in Ukraine is the second big foreign problem. The USA and the EU have imposed financial sanctions on many Russian firms, making it hard for them to borrow abroad. Recently, the US agreed to supply weapons to Ukrainian troops, raising the possibility of a further escalation in the conflict. There are plans for further sanctions in the pipeline.


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