Russia being major dependent on oil and gas, the fall of oil prices was a major trouble to its economy. We can imagine Brent crude which was trading at 115 per dollar before the turmoil now trading less than 40 dollars. This shows how badly Russian revenue was affected by the oil crisis.
- Fall in oil prices: The price of oil fell from $100 per barrel to $60 dollar per barrel from June 2014 to December 2014. This happened because of the fall in the demand for oil across the world and increased oil production in the United States.
- Western sanctions: Not only oil but also the western sanctions played a role in this collapse. It all started when Russian troops were deployed in Crimea during the annexation of Crimea, Malaysia airline MH17 was shot down and killed 298 civilians on board.
- Other causes: Russian President Vladimir Putin was deeply criticized for running a bad democracy. He was criticized for the small number of rent-seeking plutocrats who were draining the economy. He has said that our partners (western) have not stopped. They decided that they are winners, “they are an empire and the rest are vassals and they have to be driven into a corner”. Russia was already about to face recession before the Crimean crisis and Russia ranks low in government regulation, technical adaptability and road quality.
It’s been the year it all happened in mid of 2014, now in 2016 Russian Ruble touched an all-time low of 81.96 rubles per dollar by depreciating as much as 4.1 percent, which surpassed the previous record of 80 rubles per dollar due to financial market turmoil.
In mid of December 2014, Ruble depreciated drastically by 13% within few trading hours. This pushed the central bank to raise the interest rate from 10.8 % to 17% in order to match the Inflation. The Reason behind this is that people will keep their cash in the bank for higher interest rates.
Impact in Russia: When the Ruble fall was anticipated in 2014, there was a huge rush in electronic shops. People started buying durable goods like washing machines, furniture, jewellery etc. They have chosen to change their pensions and savings from being in rubles to us dollars or euros. Now in 2016 when the fall surpassed the earlier 2014 fall there is no intervention by central bank of Russia to control this depreciation, reason behind this is explained as when there was a fall from 30 rubles to 60 rubles intervention was need but when there is a fall from 70 rubles to 80 rubles intervention is not necessary people got psychologically adjusted, it is expected that the price will fall till 83 rubles per dollar.
Russian government depends on oil and gas for half of its revenue, due to oil plunge and the US and European Sanction, there is a hurt in demand and this would cause Gross domestic production (GDP) to fall up to 0.5 percentage.