As Putin Surfaces, Russia’s Ruble Takes a Dive
Russian
President Vladimir Putin garnered a lot of headlines this week when he
used a miniature submarine to descend to the bottom of the Black Sea on a
visit to Crimea, which his forces invaded and illegally annexed last
year. Amid a global stock market rout on Thursday and Friday, investors…
The Fiscal Times
Fri, Aug 21, 2015, 7:18pm EDT - US Markets are closed
As Putin Surfaces, Russia’s Ruble Takes a Dive
By Rob Garver
2 hours ago
Russian President
Vladimir Putin garnered a lot of headlines this week when he used a
miniature submarine to descend to the bottom of the Black Sea on a visit
to Crimea, which his forces invaded and illegally annexed last year.
However, given what happened to the Russian ruble this week, the Kremlin
strong-man might have preferred to stay underwater.
Related: From Russia with Sub – Amazing Pictures of Putin in the Black Sea
As of late afternoon Friday, the ruble was trading more than 69 to one against the U.S. dollar after beginning the week under 65. The Russian currency has been losing value steadily since mid-May when, among other things, the prospect of a possible nuclear deal with Iran began driving down oil prices.
The Russian economy is inordinately dependent on oil and gas production for growth. It’s a weakness Putin himself admitted early this year in remarks on Russian television. Russia has been severely jolted by falling energy prices in the past, he said, yet has failed to make the investments in other parts of its economy that might cushion it against a weakening energy sector.
That
has never been more apparent than it was in the past few days. The
price of crude oil, moving for several days, fell particularly sharply
on Friday. At one point U.S. crude fell below $40 a barrel, a level not
seen since 2009. Brent Crude, the international benchmark, hit levels
not seen since early this year.
The ruble slid downward in tandem, hitting its lowest point of the week – and its lowest point in six months – on Friday.
Related: Putin’s Economy May Be in Even Worse Shape than It LooksRussia is also feeling pressure because China, one of its largest trading partners, is reducing its demand for oil and gas, even as prices fall.
The
ruble’s plunge has been devastating for Russian consumers, who got used
to being able to purchase foreign imports when, in the days of $100 per
barrel oil, the ruble was strong. But the currency’s purchasing power
around the globe has fallen sharply. In the summer of 2014, just one
year ago, the ruble traded at around 35 to the dollar. With it now
approaching 70, Russian consumers have lost half of their purchasing
power on global markets.
When the ruble last fell into this
territory, the Russian central bank made a heroic effort to support the
currency, using its foreign reserves to buy rubles and drive up the
price. The effort had only mediocre results and policymakers eventually
dialed back their efforts.
It
is unclear whether the central bank will take similar steps this time
around. As of Friday afternoon, policymakers in Moscow had been mum on
the subject.
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As Putin Surfaces, Russia’s Ruble Takes a Dive
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