In the wake of their involvement in eastern Ukraine, and a recent decision by OPEC to continue their current rate of oil production, Russia’s currency, the ruble, has plummeted to an “all-time low.”
The Organization of Petroleum Exporting Countries, almost always referred to as OPEC, is an intergovernmental economic cartel that seeks to control the global oil market by manipulating supply and demand. OPEC consists of 12 member countries:
OPEC was formed in the 1960s at a time when large multi-national countries were in control of the oil market – it has influenced the global economy ever since. OPEC’s decision to keep pumping will drive oil prices down, and the reason for this decision may be that American oil production is at its highest (most threatening) numbers since 2009.
Russia is a major exporter, but Western economic sanctions combined with a flooded oil market have destabilized the Russian ruble, which is very much attached to global oil prices.
(The World Export Map, Source: Simran Khosla, Global Post)
Russia’s ruble hit a new all-time low on Monday, dropping about 5 percent as declining oil prices and the conflict in eastern Ukraine weigh on the country’s economic prospects.
The Russian currency traded at 52.75 rubles against the U.S. dollar in morning trading Monday after shedding 15 percent in the previous week. The ruble was also down 5 percent against the euro.
Battered by low oil prices and the conflict in eastern Ukraine, the ruble has been declining throughout the year, losing about 42 percent of its value since January.
The Kremlin, which in the past supported the exchange rate by buying up the rubles, says it considers the pressure on the currency to be speculative and is happy for it to remain freely floated in markets.
Fracking efforts in the US are largely responsible for the the latest energy boon some call the “American Energy Revolution,” but fracking in the US is only economically feasible if the price per barrel remains between $50 -$70.
Some think OPEC’s decision to keep the oil flowing is an effort to head off American production and defend their dominance of the global oil market.
This is extremely painful for the Russian economy. Although the falling ruble offsets the damage to a net oil exporter that falling oil prices inflicts, Russia suffers badly from Dutch disease because of the dominance of its energy industry, which means that other sectors are relatively undeveloped and many items – including essential foodstuffs – are imported.
According to most reports, the Russian economy will inevitably fall into recession. How long and how severe may be in the hands of Russian politicians.