Russia backs up economy amid oil price crash
The currency dropped by 9 per cent before a slight recovery yesterday (Monday).
Saudi Arabia has cut in its oil prices, sending global prices falling faster than at any time since the 1991 Gulf War.
Shares in Russian oil giant Rosneft and the Sberbank fell around the world, although the Moscow stock exchange was closed for a holiday.
The Russian Central Bank and the finance ministry said they would prop up the ruble to ensure financial stability.
The economic downturn will also cause concern in Washington where Donald Trump is hoping to regain reelection in November.
His allies in the oil sector had been hoping to benefit from the higher prices brought by an Opec and Russian agreement, while not being tied by any production cuts.
Russia still faces western sanctions since it illegally seized Crimea from Ukraine in 2014 and President Vladimir Putin’s popularity was already declining.
The Kremlin relies on oil and gas to fund more than a third of its budget.
Russia is also the world’s third-largest coal exporter with 210 million tonnes in 2018 as the filthy fossil fuel comes under increasing pressure from environmental campaigners.
Russia ranks as the world’s fourth-biggest polluter.
The Russian central bank also said yesterday that it was stopping foreign currency purchases for 30 days.
“This decision has been taken to increase the predictability of actions of monetary authorities under the conditions of significant changes on global oil markets,” the institution said, adding that further action was possible.
The finance ministry said it had accumulated enough reserves to handle the low oil prices. Russia is seen as better equipped to deal with falling oil prices than many members of Opec.
Russia has been preparing its economy for an external shock like an oil price collapse and has built up foreign currency reserves to approximately US$570 billion, giving it the financial cushion to absorb the sharp drop.
The oil price collapse could push the Russian budget into deficit for this year and the falling ruble may cause higher inflation as foreign goods become more expensive.
Jeffrey Halley, an analyst at Oanda, said: “Saudi Arabia seems intent on punishing Russia.
“Oil prices … will likely be capped over the next few months as the coronavirus stalls economic growth, and Saudi Arabia opens the pumps and offers huge discounts on its crude grades.”
Rosneft is a major earner for the Kremlin. Picture credit: YouTube