generalspeaking

Russia's Ruble Dip and GDP Blip

"Russia's plummeting ruble is swiftly upturning the nation's broader economy and threatening instability in a major world economy. When Russia defaulted in 1998, it helped set off a global financial crisis that caught fire in many emerging markets. So far, Russia's problems are mainly confined to home. But that could change and neighbours that are closely connected to Russia such as Belarus and Kazakhstan are already worrying. A weaker ruble makes it harder for Russian businesses to repay any dollars or euros they borrowed. Some businesses might not be able to pay anything back at all."
"A plunging ruble isn't good for Putin. Russians have weathered worse -- in 1998 many people's life savings were wiped out. And in the final years f the Soviet Union, sometimes even basics like toilet paper were in scarce supply. So people are accustomed to living with pain, especially when they're told by Russia's powerful state television that this is all in the service of fighting the West. Putin's approval ratings are still close to record highs. But he might have to dial back his ambitions for Ukraine, and he has less oil money to spread around."
Michael Birnbaum, Washington Post

Nothing to fear. The falling ruble and stock market are simply temporary situations. Russians are tough and they'll tough it out. It isn't Moscow's fault, after all, but pressures of the world economy, and barrels of oil selling below $60 don't only harm Russia's profits, but others around the oil-producing world.That's the message from the source of all the interior problems facing Russia; an administration that lavished expenses on showtime anticipating that good times would never end.

Saudi Arabia has its agenda, and it's sticking to it. It no longer has much faith in the powerful United States to shelter it from untoward circumstances of any kind. Having witnessed the casual dismissal of its Egyptian colleague Hosni Mubarak in favour of the Muslim Brotherhood by the Obama administration, and that same administration succumbing to the rational advice of Vladimir Putin that diplomacy trumps military action in Syria, the Saudis know of a certainty that their arch-enemy Iran will succeed in achieving nuclear arms.

The United States whose president vowed that under no circumstances must Iran be permitted to produce nuclear weapons, and it would take the required preventive steps in assurances to a concerned Middle East; that same president who warned Syrian President Bashar al Assad that there are some crimes too heinous for the U.S. to overlook, has given ample warning to his country's former allies that talk comes cheap; action remains wavering at best, absent in reality.

Riyadh is sitting tight on the oil market and has taken OPEC with it. Their clean oil extraction equates with inexpensive to produce, and cheap oil on the marketplace has become its weapon of the moment. The target is Iran, to further cripple its economy already teetering from sanctions relating to its nuclear program. The Islamic Republic of Iran's place in the Middle East has changed since the Iranian Revolution with a belligerence from Shiite Islam that Sunni Islam deplores.

© REUTERS/Maxim Zmeyev Russian President Vladimir Putin (C) attends his annual end-of-year news conference in Moscow, December 18, 2014.

"If the situation develops unfavourably, we will have to amend our plans. Beyond doubt, we will have to cut some (spending). But a positive turn and emergence from the current situation are inevitable."
"The growth of the global economy will continue and our economy will rebound from the current situation."
Russian President Vladimir Putin

Did he remember to cross his fingers and toes when he assured Russians not to be too concerned, the universe is unfolding as it will, and all will be resolved in a short order of time...?  Even as his reassuring words came tumbling out, the ruble slipped again, tumbling down about 1.5 percent weaker on the day. The key lending rate was raised by the central bank by 6.5 percentage points. The $80-billion the bank has torn through trying to support the ruble has been to no avail.

When Vladimir Putin came to power in 1999 oil prices were high and Russia was prosperous. And would stay that way, Mr. Putin assured his people as long as no one dabbled in politics as in plans to disrupt his reign; president to prime-minister, prime-minister to president, a fun-game of musical chairs. He treated Russians with Socchi and that came at a price. So too did the annexation of  Crimea, another treat. Of course there were some miscalculations, and Malaysia Airlines Flight 17 was one of them.

So, there were the biting sanctions hitting certain government departments, banks and Putin cronies. But when the Saudis refused to agree to the Organization of the Petroleum Exporting Countries cutting production to close the oil glut and falling prices, it represented the final blow. Even shale oil and oilsands production elsewhere causing pain with little gain is having its effect. But nowhere near as deep as in Russia which counts on energy for well over 50 percent of federal revenues; no one suffers quite like Russia.

At $100 a barrel Vladimir Putin's economy was buzzing along nicely. Today, $1 Canadian will buy 50 rubles. Saudis can continue producing cheap oil, but it's a temporary price war and Riyadh will jack oil prices back up again eventually. It's what happens between now and then that matters.

Labels: Crisis Management, Oil Revenues, Russia, Sanctions

posted by Pieface @ Friday, December 19, 2014