Monday, December 01, 2014

Russia Reels as Oil Plunges and Sanctions Bite

The Russian rouble has suffered its steepest one-day drop since the default crisis in 1998 as capital flight accelerates, raising the risk of emergency exchange controls and tightening the noose on Russian companies and bodies with more than $680bn (£432bn) of external debt.

The currency has been in freefall since Saudi Arabia and the Gulf states vetoed calls by weaker Opec members for a cut in crude oil output, a move viewed by the Kremlin as a strategic attack on Russia.

A fresh plunge in Brent prices to a five-year low of $67.50 a barrel on Monday caused the dam to break, triggering a 9pc slide in the rouble in a matter of hours.

Analysts said it took huge intervention by the Russian central bank to stop the rout and stablize the rouble at 52.07 to the dollar. “They must have spent billions,” said Tim Ash, at Standard Bank.

It is extremely rare for a major country to collapse in this fashion, and the trauma is likely to have political consequences. "This has become disorderly. There are no real buyers of the rouble. We know that voices close to president Vladimir Putin want capital controls, and we cannot rule this out," said Lars Christensen, at Danske Bank.

Read the rest here.


Anam Cara said...

This is not a strategic attack on Russia. It is OPEC deciding it can take the short term loss to make fracking too expensive for companies in the US. It is to keep America dependent on OPEC oil in the long term.

Greg DeLassus said...

I think it is a bit heavy handed to say that it is not an attack on Russia, only an attack on US fracking. The two are not mutually exclusive. Saudi Arabia has reason to wish:

(1) that Russia were not propping up the Alawite/Ba'athist regime in Syria;

(2) that Iran be financially constrained and diminished; and

(3) that frackers in the US and Canada be hard pressed to keep their heads above financial water.

As it happens, all three of these outcomes can be achieved with a single policy intervention. Under those circumstances, it does not make sense to say that it is one reason and not the other that motivates the Saudis. Presumably all three reasons motivate them simultaneously.