Ruble traders have been on a ride this year. Since the Ukrainian crisis the currency was highly volatile as the West keep adding to a series of sanctions to punish Moscow for invading Crimea and interfering within Ukraine. While the political sanctions did less damage than economic ones, the most damage started about a month ago when OPEC was confronted with a decision on oil production to counter the shale and fracking revolution that made US the biggest producer on the planet and the price weakened considerably. Now the effects are seen on the Russian economy which shrank for the first time in years.
Russian GDP shrank in November on the annual basis. The output fell 0.5 percent in a first decline since 2009. After OPEC decided not to cut production the Ruble tanked with the oil price. Russian currency continued to fall even after CBR raised rates from 10.5 to 17 percent in a move that tried to stope the currency depreciation. Measures failed and Ruble sank. The low oil incomes from the lower prices are hitting Russian balance of payments and government finances while higher prices due to inflation caused by Ruble collapse are hurting ordinary Russians.
Foreign companies stopped taking orders and closed doors due wild Ruble swings that destroyed their profits. Domestic producers are also feeling the pinch as the costs of materials and technology rise. It is unlikely OPEC will change its mind. Saudi Arabia and Qatar already announced they are ready to sell oil for $20 saying anyone who is not productive enough to sell at lower prices doesn’t deserve market share.
Manufacturing and investment declined in Russia knocking off the growth of output. The currency crisis of Ruble was similar to the 1998 collapse but since the debt is more stable there is no need to call the IMF. However, question remains how stable is the private foreign debt.