Tag Archives: russia

Russia’s Ruble Problem is Temporary… And not Just THEIR Problem

Vladimir_Putin-6

Russia’s been in something of a spot of bother lately. The decision by OPEC to continue elevated levels of oil production (in order to deliberately suppress oil prices, and drive higher production cost competitors out of the market), in addition to American sanctions, have caused the Russian ruble to plummet against the American dollar. Steps taken by Russian President Vladimir Putin and the Central Bank of Russia to halt this decline have not been effective, causing Putin to call what’s happening a “catastrophe”.

These reduced oil prices of course have many benefits to the US, beyond schadenfreude at Russias predicament. Fuel prices are the lowest they’ve been in almost ten years; which has had a positive effect on consumer prices overall, travel, and holiday spending during retail’s heaviest season.

So with prices at the pump going lower, and Putin struggling, everything’s all good, right??

Not really.

Here are a few reasons why we should be concerned at what’s happening right now:

* There’s a lot of arm-twisting going on both inside and outside OPEC – What’s really happening, is Saudi Arabia is effectively in a staring contest with weaker members of OPEC, and no one has the strength to end the standoff. These low prices are harming oil producers everywhere. The price can only be so low, for so long, before there’s so much pressure (both internally, and from other oil producing nations); that the Saudis will cut production, and allow the price of oil to rise.

* We’re due for an energy market correction – As I said above, this action isn’t just hurting Russia. It’s hurting Venezuela, Mexico, Norway, and all other oil-exporting countries, and it’s not sustainable. Speculation, aggregate demand increases, and softening of the Saudi position, are likely to bring the price back up within a few months, which benefits Russia in the long term.

* Vladimir Putin’s support is, and will remain, solid – Breathless articles in the Western press about Putin’s “challenge” possibly leading to his downfall are vastly overblown at best. For one, Putin knows who his key allies are, and they – the oligarchs in Russia – will be taken care of first. Furthermore, he is virtually synonymous with the once again powerful Orthodox Church, and his domestic policies (which basically amount to keeping the buses running on time and eradicating homosexuals) are still extremely popular. If push comes to shove, the Russian people will stick with him; partly because he’s their best chance against the west (and more importantly, China), and partly because if they do protest, they stand a good chance of not making it home (Putin’s history is clear in this). It’s just as well, because…

* There are no legitimate alternatives to Putin – Simply put, Russia’s liberals (and in fact all political factions other than Putin, and those even more hardline) are broken; either irrelevant and ineffectual, or small, hardcore sects, that hold little appeal for a nation that still remembers bread lines. Financial transparency? Human rights? These are things which, in the mind of a hardened nation, don’t pay the bills; and in the opinion of many Russians, may not be desirable, as they would benefit currently disfavored people (such as gays, and those of religions other than Russian Orthodox).

* When you poke the bear… – Russia has shown that they will act with violence when it suits their desires; ask Georgia, Chechnya and the Ukraine about that… if they can pick their heads up long enough to speak. I’m not entirely sure we want to see the Russians become desperate, or feel truly threatened, economically or politically. At best, many lives may be lost or destroyed in small scale conflict, and the disruption of that inevitably comes with it. At worst we could see war with Russia and “the west” (under whatever pretext or theater in which it may begin); perhaps including support from China, splinter eastern Europeans, “enemy-of-my-enemy” Islamic groups; and governments around the world, who would have to pick a side in a war between the United States, and “anyone other than the United States”.

That’s a wild scenario, but not wild enough to be completely discounted.

In the end, I predict that Russia will ride this out, and wait for mutual interests in the oil industry to start wearing down the U.S. and Saudi Arabia. There could be some retaliation, leading some to guess at a second Cold War. However, ultimately, Russia doesn’t have sufficient economic clout to meaningfully damage the United States and its allies, without also causing greater damage to themselves.

Enjoy the gas prices (and laughing at Putin) for now, but understand that, most likely; prices (and the ruble) will swing back closer to their recent medians, by the end of February (March at the latest), with little or no long-term damage to Putin.

Christopher Bowen covered the video games industry for eight years before moving onto politics and general interest. He is the Editor in Chief of Gaming Bus, and has worked for Diehard GameFan, Daily Games News, TalkingAboutGames.com and has freelanced elsewhere. He is a “liberaltarian” – a liberal libertarian. A network engineer by trade, he lives in Derby CT.