Russian Financial Crisis Deepens Amidst Sanctions and Falling Oil Prices

By Omar Bekdash

Russia. The country that many of us label as a war-starting, conflict-causing, dictator-supporting troublemaker with hostilities towards the west. To put it simply, Russia is viewed as the antagonist of the world, a country whose primary goal is to disrupt American foreign policy. While Russia gains international recognition abroad, the country’s internal problems grow ever more severe; it is the country with one of the highest instances of alcohol-abuse, violence against women, and corruption. Much of these problems relate with the Russian Financial Crisis which started in 2014.

In order to understand the Russian financial crisis, we must first understand the causes of the crisis. The first cause is the nature of Russia’s oil-based economy. According to the US energy information association, nearly 68% of profits made from exports came from petroleum products. And the Russian Government receives nearly half of its revenues from state-owned enterprises such as Gazprom, one of the largest oil producing companies in the world. So when the price of oil is high, the Russian government receives revenue, and the Russian economy is stimulated. When oil prices are low, then one can guess that both the economy and the government will suffer—and they are. Since May of 2014, oil prices have dropped steadily from $100 a barrel—to less than $50 a barrel in February of 2015. Currently, oil trades at $60 a barrel. With this fall of oil, Gazprom—the mostly state-owned oil company—has reported that its profits decreased by nearly 86% in Q1 of 2015. Essentially, if oil prices go down, Russia is in deep financial trouble

But something else has also threatened Russia’s economy and oil industry: sanctions. Ever since Russia’s invasion of Ukraine in 2014, sanctions issued by the United States and European Union have crippled the Russian economy. The EU sanctions alone are predicted to slash Russia’s growth rate by 1.1 percentage points in 2015. The sanctions have hit not only the Russian oil exports but also the value of the Ruble. The appreciation of the U.S. dollar and euro against the ruble has caused the Ruble to plummet in value, nearly 10% in 2014. More Rubles are now needed in order to equal a US dollar or a Euro, which has led inflations rates to soar from 6% to 9% throughout the course of 2014. All of these causes have led the Russian economy to stagnate. The RTS index in Russia has declined nearly 25% since November of 2013, and the Russian economy has stagnated from a 2% growth rate at the end of 2013 to a -1.9% growth rate at the beginning of 2015.

But how do all of these statistics impact Russia in social aspects? Russia is riddled with massive social problems, many of which turn progressively worse as the financial crisis deepens. Russia has a life expectancy rate of 70 years, and it is ranked #152 in terms of life expectancy in the world according to the CIA World Fact book. To put this into perspective, Guatemala, a country that many of us associate as a developing country, is ranked #144 with an average life expectancy of 72 years. Apart from life expectancy, Russia has one of the worst rates of violence towards women. Amnesty International reports that 36,000 women are beaten every day by their partners, a statistic that grows larger as times become harder. Corruption also plagues Russia, and has gotten worse over the years. Transparency International ranks Russia as 127/157 countries on the corruptions perceptions index for 2013. Social inequality has worsened as well; Credit Suisse reported in October 2013 that the richest 110 people in Russia (A country of 143 million) own 35% of the wealth in the country. All in all, the Financial Crisis of 2014 has brought Russia to its knees in nearly every aspect.
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What do the Russian people have to say about this? Are they angry towards their leaders? Do the majority of Russians disapprove of Vladimir Putin’s job? On the contrary, Vladimir Putin has never been more popular, with his polls actually rising from 54% in 2013 to 83% in 2014 in a Gallup poll. Now why is that? Why is Putin defying popularity? Some analysts cite Putin’s annexation of Ukraine as a popular move among Russians. Some analysts suspect Putin of invaded Ukraine to gain not only popularity from abroad but from ordinary Russians as well. “He’s doing it to strengthen his position back home,” says Alexei Malashenko, a security expert at Moscow’s Carnegie Center. “It’s effective, it rallies the people around him, and it’s normal behavior.” Putin recognizes the dire problems in Russia, and he has invaded Ukraine partly to serve the Russian people a distraction. However, Putin’s continued efforts to bolster his popularity is destroying Russia little by little, and the Russian people will not stay distracted for long.


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