Russian President Vladimir Putin garnered a lot of headlines this week when he used a miniature submarine to descend to the bottom of the Black Sea on a visit to Crimea, which his forces invaded and illegally annexed last year. However, given what happened to the Russian ruble this week, the Kremlin strong-man might have preferred to stay underwater.
Amid a global stock market rout on Thursday and Friday, investors watching the Russian ruble’s value against world benchmark currencies saw it plunge to levels not seen since February of this year, and close to the historic trough the currency hi in December2014.
As of late afternoon Friday, the ruble was trading more than 69 to one against the U.S. dollar after beginning the week under 65. The Russian currency has been losing value steadily since mid-May when, among other things, the prospect of a possible nuclear deal with Iran began driving down oil prices.
The Russian economy is inordinately dependent on oil and gas production for growth. It’s a weakness Putin himself admitted early this year in remarks on Russian television. Russia has been severely jolted by falling energy prices in the past, he said, yet has failed to make the investments in other parts of its economy that might cushion it against a weakening energy sector.
That has never been more apparent than it was in the past few days. The price of crude oil, moving for several days, fell particularly sharply on Friday. At one point U.S. crude fell below $40 a barrel, a level not seen since 2009. Brent Crude, the international benchmark, hit levels not seen since early this year.
The ruble slid downward in tandem, hitting its lowest point of the week – and its lowest point in six months – on Friday.
Russia is also feeling pressure because China, one of its largest trading partners, is reducing its demand for oil and gas, even as prices fall.
The ruble’s plunge has been devastating for Russian consumers, who got used to being able to purchase foreign imports when, in the days of $100 per barrel oil, the ruble was strong. But the currency’s purchasing power around the globe has fallen sharply. In the summer of 2014, just one year ago, the ruble traded at around 35 to the dollar. With it now approaching 70, Russian consumers have lost half of their purchasing power on global markets.
When the ruble last fell into this territory, the Russian central bank made a heroic effort to support the currency, using its foreign reserves to buy rubles and drive up the price. The effort had only mediocre results and policymakers eventually dialed back their efforts.
It is unclear whether the central bank will take similar steps this time around. As of Friday afternoon, policymakers in Moscow had been mum on the subject.