Wednesday, September 17, 2008

Financial Crisis In Russia Too?

It seems that America isn't the only country facing a banking crisis. There are increasing signs of a financial crisis in Russia as the central bank has felt compelled to pump $44 billion into the banking system and temporarily halt stock trading, although so far no specific banks have been pointed out as facing collapse.

The Russian economy is highly dependent on exports of commodities in general and oil in particular, meaning that it has suffered greatly from the decline in the price of oil. With Russian oil production at slightly less than 10 million barrels per day, or in other words roughly 3.6 billion barrels per year, this means that a $50 per barrel decline in the oil price reduce the value of its production with $180 billion, a lot in a country where GDP only recently rose above a trillion dollar. Of course, the current price of oil is still above year ago levels, but as America and other have discovered with regard to house prices: if prices rise and then fall, the ultimate effects are not the same as if prices had been flat all along. A lot of people take on debt and make investments based on the higher prices, debts and investments that then turn into bad debt and malinvestments as prices go down.

In addition, Russia suffers from other problems. Apart from having a lower price on its oil production, production volumes are falling too. Moreover, the international financial turmoil and even more importantly, the investor distrust in Russia's geo-political stability created by the war with Georgia have hit Russian financial markets hard. So, unless oil recovers soon and significantly, Russia's economy could face serious problems.


Blogger Maxim said...

Russia is the best country in the world. And we have no any problems regarding crisis.

3:33 PM  

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