Crude Oil And The Ruble's Fate

Russia needs to restock its national reserves to devalue its ruble currency, one analyst from Credit Suisse (VX:CSGN) AG said Tuesday, as reported by Bloomberg. The value of the ruble has become inflated as the price of crude oil, one of Russia's main exports, dropped, and the country needed to devalue the currency to prevent an economic recession from deepening and deficits from widening.

“The revenues from oil exports need to increase, and I don’t see any other solution but through devaluing the ruble,” said Valery Pushnya, the head of emerging markets in Europe, the Middle East and Africa at Credit Suisse Group AG in Moscow. The imbalance has reduced revenues for the government's budget and could threaten a deficit, according to Pushnya.

Amid Russia's economie troubles, $1 USD has become the equivalent of 66.2 Russian rubles, compared to an average of 26.38 rubles in recent decades and an all-time high of 72 rubles in December 2014, Trading Economics reported.

Other analysts have noted that the devalued ruble has helped exports, albeit with a lower value. "Russian production continued to accelerate as oil producers remained profitable even in the lower oil price environment, helped by the effect of a weak ruble on costs and lower taxes, which decline in a lower oil price environment," said Bank of America Merrill Lynch (N:BAC) in recent research, Reuters reported.

Why $30 oil is "the key risk" for Russia's economy https://t.co/0fZuc0WKDQ pic.twitter.com/UMD08dPzMi

— Bloomberg Business (@business) November 30, 2015

Russia is the world’s largest energy export and oil is one of the economy’s most important gauges. Following Russia's annexation of the Crimean peninsula last year, the European Union issued sanctions on the country, cutting off ties with one of Russia's most lucrative import regions.

The Kremlin's involvement in an ongoing conflict in Syria could also be a source for economic instability, experts said. Increased cooperation between Russia and the West may lead to increased economic cooperation as well, but it’s too early to be certain how the conflict will affect the ruble.

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After Turkey downed a Russian fighter plane that it claimed had entered Turkish airspace near the Syrian border, Russia issued sanctions against the nation Friday. Russia imports around 20 percent of all of its fruits and vegetables from Turkey, and the sanctions, though economically damaging to Turkey, will also affect Russian access to food.