The Russian currency has lost a great deal of value, and the central bank in Moscow can no longer afford to prop it up. Russia's dependency on commodity energy exports has become more apparent than ever.
For Russians, it's a nightmare come true: The oil price has plunged, falling around 30 percent in just a few months. It may come as a blessing for Western motorists and fuel oil buyers, but it's a tangible threat to the wellbeing of the more than 145 million inhabitants of the world's third-largest oil producer.
That's because crude oil is by far the biggest source of income for the Russian state. Despite the media spotlight on gas, it's much more important as a lubricant for investment and consumption. And gas, too, has become cheaper due to a stipulation in most of Gazprom's export contracts linking its price to that of oil.
Central bank tries to help
Russians know from the news and increasingly worried discussions in the media that their most important export commodity has lost a large share of its value. But the drooping exchange rates at the many currency exchanges offices in major cities also show something is out of joint.
The ruble has lost 30 to 40 percent of its value against the dollar and the euro this year. There was a panic selloff of the Russian currency in late October and early November. The Russian central bank, which had previously spent billions to prop up the ruble, on Monday (10.11.2014) allowed the ruble to trade freely, something it had planned to do only at the end of the year.
The latest speculative wobbles on the Russian foreign exchange market had "absolutely nothing to do with fundamental economic causes and factors," Russian President Vladimir Putin assured his colleagues at the Asia-Pacific summit in Beijing on Monday.
Experts see it quite differently. They point in particular to the rapid slowdown in economic growth, which began in 2013 and brought Russia to the brink of recession this year. Added to this are a massive flight of capital, a decline in foreign investment and of course the falling oil price, which led to a cut in foreign exchange earnings.
Oil price down, economy down
Apart from the oil price, all these problems are homemade. "The fundamental reasons have to do with the fact that no reforms have been carried out in the country in the last 10 years. Today we are seeing the result of this policy," Mikhail Kasyanov, Russian Prime Minister in 2000-2004 and now opposition politician, told DW.
He said there were two political reasons for the decline in the ruble added this year: "the aggression of Russia against Ukraine" and the Western sanctions that followed.
In contrast, the annexation of Crimea and "other results of Putin's policies" have played a secondary role in the devaluation of the ruble, said Maxim Mironov, who teaches finance at the IE Business School in Madrid. The sole decisive factor, he said, was the price of oil.
"The growth in the 2000s was the result of the correlation between the Russian economy and oil prices, and the devaluation of the last few months is the result of this same correlation," Mironov wrote in the Moscow business daily "Vedomosti."
To make his point, Mironov used a barrel of oil as a measure of wages and prices in Russia. The average monthly salary of a Russian amounts to about 10 barrels, he said. When oil cost $10, people earned $100; as the price rose to $100, pay packets swelled to the equivalent of $1000. Since July this year, average Russians had become poorer by 30 percent, in line with the drop in oil prices.
Purchasing power down
And while examples like this can't be taken literally, they illustrate the current purchasing power of the people in a country that, as Mironov put it, "exports oil and other commodities and imports everything else."
Former economy minister Andrei Nechayev, who served in the reformist Russian government in the early 1990s, described Russia's vast dependence on imports in an interview with DW.
"Depending on the market segment, the share of imported goods lies between 20 and 100 percent." This means that if the ruble depreciates against the euro by more than 25 percent, all goods imported from the eurozone automatically become a third more expensive.
For Russian consumers, who are already hit by high inflation, the ruble's current fall comes as a serious blow. Not so for the government. Russian Finance Minister Anton Siluanov recently calculated that a drop in oil prices by one dollar leads to a loss of revenue of 70 billion rubles, but a one-ruble rise in the dollar exchange rate brings an additional 180-200 billion rubles into the state coffers.
It may well be that despite the drop in oil prices Russia will end this year with a considerable budget surplus, at least on paper. That these additional revenues will consist of devalued, inflation-plagued rubles is the other side of the coin.
The Russian government and the major Russian oil and gas companies will find they lack access to hard currency. And Western exporters who previously had high hopes on the Russian market will soon feel the pinch. That's because they don't want rubles for their products, but dollars or euros.