How Plunging Oil Prices Are Wreaking Havoc In Russia
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Transcript of How Plunging Oil Prices Are Wreaking Havoc In Russia
RUSSIA’S GREAT
DEPRESSIONPLUNGING OIL PRICES are pushing Russia’s economy past the point of no return
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15$40
$60
$80
$100
$120
Price Per Barrel of Crude Oil (Dated Brent)
This trend follows OPEC’s attempt to bankrupt new, but more expensive, sources of oil in the U.S. and elsewhere.
But Russia has been hurt more than most because a huge portion of its economy relies on energy exports.
And if Russia can’t import products at reasonable prices, then its standard of living will drop precipitously.
To slow the sale of rubles, Russia’s Central Bank hiked its benchmark interest rate from 10% all the way up to 17%.
Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan.0%
2%
4%
6%
8%
10%
12%
14%
16%
18%Russia's Benchmark Interest Rate: Apr. 2014 – Jan. 2015
The move, which inversely impacts bond prices and bank profitability, triggered the failure of Trust Bank, a mid-sized lender based in Moscow.
This may not seem like a big deal, but we’ve learned over the years that one bank failure often begets others.
As Walter Bagehot wrote in his seminal treatise on banking: "In wild periods of alarm, one failure makes many.”
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