Almost two years ago, everyone in North America celebrated the fall in oil and gas prices. It was like getting a huge tax break because if your citizen depend heavily on these natural resources and you’re getting it from abroad, the price really makes a difference. But it had the opposite effect in Russia. So what’s the connection between the Russian Ruble and oil prices?
It’s not just Russia, some countries prosper when oil prices fall and others struggle economically when prices go up. More often than not, it’s the countries that import oil that benefit from declining oil and gas prices.
Further, countries that benefit the most from low oil and gas prices are highly developed nations. These countries also have the highest energy demands. For example, the U.S. exports a fraction of oil compared to how much it imports. So they’ll obviously gain a lot when prices fall.
The impact cheap oil has is vast as citizens enjoy more purchasing power at the pump, products get cheaper with lower transportation costs, and it also eases the stress on the federal budget.
But the Russian economy faced the opposite effect as oil and gas make up 60% of the nation’s exports. Further, it makes up 30% of the country’s gross domestic product (GDP). This means when oil prices fell, the Russian economy and in turn the domestic currency, took a major hit.
Over the second half of 2014, the Russian Ruble lost 59% of its value against the U.S. dollar. As a result, it had a negative impact on every aspect of life. Goods became more expensive and the cost of living skyrocketed. It also impacted their imports and that’s saying something as almost everything is imported (except for vodka and oil).
Unlike the United States, Russia doesn’t consume as much energy. As a result, there weren’t any major benefits to cheaper prices at the pump. As the government raised the interest rate to combat inflation, the country fell into deep recession.
If you’re planning on speculating on the Russian Ruble, you’ll have to closely follow the oil and gas markets. When the market prices of oil rises, so will the Ruble. As a result, there’s a real opportunity there to turn a profit.
Forex markets offer good opportunities to turn a quick profit. When it comes to the Ruble, it’s oil and gas markets that’ll dictate the future, so investors need to pay attention to it.