Pedestrians walk under a board listing foreign currency rates against the Russian ruble outside an exchange office in central Moscow, on December 17, 2014. Photo: Getty Images
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Rouble trouble: oil's plunge has given Putin a serious headache

The fall in oil's price is being felt keenly in Moscow, where the Putin government is struggling to cope with the knock-on effects.

In June a barrel of Brent crude oil cost $115. On Wednesday it cost less than $59. The plunge is a result of higher global production  mainly due to shale drilling in the US  as well as weaker demand from large economies such as China and Germany.

For most of us lower petroleum prices are a good thing. It is cheaper to fill up our cars and the falling cost of producing goods can spur economic growth. But for some oil-producing countries crude’s tumble is a major headache. Ask Vladimir Putin.

Since the start of his campaign of irredentism in Ukraine in February, Russia’s president has shrugged off the strong criticism of his policies by European and North American leaders. When sanctions were imposed he retaliated by restricting food imports from the West. Thanks partly to the state-controlled media, but also to the rise in living standards and the financial stability under his rule, Putin’s domestic approval ratings remain high.

But the fall in the price of oil, which together with natural gas accounts for more than two-thirds of Russia’s total exports, now threatens Putin’s standing at home. It has already put huge pressure on the Russian rouble, which traded at less than 40 to the US dollar as recently as October. This week the rouble slid to 80 to the dollar – and that was after the central bank raised interest rates by 6.5 percentage points, to 17 per cent, on Monday night. The rouble has since recovered to around 63 to the dollar, but only after aggressive central bank intervention.

The bank’s deputy governor, Sergey Shvetsov, said on Tuesday that the rouble situation was “critical”, the stuff of his “worst nightmares”. Some Russians agreed, rushing to purchase foreign currency and goods before prices increased further. Apple stopped selling iPhones and computers online in Russia because the currency’s volatility made it too difficult to set prices.

Despite the signs of panic, a major financial crisis in Russia may be averted, unlike in 1998 when the currency last collapsed. In recent years the country’s fiscal policy has been relatively prudent, and high commodity prices have enabled the government to amass $400bn in foreign exchange reserves. Sovereign borrowings are modest.

Even so, the mild recession that seemed inevitable even before this week now seems likely to be severe; the central bank has forecast a 4.5 per cent contraction in GDP in Russia in 2015 if oil prices stay at around $60 a barrel. 

And that will make like harder for Putin. Writing in the Financial Times on Wednesday, Sergei Guriev, a former head of the New Economic School in Moscow, said that the Russian authorities had shown little understanding of how to deal with the financial predicament. International markets were witnessing "a gathering storm but no captain", Guriev added, leaving only two certainties: “First, unless sanctions are lifted and the oil price rebounds, the Russian economy will grow much worse in 2015. Second, we can predict that Moscow’s response — in both economic and foreign policy — will be unpredictable.”

Xan Rice is Features Editor at the New Statesman.

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David Cameron: "Taking more and more refugees" is not the answer to the migration crisis

As the migrant crisis worsens, the Prime Minister refuses to allow desperate people into Britain, citing "peace" in the Middle East as his priority.

David Cameron says "taking more and more refugees" is not the answer to the global migration crisis.

Amid calls for the UK to allow more people in, to help ease the record numbers of migrants entering Europe and to provide asylum for desperate people attempting to cross the border, the Prime Minister insists upon keeping the UK's doors closed.

Preferring to focus on the situation in the Middle East, Cameron commented:

We are taking action across the board... the most important thing is to try to bring peace and stability to that part of the world . . . I don't think there is an answer that can be achieved simply by taking more and more refugees.

His words come on the day that harrowing photos of a young Syrian boy, washed up dead on a beach near the Turkish resort of Bodrum, have been published. The child was from a group of 12 Syrian refugees who drowned attempting to reach Greece.

The Labour leadership candidates are taking a different stance. In a much-praised speech this week, Yvette Cooper urged the UK to take in 10,000 more refugees, warning that a failure to do so would be, “cowardly, immoral and not the British way”.

Andy Burnham too has called for Britain to take more people in (or, in his words, "share the burden"): "This is a humanitarian crisis, not just a tedious inconvenience for British holidaymakers, as our government might have us believe."

Now read this week's leader on the migration crisis, "The wretched of the earth", calling for the UK to accept more asylum seekers

Anoosh Chakelian is deputy web editor at the New Statesman.