Russia Experiences A Double Whammy As It Heads For A Recession

Jan. 01, 2015 8:32 AM ETBP, RSX, RNFTF, RUSL, RUSS, ERUS, RBL9 Comments
Sarfaraz A. Khan profile picture
Sarfaraz A. Khan


  • Russia is facing the twin challenges of Western sanctions and lower crude prices.
  • The country’s currency, which closely tracks Brent crude prices, is still significantly weak, despite the recent rally.
  • Financial and energy sectors will face the brunt of the weak market.

This has been a tough year for the Russian economy which had to deal with the US and EU's sanctions related to Russia's conflict with Ukraine as well as plunging oil prices. And it seems that the challenging times are here to stay.

Recession Ahead

Alexei Kudrin, the country's former Finance Minister, has recently warned in an interview that Russia, the biggest global exporter of energy, is moving towards a "full-fledged" economic crisis while Finance Minister Anton Siluanov has also given a grim forecast.

The Western sanctions have restricted access to foreign capital for Russian corporations and led to a flight of capital from the country. To exacerbate, the European benchmark Brent crude oil prices have dropped by 48.7% during the last 6 months to its lowest level in 5 years, hovering around $58 on December 29. A prolonged weakness in oil prices to less than $60 a barrel in 2015, could cause the country's GDP to shrink by 4% next year while its budget deficit could exceed 3%, Russia's current finance minister warned last week. That's because the country gets more than 50% of its budget revenues from oil prices. The prices of the country's blend of exported crude are benchmarked against international Brent prices.

Brent prices have remained over $100 a barrel throughout the first nine months of 2014, but their future isn't looking bright due to supply glut and sluggish demand. This is due, in part, to the sluggish growth of China's economy, is set to expand at its slowest pace in 10 years in 2015. China plays a crucial role in driving the global energy demand since it is the world's largest energy consumer.

Ruble vs. Brent

With the Western sanctions and a gloomy forecast for oil prices, it's not surprising that ruble, which closely tracks Brent prices, was

This article was written by

Sarfaraz A. Khan profile picture
Hey there, I'm Sarfaraz A. Khan - a seasoned financial writer and investor with a passion for uncovering hidden gems. I have a deep understanding of fundamental analysis and I specialize in writing about mid-cap and small-cap companies that are poised for significant growth. My investment philosophy is heavily influenced by the strategies of legendary investors like Warren Buffett and Benjamin Graham. I look for investment opportunities in companies that have strong fundamentals and can grow substantially over the long-term. I'm not afraid to venture into other areas of the market either. While I primarily write about mid and small-cap stocks, I also delve into ETFs and economic trends occasionally. I always aim to provide a balanced view and discuss risk factors in my articles so investors can make better decisions. Although I've been away from Seeking Alpha for a while, I'm excited to get back to writing and sharing my expertise with the community. Moving forward, you can expect to see two to three articles a week from me. When I'm not analyzing stocks or writing about finance, I enjoy reading about history, religion, science, economy, and following the latest developments in the energy and technology sectors.

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