The Russian ruble weakened to nearly 70 rubles per dollar today, compared to 64 rubles just a month earlier, as crude oil prices slid to below $40 per barrel. The ruble’s fall comes after Russia approved its final budget for 2016 on Dec. 4 with an assumed average oil price of $50 per barrel for the year. While a weaker ruble will increase profits for Russian energy companies that sell supplies in dollars, lower oil prices and a weaker currency do present a significant challenge for both the Russian government and Russian consumers.
In a speech on Dec. 3, Russian President Vladimir Putin declared that Russia’s economic situation is “difficult” but not “critical.” Nevertheless, the government’s actions indicate that the Kremlin is concerned about the public’s reaction to growing economic troubles. For example, following the downing of a Russian military jet that flew over Turkish airspace, Russia announced that it will ban some Turkish imports. However, implementation of the ban was then delayed for weeks at least due to fears that the ban will lead to a spike in inflation, which is already high because of Russia’s weak ruble and a ban on food imports from the European Union, U.S. and other Western allies.
Over the past few weeks, the Kremlin has been grappling with a relatively uncommon show of social unrest, as long-haul truck drivers protested a new road toll. Drivers from Dagestan to St. Petersburg to the Urals have protested the toll and, late last week, some blocked a major highway around Moscow. In a move to ease tensions, following talks with truck drivers, Russia’s State Duma voted to reduce fines for failture to pay the new tolls on Dec. 4.
Russia has already had to implement a diverse set of budget cuts to adjust to lower oil prices, while consumers have faced rising food prices and high inflation over the past year. For the Kremlin, preventing large-scale social unrest remains a priority. The regime in Moscow has a strong hold on power, but as economic troubles and financial constraints grow, the Kremlin will struggle more to fulfill both its domestic and foreign policy goals.