Russian financial crisis (2014–2016)

Economic sanctions The United States, the European Union and many other countries had imposed economic sanctions on Russia following the start of the Russo-Ukrainian War in 2014, including Russia's annexation of Crimea and the War in Donbass. Despite the financial crisis, international aid to Russia was not considered likely. s to tame inflation during their wars (Russo-Georgian War, Russo-Ukrainian War, 2022 Russian invasion of Ukraine) Economic sanctions contributed to the decline of the rouble since some Russian oil companies have been prevented from rolling over debt, forcing them to exchange their roubles for U.S. dollars or other foreign currencies on the open market to meet their interest payment obligations on their existing debt. The impact of the international sanctions on Russian economy has been limited by design, since the sanctions only affected a limited number of individuals and companies. Russian counter-sanctions however reduced imports of food into Russia, which led to rising inflation and an increase in food prices. As result, the average salary decreased and the number of people living under the poverty line increased. Fall in oil prices The Russian economy depends largely on crude oil exports. In February 2014 crude oil prices started to slide down due to the boom in American shale oil production. For every $1 decline in crude oil prices, the Russian economy loses billions of dollars. The price of oil fell from $100 per barrel in June 2014 to $60 per barrel in December 2014. The drop in the oil prices was caused by a drop in the demand for oil across the world, as well as increased oil production in the United States. This fall in oil prices hit Russia hard, as roughly half of the Russian Federation's governmental revenue comes from the sale of oil and gas. In 2014, Russia needed an oil price of $100 per barrel to have a balanced budget. As the price of oil falls, Russia continues to sell its oil at operational capacity, without the ability to dramatically increase oil production to compensate for the lower price, and thus due to the reduced profit from selling oil, the government has substantially lower income. Russia is not alone in feeling the ill effects of falling oil prices, as several other countries, including Venezuela, Nigeria, and Kazakhstan, also faced reduced revenues and economic activity. In August 2015, oil prices fell to US$37 per barrel and then bounced to more than US$45 on 28 August. Now as OPEC has reduced production from November 2016 oil prices have started to move up and so does the rouble. Other possible causes Russian President Vladimir Putin has been accused by critics of running a kleptocracy, in which a small number of rent-seeking plutocrats drain the economy. Russia was ranked second in the world on The Economist's 2014 crony-capitalism index Putin accused the Western nations of engineering the Russian economic crisis. Russia's already-weak economy left it less able to withstand the challenges imposed by low oil prices and international sanctions. The Russian Central Bank's "erratic response" to the falling rouble has also been blamed for deepening the crisis. ==Russian monetary policy==

Decline in the Russian rouble Since the Great Recession, yields on U.S. treasuries and other low-risk assets have decreased due primarily to the liquidity-trap and also unconventional stimulative measures by central banks, such as ZIRP and quantitative easing. This has led investor patterns to become what is known as "reach for yield" with emerging market debt: emerging market debt is being bought by developed economy investors due to investors seeking greater interest on their holdings of debt. This led to increased issuance of debt by Russian companies in foreign currency-denominated terms, with $502 billion in foreign-currency denominated debt as of June 2014, up from $325 billion at the end of 2007. The recent decline in the rouble has increased the costs for Russian companies to make interest payments on debt issued in U.S. dollar or other foreign currencies that have strengthened against the rouble; thus it costs Russian companies more of their rouble-denominated revenue to repay their debt holders in dollars or other foreign currencies. As of March 2016, the rouble was devalued more than 50 percent since July 2014. Central Bank intervention On 15 December 2014, Russia had foreign currency reserves worth around $400 billion, the sixth-highest total in the world, giving Russia the ability to prop up the rouble. Just before 1 a.m. local time on 16 December 2014, the Central Bank increased its key interest rate from 10.5% to 17% in an attempt to slow or stop the decline of the rouble. It was the sixth increase in interest rates by the Central Bank during 2014. On 22 December, the Central Bank lent $530 million to Trust Bank, which became the first bank to accept a government bailout during the crisis. On 12 January 2015, the Central Bank's 2014 data of net currency interventions was reported by Interfax, a Russian news agency, to have been $76.13 billion and , including $11.9 billion in December 2014. In 2015, the Central Bank decreased interest rates numerous times. On 30 January, the Bank cut the interest rate from 17% to 15%. On 13 March, it was lowered to 14%, and 12.5% on 30 April. Inflation had slowed to 16.5% by 26 April, down from approximately 17% in March. On 15 June, the interest rate was lowered to 11.5%, and 11% on 31 July. Inflation as of 27 July was 15.8%, an increase from 15.3% in June, as a result of a temporary tariff increase, said the Bank. State-owned agency TASS reported a loss of US$5.4 billion in the Bank's foreign reserves to US$369.2 billion on the week of 23–30 October. In January 2017, Russia had foreign currency reserves of around $391 billion, an inflation rate of 5.0% and interest rate of 10.0%. ==Financial, economic, and social impact==

Impact on Russia On 16 December 2014, the RTS Index, denominated in U.S. dollars, declined 12%, the most on any given day since the 2008 financial crisis in November 2008, and the MICEX Index declined 8.1% at one point before ending the day higher. This increased the decline of RTS Index, up until 16 December, of nearly 30% during the month of December. In response to rising interest rates and bank runs, the interest rate on Russian three-month interbank loans rose to 28.3%, higher than at any point in the Great Recession of 2008. To get rid of the Russian roubles which were declining in value, many Russians chose to purchase durable goods, such as washing machines, televisions, furniture, and jewelry, and to convert their pensions and savings from roubles to US dollars and Euros. and EUR up to 120–150 RUB (official rate was 76.15). Some foreign companies halted their business activities in Russia, including Volvo car dealerships and the online stores of Apple and Steam, due to the high volatility and decline of the Russian rouble. Additionally, IKEA temporarily suspended sales of certain goods in Russia, in part due to the volatility and in part due to a lack of adequate supply, as numerous Russians bought IKEA furniture. Russia may also be excluded from the MSCI Emerging Markets Index, composed of 26 countries' indices, if capital controls or currency controls are implemented by Russia, since such measures would make it more difficult for foreign entities to access Russian securities markets. Russia would be reclassified as a standalone market in that event. The 20 December print edition of The Economist predicted that Russia would face the "lethal combination" of a major recession and high inflation in 2015. Others predicted that the crisis would spread to the banking sector. On the other hand, President Putin has argued that Russia was not in crisis, and that cheaper oil prices would lead to a global economic boom that would push up the price of oil, which would in turn help the Russian economy. On the week of 15 December, Russian gold and foreign currencies reserves were reduced by "US$15.7 billion to below US$400 billion for the first time since August 2009 and down from [more than] $510 billion at the start of the year." Between 15 and 25 December, annual inflation had climbed to more than 10%. Prices of goods, including beef and fish, rose 40 to 50% within a few months before the end of the year due to Russia's ban on Western imports. Russian President Putin ordered Dmitry Medvedev's Cabinet to not take their day off on 2015 New Year's Day because of the crisis. As of December 2014, prices of meat, fish, and grain were inflated as a result of rouble devaluation. Some businesses had closed down, especially in the far eastern region of Russia's Siberia due to future rising lease fees. In the first 8 months of 2014 more Russians left the country than in any year since 1999. Many start-ups and companies were seeking to relocate their businesses outside of Russia. According to a September 2015 survey conducted by Nielsen Russia, 49% of around 1,000 sampled people had not visited a bar in 2015 mainly due to economic crisis; 46%, not a pub; 62%, not a nightclub. In comparison, according to a 2014 survey, 28% had not visited a bar in the previous year, 2014; 32%, not a pub; 45%, not a nightclub. Survey conductors concluded that rising prices in restaurants and bars had been factors to declining attendance in those places. By the end of 2015 direct foreign investments in Russian economy fell by 92% and more than 200 start-ups ceased to exist by closing down. Demographic consequences Calculations presented by a group of demographers from the Russian Presidential Academy of National Economy and Public Administration suggested the crisis could have very serious demographic consequences (simultaneous growth of mortality and decline of fertility) As of March 2015, officially, three million Russians more than the previous year lived with less than 9,662₽ (US$169) monthly income, totalling to twenty-three million. In 2016 over 330,000 Russian citizens applied for US permanent residency through the Green Card lottery program, a 24% increase over the previous year. Global financial markets The financial crisis in Russia affected other global financial markets. U.S. financial markets declined, with the Dow Jones Industrial Average down nearly 3% in 3 business days, in part due to the Russian financial crisis. The crisis drew comparisons to the 1998 Russian financial crisis that affected global markets. Since 1998, Russia and many other countries have adopted a floating exchange rate, which could also help to prevent Russian financial woes from affecting the rest of the world. Companies from North America and Europe that heavily relied on Russian economy were affected by the crisis. American car company Ford Motor Company experienced a 40% decline in car sales in January–November 2014, according to Association of European Businesses, and terminated "about 950 jobs at its Russia joint in April [2014]." German car company Volkswagen experienced a 20% decline in the same period. American oil company ExxonMobil alongside Rosneft was unable to continue an Arctic project after the discovery of oil there due to sanctions over the Russo-Ukrainian war. British oil company BP lost 17% of market share. French energy company Total S.A. shelved joint shale exploration plans with Russian oil company Lukoil due to sanctions. In January 2015, ratings agency Standard & Poor's lowered Russia's credit rating to junk status and economic rating from BBB− to BB+. Moody's followed this decision in February 2015. Impact on former republics of the Soviet Union The devaluation of the Russian rouble affected the currencies of many post-Soviet states, which are tied through trade and remittances by migrant workers in Russia. • '''''': Ukrainian officials abandoned dollar auctions and raised interest rates to 19.5 percent in 2015. • '''''': the soum was devalued nine percent on 12 December. However, the more significant devaluation of the rouble is making Kazakh goods less affordable to Russian citizens which reduces sales and manufacturing growth. By 11 December the lari plunged from the pre-crisis average of to the dollar to -. Between August 2014 and March 2015, the lari was devalued twenty percent. • '''''': Low oil prices battered its oil-dependent economy. However, it looks impervious to economic turmoil as the government has maintained in reserve a large stabilization fund which has kept the manat afloat against the dollar within its usual band. Most of the country's trade is done with Turkey. • '''''': After abandoning the litas on 31 December 2014, Lithuania adopted the euro on 1 January 2015, the Litas endured some inflation. • '''''': The leu was devalued twenty-five percent as of February 2015. The central bank raised interest rates by five hundred basis points. • '''''': After abandoning the lats on 31 December 2013, Latvia adopted the euro on 1 January 2014. • '''''': Remittance rates had dropped to twenty-nine percent as of October 2014 for the first time since 2009. • '''''': Remittance rates dropped to 49 percent as of October 2014 for the first time since 2009. The dram depreciated from being traded at around - against the dollar in late November to a record low of 575 to the dollar on 16 December 2014. By mid-December inflation reached 15% to 20%. Parliament Vice-Speaker admitted panic in the country. The dram recovered significantly and stabilized on 18–19 December to around 460–80. However, inflation remained high, reaching forty percent for some products. In the past twelve months as of August 2015, the dram was devalued 15 percent. • '''''': The manat was devalued 19 percent in January 2015. the economic growth forecast was cut from 3.6 percent to 2.0 percent in April 2014 due to sanctions on Russia. As of April 2014, 11 percent of Estonia's exports had gone to Russia, and 100 percent of its natural gas had been imported from Russia. Chart of currencies of former Soviet republics ==See also==