The fall in global oil price per barrel has had an indirect effect on the current financial crisis in Russia. For Russia to balance the books, the Kremlin’s exchequer would hope for the price of oil in the international market to be around a hundred dollars, which is a far cry from today’s situation at half the price.
In an nybooks article, the world renown business mogul George Soros argues that this situation has caused had the unintended consequence of making the sanctions imposed by the West on Russia to be more severe to the economy and Putin’s regime. As a part of the US and European governments attempt to prevent Russian annexation of Crimea, they targeted Russian corporations and financial markets hoping to inflict pain on the country’s economy.
As we speak the Russian ruble valued has plummeted by half causing massive inflation, which has caused economic crisis not experienced before under Putin’s leadership. The only reprieve for Russia has been the accumulated money reserves, which has to enable the Russian Treasury to inject the needed hard currency to the economy. The Chinese Central Bank has also come to the rescue of the Russian economy by accepting swaps that are dwindling by the day.
If the Oil prices and the high inflation is not alarming enough, then consider the over a billion-dollar debt that Russia should repay in the coming year. Even though it is unlikely, we can ignore the fact that Moscow can default on its obligations to the international lenders. According to George Soros, a default would precipitate a financial turmoil in the global markets from Hong Kong to New-York, especially to the European zone. Caution should, therefore, be taken to avert that occurrence by cushioning Ukraine from to the incidents in the neighboring Russia.
Europe’s Ukrainian Lifeline
It is crucial for Western powers to assist Ukraine in lowering inflation and enhancing economic growth by buying goods and services from the country. It would also be handy if European multinationals were encouraged to open branches in Ukraine thus inject capital and jobs into the struggling Kiev Economy.
According to George Soros Ukraine, Ukraine urgently needs to strengthen her military. It requires massive budgetary allocations beyond the country’s economy; it is thus important for the international community to extend credit to the country. However, international financial institutions are not structured in a way that is flexible and more accommodating to political cum economic crisis that Ukraine is going through today. The European Union Secretariat and decision making is slow and thus not well suited to extending emergency credit as we require in this situation.
The European Commission must wake to the fact that Moscow is no longer the ally they had in the days gone. The current environment of ultra-conservatism, prosecution of gay people and religious intolerance is incompatible with European ideals. For that reason, the European Union should do all in its power to prevent another Georgia or Ukraine crisis from Occurring in future.
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