What Caused the Russian Ruble Crisis?

Russia's Ruble Crisis & Its Implications

Five Thousand Ruble Notes
Stepan Popov/E+/Getty Images

The Russian economy was the eighth largest in the world by nominal gross domestic product (“GDP”) valued at $2.1 trillion in 2013. Between 2000 and 2012, the country experienced rapid growth in its economy, driven by higher energy prices and increased arms exports. International investors were confident that Russia was turning a corner and foreign direct investment was flying into the country.

By the end of 2014, Russia’s economy was on the brink of a crisis with the ruble falling to record lows against currencies like the U.S. dollar.

The Russian central bank’s decision to hike interest rates by a massive 6.5% failed to stem the tide as investors have lost confidence in the currency. With oil prices remaining low into early 2015, international investors remain anxious about the country’s future.

In this article, we’ll take a look at the root causes behind the drop in Russia’s economy and the ruble in late 2014 and potential implications for international investors.

Falling Oil Prices

Russia’s economy has always been dependent on the price of crude oil and natural gas, since the commodities account for a significant portion of the economy. In 2013, exports of crude oil and related products accounted for more than two-thirds of the country’s total exports and more than half of the government’s total revenue, meaning that lower prices could have a huge impact on the economy.

In 2014, crude oil prices fell by around 50% due to lower demand in Europe – Russia’s key market – and increased production in the U.S. The biggest catalyst behind Russia’s problems, however, was probably when OPEC indicated that it would not cut its production to boost prices in late-2014.

While lower prices could eventually cut U.S. production, oil prices could stabilize at lower levels.

Political Risks

Russia’s second problem relates to its foreign policy. After invading Ukraine back in late-February 2014, the U.S. and E.U. imposed a number of financial sanctions that have made it difficult for Russian firms to borrow abroad.

These sanctions could become even worse over the coming months as pressure intensifies on the country to give up its control over part of Ukraine that it currently occupies.

In mid-December 2014, the U.S. agreed to supply weapons to Ukrainian troops in a move that could mark a further escalation of the crisis over the coming months. These additional geopolitical risks could justify added discounts for the country’s currency and investments within the country, since a conflict with the West could effectively cut it off from financial markets in a much more severe way.

Dollar Debt

The third big problem deals with Russia’s U.S. dollar denominated debt. With holdings of about $11 billion in ruble-denominated debt and $60 billion in dollar-denominated debt, the country could end up paying quite a bit more in rubles to pay off its debt in U.S. dollars. These dynamics could worsen in the future with the central bank already predicting a 4.5% drop in GDP during 2015.

Many credit agencies could downgrade the country’s debt as the economy continues to slow, which could lead to further investor outflows from public and private debt markets. The lack of confidence in the ruble on the streets of Russia could further exacerbate the crisis as the demand for U.S. dollars increases from both the country’s own residents and investors demanding payment on their bonds.


The Russian ruble crisis had many different causes that contributed to the sudden crisis of confidence, including falling energy prices, heightened geopolitical risks, and increasing demand for U.S. dollars.