The Russian ruble is collapsing, reaching fresh historical lows on a daily basis. That’s as oil prices go even further into the floor: the price of oil is down nearly 50% in the last six months.
The currency’s fall has crossed the line from a headache to a full-blown crisis. A massive interest hike last night from the Central Bank of Russia (from 10.5% to 17%) barely held off the ruble’s fall for a couple of hours.
It’s raising memories of previous collapses in Russia, like the 1998 financial crisis. But for some, it’s more like the 1980s oil glut that eventually brought down the Soviet Union.
Here’s Yegor Gaidar writing for the American Enterprise Institute seven years ago. He was Russia’s acting Prime Minister between 1991 and 1994, years of extreme economic pain for Russia.
He describes the starting point of the USSR’s collapse:
The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.
It should. OPEC, the group of oil producing nations, failed to agree to a cut in output (the usual response to falling prices) this November. Statements from the Saudi oil minister and other officials have suggested that the country, and the other gulf states, are happy to let prices slide. That leaves countries like Russia in a perilous position.
In the late 1980s, the Soviet Union was forced into an embarrassing scramble for money. It tried to make deals with a number of banks but the funding offered was far smaller than the country required. Food shortages worsened and Moscow needed the help of western governments, for which the USSR effectively had to allow eastern European countries to assert independence.
Writing in 2007, Gaidar warned against the consensus that oil prices would stay high:
What lessons can we learn from the Soviet collapse and apply to the current situation in Russia? First, we must remember that Russia today is an oil-dependent economy. No one can accurately predict the fluctuations of oil prices. The collapse of the Soviet Union should serve as a lesson to those who construct policy based on the assumption that oil prices will remain perpetually high. It would seem that in our country, which has lived through the collapse of the late 1980s and early 1990s, this fact would be evident. But as soon as the prices went up again at the beginning of 2000 and in 2004 became comparable in real terms to those at the beginning of the 1980s, the idea that “high oil revenues are forever” has gained an even wider acceptance.
Russia today isn’t the same top-down, command and control economy that it was in the 1980s, but the dynamic hasn’t changed entirely. The country is still hugely dependent on oil, particularly in terms of tax revenues and exports.
And Gaidar thinks the collapse of the Soviet Union is still relevant for modern Russia:
One more lesson that is relevant for Russian politics today is that authoritarian regimes, although displaying a façade of strength, are fragile in crisis. In conditions of relative stability, society is prepared to tolerate the lack of real elections. People are prepared to come to terms with this situation as an inevitable and habitual evil. But they will do so only until the country encounters a serious challenge, requiring decisive and tough measures in order to adapt to unfavourable conditions.
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