http://www.telegraph.co.uk/finance/financialcrisis/10652767/Financial-crisis-threatens-Russia-as-Ukraine-spins-out-of-control.html
As of recently, Ukraine has been in turmoil with many people protesting against what they consider to be a corrupt government. Violence has been becoming more and more common there, and a civil war seems to be on the horizon. This will certainly cause financial problems for Ukraine, but Russia will end up much worse off as well.
Russia, which has been near recession, is not only feared to send military to intervene in the situation but also has been helping Ukraine out economically. They have loaned them $3 billion so far to keep foreign reserves high enough. While $15 billion total was planned to be loaned, future payments now seem to be questionable. With this violence, Ukraine is put at a high risk of defaulting, and Russia is now left with the choice of suffering losses from the default or paying the cost of keeping the economy healthy enough.
Things have already been looking grim for Russia. Output has fallen, as has investment. The ruble is also looking very unhealthy, as it is at an all-time low against the euro. Ukraine's economy becoming another burden to them could prove to have severe consequences on Russia's own economy.
In the last recession of 2008, the US's housing market collapsed, the previous success of which the economy depended upon. Russia's economy has been very dependent on oil, which leaves it vulnerable to something similar to what happened in the States. If supply of oil from elsewhere were to increase dramatically, crude prices would significantly drop, leaving Russia with a huge loss. This along with the current events in Ukraine leaves the future of Russia's economy to seem very shaky.
Britain wants to help Ukraine through economic packages and thus has asked Russia not to interfere in Ukraine's crisis and co-operate and support the EU in stabilizing Ukraine's economy.
ReplyDeleteAnd if Ukraine is as bad off as they seem, Russia is trying to help a lost cause. What sense does it make for Russia to keep giving Ukraine money if their economy is continually crumbling? They are afraid of losing money to potential oil-related situations but they are pouring money into an unstable economy that does not like it is going to improve anytime soon.
ReplyDeleteIt makes sense for Russia to supply Ukraine with loans, even if the loans are not always repaid. This is much more a political crisis than an economic crisis. If Russia loses the political influence over Ukraine to the EU, then Russia may view it as the West gaining more influence in an area that Russia has always considered to be its area of influence. It would be similar to Russia forming economic or political agreements with neighboring Latin America countries, such as Cuba or Mexico. Although, economically, it is hard to predict the future of the Russian economy based on predictions of future supply and demand of oil. It's not just Russia that would be hurt. This scenario would also impact some major Middle Eastern countries, such as Saudi Arabia. Furthermore, there is growing competition between Russia and other countries, such as Canada, for economic influence in the Arctic. As ice continues to melt, various countries will continue searching the Arctic for more oil. Russia is one of the leading countries in this expedition, and if they succeed in obtaining most of the oil in that region, then their economy may not look as bad in the future.
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