Drenched Roubles

A look back at the oil fiasco

Ivan Stepanovich Konev was a Soviet-era general who’s known for, among other things, employing the humbly named, ‘Konev Ambush’, which in the December of 1941 helped defeat the German advance into Moscow. The dead ‘hero’ recently resurfaced as the Czech authorities removed a statue in his honour from its plinth in Prague, to be placed in a history museum. Moscow didn’t like that and prioritised starting a criminal investigation into this seemingly blatant attempt to ‘rewrite history’.

Moscow appears to be working double-time, along with defending legacies and histories it has also been busy writing its own. They say it takes a month to form a habit, but Moscow seems to have broken its. It ended a fiery price war on oil with Saudi Arabia, which began in March and lasted an exact 31 days, that had been catastrophic for the price of Brent fluctuating it violently. The onslaught of Covid-19, did nothing to assist the situation. The demand for oil is said to have fallen by a third as around 3 billion people find themselves in the confines of their own four walls in the quarantine.

Realising the folly of stabbing their own feet and with pressure from the US president, Russia and Saudi Arabia decided to put an end to the madness. Through OPEC+, the organisation of the petroleum exporting countries and other nations, they attempted to cut production by a fifth. Mexico, frozen (or perhaps furious) in a state of seemingly existential fear, refused to sign. In probably the biggest plot twist of history, Mr Trump, the President of the world’s largest, and certainly loudest, proponent of free markets agreed to step in and ‘help Mexico along’.

In a historical move, with a pen that might as well be dipped in pitch black crude, Russia, Saudi Arabia and the US lead the signing of an unprecedented deal consisting of 23 countries committed to cut just short of 10 million barrels initially proposed. In doing this they ensured that by the end of the two years, their oil could be worth to use as more than ink.

The Russian Rouble had fallen by more than 30 percent in March, which urged Moscow to tap into its foreign reserves. Plummeting oil prices affect countries in vast ways, in a classic example of a zero-sum game. Winners somewhere, directly correspond with losers across the ocean. So as countries like India, net importers of oil, rejoice cheaper oil prices, Russians can be seen shouting obscenities, lamenting it as the worst thing since the Mongol Invasion. The Russian economy is highly dependent on oil, it makes up 60 percent of its exports and 30 percent of its total GDP.

After the collapse of the Soviet Union, a time which despite its downsides gave most Russian good food security, Russia has been reliant heavily on food imports. Last year fruits and nuts alone made up 2.1 percent of its imports. Of course, a weaker currency would make these dearer for the everyday Russian. After a period of ignorance where, like the Brazilian PM, Putin chose to downplay the severity of the virus- Russia is now feeling it’s temperature rise. Moscow recently saw an influx of cases, with speculation on the street that the government could be underreporting its cases.  

Of course, Russia isn’t alone in either of its...let’s call them complexities. In recent weeks governments across the world are put in uncomfortable situations, having to make arduous choices between the health of their citizens and economy. Russia’s approach is, if anything, on- brand. As General Konev said in 1996, “Our neighbours use searchlights, for they want more light. I tell you...we need more darkness.”