Russian “perfect storm”: oil at $25, ruble at 125, inflation at 30%



Vladislav Zhukovsky, an economist known for predicting disasters in the Russian economy and for then turning out to be right, says that the situation is more dire than almost anyone imagines because oil is heading to 25 US dollars a barrel, the ruble to 125 to the US dollar, and inflation to 30 percent.

He attracted widespread attention earlier this week for an appearance on RBK, but the analyst for the Rikom Group gave more detailed answers to the news agency.  If he is even partially correct, Russia faces not a “black Monday” or a “black September” but a “black” and bleak future.

Indeed, Zhukovsky argues, the combination of falling oil prices, the collapse of the ruble exchange rate, and rising inflation means that Russia is entering what might be described as “a perfect storm,” one with the capacity to destroy much of the country’s economy this year and next.

And this situation is made worse by the fact that many at the top of the Russian economic pyramid are behaving as they did in 1998, betting on an ever weaker ruble by buying hard currency and then planning to get back into the Russian market later at firesale prices and thus improving their position but not the country’s.

These people, Zhukovsky says, “have their families, portfolios and property abroad. They are interested in having the situation in Russia be as bad as possible and the ruble to fall as far as possible so that they will be able to sell their apartments there and buy them here on the cheap.”

In 1998, at the time of defauls, the Russian stock market fell 80 percent, the ruble fell 84 percent, “and all our bureaucrats … took the money they had and converted it into hard currency. “When the market collapsed, they bought shares at three cents on the dollar. The very same thing is happening now.”

Moreover, Zhukovsky adds, after the coming collapse “the American, European or Chinese investors will come.” They too will take advantage of the low prices just as they did in 1992 and 1993

Unless the government changes course, the ruble has no prospects even at the current price of oil, and oil prices are going to continue to fall, the economist says. Eleven of Russia’s 14 oil processing firms are now operating at a deficit; and consequently, “what we see today is just the quiet before a very strong storm.”

Russian officials are in denial about all of this, and their projections are not predictions of the usual kind: they are issued only to convince people that things will somehow turn out all right. The numbers don’t lie, but officials do. None of their predictions about the ruble exchange rate, prices for oil and inflation have ever been confirmed by events.

The Russian economy has not reached its bottom, he says; indeed, it doesn’t have one “because the economy has no limited given that it is in a state of disintegration and is constructed on crude aligarchic raw materials capital.” Thus the ruble could fall to 75 to the dollar by the end of the year and more than 125 per dollar sometime in 2016.


Even if oil prices were to rise to 70 dollars a barrel, that would not be enough to prevent a further decline in the Russian economy. And given that the actual price will be much lower, that decline will be very steep indeed. As prices fall to 40 dollars a barrel, Zhukovsky says, Rsusia will discover “a third bottom” and then “a fourth” and so on.

Russians need to recognize that the low oil prices are not the product of “a conspiracy of the US and the Arabs against Russia.” Instead, they are the result of an Arab effort to drive down the price so that the latest technological innovations in extraction technology the Americans have will not be profitable.

Russia isn’t part of the equation for either, Zhukovsky says, but this also means, the basic trend won’t change anytime soon. Moreover, if Russia sits and does not make fundamental change, the new oil extraction technologies will in fact be “a death sentence” for the Russian economy.

Russia’s only change to “move forward” is to focus on scientific and technical progress, to behave as the Chinese have done gradually shifting into ever higher tech areas rather than relying on the sale of natural resources or minimally processed goods. But that is not what the Russian government is doing.

As a result, Zhukovsky says, the middle class in Russia is being liquidated. Several years ago, it formed 19-20 percent of the population. Now, it is falling toward six percent. One measure of this: In 2013, 18 to 20 percent of Russians said they could by a car; in 2014, that figure had fallen to 12014 percent; and now, it is 8 to 9 percent.

What must happen, the economist argues, is that Russians must invest in their own development, not reduce spending on food or especially on the education of their children because the latter “are the only hope for the future in this country with its destroyed pension system and economic crisis.”


Dear readers! Since you’ ve made it to this point, we have a favor to ask. Russia’s hybrid war against Ukraine is ongoing, but major news agencies have gone away, which is why it's extra important to provide news about Ukraine in English. We are a small independent journalist team on a shoestring budget, have no political or state affiliation, and depend on our readers to keep going (using the chanсe - a big thank you to our generous supporters, we couldn't make it without you.)  If you like what you see, please help keep us online with a donation

Tags: , , , ,


  1. Avatar Petrolkoks says:

    Great! So will it stop the killing in occupied ukraine?

    1. Avatar Brent says:

      I hope so, but everything from what we’ve seen so far is this will give Putin reason to push harder on Ukraine and blame the West more.

      This is why we need strong leaders to block Putin’s attempts to hide his own failings in Russia by giving Russians a war against Ukraine to take their mind off their own country’s and economy’s collapse.

      1. Avatar Dagwood Bumstead says:

        The dwarf has a supply of $$$$ readily available, all he has to do is lean on his crooked siloviki chums and tell them “Hand over the money you stole, or else.” He’s more likely to twist the arms of Proffessor Viktor and son Oleksandr, Azarov and all the other scumbags that fled to Moscow to escape their deserved punishments, though. All he has to do is say “Viktor, hand over 75% of your loot or you’ll be on the next flight to Kyiv before you can say Jack Robinson (or the katsap equivalent)”.

        1. Avatar Patrick Verswevelt says:

          Unless the slioviki want that the country totally crashes so they can buy up even more. Finally they can appoint another puppet to be in power for a few years.

          1. Avatar Dagwood Bumstead says:

            To what purpose? If/when the country crashes there will be less to buy. The risk of territories being lost in such a crash is very real. The former Chinese territories in the Russian Far East are it risk; it’s no secret that Peking wants them back. And Tokyo wants the Kuriles back at the very least, but what’s to stop Dai-Nippon taking back south Sakhalin as well? Heck, why not take all of the island? The Far East Fleet is a pile of scrap, Japan has a larger and much more modern fleet. It would be a second Tsushima. And would Peking and/or Tokyo allow the siloviki to retain ownership of anything in the territories under their control? Hardly.
            The siloviki own practicaly everything anyway so a collapse is not in their interest. They stand to lose everything except their secret foreign bank accounts.

          2. Avatar Patrick Verswevelt says:

            You are stuck in a Russian thought process thinking that size of the territory is all that is important. If Russia collapses and the rubble will stand at 200rub to the dollar, then the Siloviki will access their foreign bank accounts and buy everything at 1/10 of the price they normally should. And a few contested islands will not change anything on this.

          3. Avatar Dagwood Bumstead says:

            It will be much, much more than “a few contested islands”. Peking wants its lost territories back, and they include cities such as Vladivostok, Khabarovsk and Komsomolsk-na-Amure. This is serious stuff. And what’s to stop Peking taking more as a form of interest payment when Dwarfstan collapses? The Russian army, most of which has been withdrawn to fight in the dwarf’s stupid and senseless war with Kyiv? The Chinese army vastly outnumbers Dwarfstan’s and has a far greater manpower reserve to boot. No contest.
            Since the siloviki already own just about everything of real value in Dwarfstan, there’s hardly anything left worth buying as it is. The collapse won’t change this.

  2. Avatar optionrider says:

    Let’s not forget that Russia is, for now, ruled by a rabid monkey running around out of control with a nuclear razor in his hand.

    1. Avatar Dagwood Bumstead says:

      He’s certainly crazy enough to use tactical nukes against the Ukrainian army, but the consequences would be incalculable.
      First, there would be VERY serious diplomatic consequences- at the very least downgrading of contacts with many countries, possibly even complete breaking off leaving Dwarfstan even more isolated than it is already.
      Second, it would be a propaganda victory for Kyiv; it would be child’s play to blacken Moscow in the eyes of the world.
      Third, prevailing winds would blow at least part of the nuclear fallout over Dwarfstan- NOT, I think, something that most Dwarfstanians would appreciate.
      Fourth, even spineless Obama, Merkel and Hollande would and increase economic sanctions- and not just adding a few names to the list of those sanctioned, but REALLY serious sanctions that would devastate Dwarfstan’s already crippled economy. Think being kicked out of Swift, an oil embargo i.e. a prohibition of importing Dwarfstan’s oil and oil products etc. etc.
      Fifth, it would make Obama, Merkel and Hollande give up their rseistance to providing REAL miliyary aid to Kyiv, with Dwarfstan casualties skyrocketing- admittedly, NOT something the dwarf cares about.

      And that’s just for starters. One can only hope that saner heads than the dwarf’s will prevail in Moscow.

      1. Avatar optionrider says:

        Neutron tactical charges can be fired by heavy artillery. They don’t pollute the battlefield but kill the soldiers and disable wireless communication as well as most electronic devices. This rabid monkey running around with a nuclear grenade in his hand may resort to this measure. He’s nearly at his wits’ end.

        1. Avatar Dagwood Bumstead says:

          The moment he starts using nukes, all deniability goes out the window- no more “Russia is not involved” because nobody will believe that. He can hardly claim that the Kolorads are using captured Ukrainian nukes because Kyiv doesn’t HAVE nukes. “We bought them at the local market in Luhansk/Donetsk” won’t wash either.
          He’s far more likely to use chemical warfare- nerve gases or similar. I hope the Ukrainian army is prepared for this.

          1. Avatar optionrider says:

            The problem lies in the similarities of effects caused by neutron nukes and thermobaric weapons, as both kill soldiers without damaging any piece of heavy equipment. Russia is one of the major manufacturers of thermobaric weapons, while Poland has actively marketed and sold them since 1999.

            There are, not necessarily unfounded allegations that the terrorists/Russians might have already used artillery-fired thermobaric shells.

  3. Avatar Dagwood Bumstead says:

    I drink to 75 rubles or more to the $ at the end of 2015, oil at $35 or less per barrel and Dwarfstan’s total economic collapse followed by disintegration, Peking taking back the territories the Tsar seized in 1856 and 1860, Japan getting back the Kuriles and Sakhalin, Finland Karelia and Petsamo and Germany Königsberg. Kyiv gets back the Crimea and Donbass plus Belgorod, Taganrog and other territories the Ukrainian SSR had to hand over to the RSFSR between 1919 and 1924 plus the Kuban, ethnically Ukrainian until the Holodomor. Call it all poetic justice.

    1. Avatar optionrider says:

      It’s coming like a steamroller. Not too fast but 100% effective and thorough. The US has decades long experience with sanctions it has perfected, while the EU is a bunch of amateurs. Thank goodness for the American power of persuasion.

  4. Avatar Murf says:

    I did not realize the Russian Middle class has shrunk so much.
    Russia’s economic collapse is gathering momentum.
    In 2013th GDP grew by 3%. not bad.
    In 2014 it had slowed to .7% almost flat line.
    the World Bank predicted a 3.5% GDP decline for 2015 but a increase of 2% in 2016
    in the first quarter alone Russia lost 1.7% GDP. Half of the expected decline in 3 months.
    In the 2nd quarter Q2 the Russian central bank said the GDP decline was 4.7%.
    The year is only half over and they have exceeded the WB’s prediction.
    And that was with oil at 60-65 DPB
    I am projecting a 5% decline for Q3. That’s assuming oil at 45-50. and no escalation of the conflict. Nether of which is a given.
    Lack of access to low interest foreign credit will continue to close business’ and limit consumer borrowing.
    The 10 DPB decrease will cut another 38 billion out of the state budget.
    Unemployment will continue to rise.
    By the end of the year I expect the GDP decline to reach 12.5%.
    I am trying not to be to overly alarmist with this. Or optimistic depending on how you look at it.
    Personally I think Putin is going to escalate in the next two weeks and there will be a an increase in sanctions and a collapse in the Russian stock market. Putin’s bobble will burst
    When the Russian people realie the black hole they followed him into.
    But that is my eagerly hoped for worst case scenario (for Russia that is.)

    1. Avatar Nomid says:

      Yeah, the numbers are starting to look really bad.
      And I am doing the same as you, trying not to be overly optimistic or alarmist.
      I think Putin is gearing up for an escalation too, but in order to position himself so he can get the most advantageous deal he can get. He is going to run home with a bloody nose and cut all ties to donbass but with Crimea in the back pocket and a lot of the sanctions lifted, well, he hopes.
      He is starting to run out of time on his hopes that Ukraine will collapse economically and militarily. Ukraine is in bad shape (The West really needs to step up on monetary support and helping with haircuts) but i find it increasingly unlikely that there will be a completely collapse of Ukraine, it simply wont happen, it might still get really rocky ahead, but the national spirit in Ukraine is not to be underestimated methinks. On the other hand it looks increasingly likely that Russia are heading for trouble in this regard, despite the heavy propaganda the russians are suffering from the Putin regime i just don’t think they will buy the tale that it is all the wests fault when things starts to get really nasty, Donbass is simply not that important to the Russians that are far away from the mess, whereas the Ukrainians know EXACTLY who is invading them and making them suffer and what is at stake, they know their leadership is not perfect, but that the vast majority of fault lies on the Russian invasion, which gives them more incentive to stand tall when the going gets tough. And the Ukraine we see now is MUCH more uniform than the Russia we see…

      1. Avatar Murf says:

        i think Putin has one more try in him.
        He will hope for enough of a win so that in the Oct Rada elections Yats looses the PM and the coalition breaks up with Poro’s party not the majority.
        All Ukraine has to do is bloody their noses and maybe make a symbolic win by retaking a smaller town such as Horlivika or Starolapsa. Big enough that the message is clear the Russians lost but not big as to force Putin to invade directly.
        I only hoe the Army General Staff is up for this round.

        1. Avatar Dagwood Bumstead says:

          The next elections for the Rada are some years away, it was elected last year and unless the government collapses and it proves impossible to form a new government with a majority there won’t be an election for some years.
          The coming local elections will undoubtedly show voter dissatisfaction with the current government. But given the huge problems it faces it hasn’t done too badly, though Yats and Co. should step up the pace of reforms and do some serious stuff at last.

          1. Avatar Murf says:

            So the up coming elections won’t affect on the make up of the Rada and by extension the Cabinet?

          2. Avatar Dagwood Bumstead says:

            No. Compare them to, say, elections for city councils in the UK- they don’t affect the House of Commons. The composition of the Rada won’t change, and unless there are shifts in the alignments of the political parties in the Rada, or Yats/Poro dismiss certain cabinet ministers there shouldn’t be a direct effect.

          3. Avatar Murf says:

            Good to know . Yats said a

          4. Avatar Murf says:

            Sounds good, thanks.
            Yats has said he will be overhauling the cabinet soon.
            I imagine several of them have been lass than optimal in their performance.

          5. Avatar Dagwood Bumstead says:

            That’s the least of Kyiv’s worries right now. See my piece above about Merkel and Hollande screwing the Ukraine.

      2. Avatar Dagwood Bumstead says:

        I suspect that Merkel first and foremost is blocking significant aid to Kyiv, not only military but also economic aid. She doesn’t want to antagonise the dwarf for reasons best known to herself. Sadly most other western “leaders” are equally spineless, the Polish and Baltic leaders are honourable exceptions.
        The dwarf has until January 2017 at the very latest, when a new US president is inaugurated. None of the most likely candidates will be as soft as Obama. Whether Hillary, Cruz or Jeb Bush wins, it will be a totally different playing field for the dwarf- no more resets, no more Mr. or Mrs. Nice Guy/Girl. Things will probably start changing after the November 2016 election, when the new president is definitely known.

        1. Avatar Nomid says:

          I can see the point about EU and US being kind of meek and maybe especially merkel, but Instead I have a tendency to look at their actions as maybe more smart than at first glance.

          Have the EU and US actions the appearance of being only diplomatic? Yes..

          Has the support in form of money and weapons the appearance of being symbolic? Yes

          Are the Ukrainians the ones dying because their country is being invaded? Yes

          But looking at it from a couple of other angles there might be a couple of arguments for what seems like weak indifference

          The diplomatic action actually stopped a lot of the fighting, The Minsk deals are full of holes like swiss cheese, but i think that the primary function was to stop the full scale fighting which they did.
          Because in the meantime the low in oil prices and sanctions just need time to bite, the oil prices are doing the most damage and the pin prick sanctions are the coup de grace.

          I don’t think that either Merkel or Obama or most EU leaders with common sense seriously thought that the Minsk deals were going to be implemented as written, or at least that the chances of Russia giving up and the Russian controlled areas proxy leadership collapsing VS the Minsk deals being implemented by the letter were about equal. But as times go by it is more likely that the Russians will give up or being forced to give up because of the costs

          Is there an arguable concern that just by pumping money into Ukraine it will wind up in the wrong hands? Yes, there has been good reason to wait for the new governments reforms which they have dilligently pursued. As much as i want to look the other way regarding Ukraines oligarch and corruption problems they are still there. And maybe the western leaders are looking at it with a somewhat cynical real politiks approach, such as that it is better to keep Ukraine on life support regarding direct money injection for the moment (they are still are able to do much themselves and give a whole lot of positive surprises in regards to their economy mind you)
          And in the case that Putin decided to go full in, it will increase the risk of a collapse in Russia very quickly with harsh sanctions and global condemnation. He will show all his cards, and the sheer loss of troops and the cost of the full scale/half scale invasion will be a compounding factor, and this is also were the Minsk deals come in, they have given the Ukrainians the chance to overhaul and replenish their military and and consolidate their experiences in fighting the Russians, and it has seemingly happened astonishingly fast (I have the utmost respect for the Ukrainian soldiers and the civil society that helps them with equipment and reforming the MOD) The cost for the Russians in trying to pull another Debaltsave are going to be huge now

          Then there is the military equipment and loss of lives aspect, if we look at the numbers of Ukrainian losses they are big, and it should pain everyone to see them, but in all honesty they could be MUCH worse, and I have a hard time imagining any military equipment that could make a dent in the slow trickle the Ukrainians experience now (as compared to before the Minsk deals), on the contrary, knowing how little disregard Putin has for his own soldiers lives and his attitude towards NATO i am one of the people who thinks that Putin would want nothing more than trying to see how his best weapons and tactics would fare against NATO weapons without directly invading the rest of Ukraine, it would give him valuable lessons and something to take with him in a situation he allready knows he is slowly loosing. and this would propably outweigh the positive effect the weapons would give to the Ukrainian troops and result in about the same trickle of losses, not to mention the increase in destruction and worsening of the humanitarian situation. And Putin would still use the same tactics with cannonfodder (as in criminals that no mother is missing or making a fuss about in Russia) taking the brunt.

          So again, repeated in a bit shorter version..
          Western leaders might think that it is better now, and will have greater effect, to just basically sit back because Putin is basically doing the job of finishing himself by continuing to be so shortsighted and stupid.

          The Ukrainians are doing an excellent job defending themselves allready all things considered.
          Weapons are not going to make a huge dent in the Ukrainian losses in the current situation after Minsk, they will be more effective in a full scale invasion but Minsk showed that Putin will most likely not do that now, and especially not since the Ukrainian militarys fighting ability is increasing day by day making it more stupid day by day. So better to slowly introduce weapons and training to the Ukrainians making the ressources really count, and not give Putin an excuse to score cheap points in his loosing situation. Then when a lasting peace comes weapons and more training and talks of NATO will come

          A huge influx of money is not going to change much before reforms take hold together with peace, and will have more effect in the case of a full scale invasion so they are holding them back in case of either scenario
          So they just keep Ukraine floating, and if putin pulls the insane stunt to further escalate on a large scale, then to swoop in with money and aid to Ukraine, a slight increase in arms, and further sanctions on Russia.

          And when peace comes, put in the money and get their investments worth without having lost any in the war, and having the better chance of assessing the reforms

          1. Avatar Dagwood Bumstead says:

            I disagree. Apart from the dwarf I blame Merkel for the current situation. She was inept when the dwarf invaded Georgia in 2008 (so was her then sidekick Sarkozy) and he got away with de facto annexation of Abkhazia and South Ossetia. This sent a clear signal that he could probably get away with a similar action in the Ukraine, which led to his invasion and annexation of the Crimea. Again, she was inept- which led to the dwarf’s little green men being sent to the Donbas.
            If Merkel had really wanted to she could have taken far firmer action from the start- she would have had the support of the Poles, Baltics and most probably Sweden at the very least. But all she has done is engage in useless talks, even though anyone with half a brain realised months ago that talks with the dwarf are pointless. Minsk I was dead PDQ, so was Minsk II. Any agreement with the dwarf’s signature is worthless. Does she really think a Minsk III would be any better?
            The dwarf won’t give up, regardless of the eventual cost in money, mercenaries, regular army soldiers (volunteers or otherwise) and equipment. He is obsessed with his idea of a Russkii Mir of which the Ukraine MUST be a part, regardless of whether the Ukrainians want to be a part of it or not. A further massive attack is inevitable, especially as he knows that the new US president won’t be as soft as Obama. That being the case, it only makes sense to make sure the dwarf pay a heavy price for every yard/metre he advances: in money, lives of his troops and equipment- and the heavier the better.

          2. Avatar Dagwood Bumstead says:

            An article which appeared on today confirms my suspicion that Merkel and Hollande (and maybe Obama as well) are quietly screwing the Ukraine. So far it has only appeared in Russian but I expect it to be translated at least into German and hopefully it will also be translated into English. You can find it at:
            Until a translation appears you can read it with help of Google Translate or a similar programme.
            I also wonder whether the dwarf has something on Merkel from her time in the GDR that she doesn’t want to become known to the general public.
            Edit: the original can be read in German on the website of the Frankfurter Allgemeine, where it appeared originally:

  5. Avatar Jens A says:

    Well, it is a fact that Putin is a clown. In any other country he would be part of the past only because of his statement last year in support of the Ruble (“We will not headless support the ruble at any price” – and guess what then happened!), but even though he is a clown, he will fight as much as he can. There are so many dead people in his wake, so there will be no peaceful end of his dictatorship and he knows. Question is, if his fellow thugs want to survive or not. If they want to survive, they better think of a way to make Putin history!

    1. Avatar Dagwood Bumstead says:

      One wonders how much longer he will have something to fight with. There are slowly increasing numbers of individual soldiers of the Dwarfstan army who refuse to go to the Donbass, even a few complete units who refuse. With mounting losses this will only increase, and if the estimates of losses supplied by NGOs such as Cargo 200 and the Committee of Russian Soldiers’ Mothers are accurate they have already lost some 8,000 killed. The losses of the mercenaries won’t be any less because they do most of the fighting. The Kolorads admitted to losing 136 killed in their last assault near Starohnativka.- and actually lost ground in a Ukrainian counterattack.
      Increasingly, too, mercenaries are returning to Dwarfstan thoroughly disillusioned by the LNR and DNR whose leaders are totally corrupt. Then there’s the “small” matter of the Kolorads fighting among themselves for slices of the criminal pie and killing each other, witness the murder of Mozgovoy. Even Dwarfstan’s censorship won’t prevent word spreading.
      And what about the returning wounded? How can the dwarf hide them, short of killing them and cremating their bodies? He’s cynical enough to do this, as the abandonment of captured soldiers shows. Does all this motivate men to fight, whether mercenaries of Dwarfstan army? Already in August last year captured Dwarstan paratroopers were saying “This is not our war, we have no business here.”

  6. Avatar evanlarkspur says:

    I’m not convinced it will be quite this bad, but it will be very bad indeed. The naïveté of the Russian people is truly frightening to watch. How they can be so self-deluding as to believe that the rules don’t apply to them and Putin is anything but an unmitigated disaster for Russia (and is likely to precipitate its breakup as the last paroxism of the USSR) is beyond me. And I know a number of Russians intimately. They know how to use the Internet, they are smart, decent people, yet still watch this crazy TV and blindly support Putin.
    Politics in Russia are very volatile, and serious violence is never far below the surface. There will be riots and politicians lynched before this is over.