Russia is known as one of the world’s largest major oil producer and has a long history of spreading the commodity.
The earliest drilling of oil in Russia took place in Baku, year 1846, under the Russian authorities. It went on a full commercial scale in 1873, and within three months of operation it was reported that it produced 1.5 billion kilograms of oil.
How oil prices affect the Russian ruble
About half of Russia’s exports in terms of value are a combination of oil and natural gas. Oil and gas hold over 60% of Russia’s exports and make up over 30% of the country’s gross domestic product (GDP). The country currently rivals Saudi Arabia as the world’s largest oil producer estimating roughly as 12% of the global supply with 80 billion barrels of oil reserves. However, it is the second largest natural gas producer behind the U.S. Oil and gas sales have recently accounted for more than 60% of Russia’s export revenues and 50% of federal tax revenues.
Russia’s ample supplies of oil and its dependence on the commodity for export has been a double-edged sword. On one side, the country relishes a level of energy independence for its population of 143 million and U.S. $2 trillion economy. On the other hand, that status leaves the country susceptible to global events that affect the price of oil such as, military conflicts and political turmoil in the Middle East and more.
The effects of falling oil prices
The price of oil has been falling recently, in response to the U.S. Federal Reserve’s signal that it may raise interest rates. With that factor and the decrease in oil demand around the world, oil prices has fallen which swiftly eroded Russian export and tax revenue and greatly affected the ruble, Russia’s currency.
In the recent events, Russia was forced to raise interest rates dramatically to offset the impact of decreased trade revenues from oil on the country’s balance of payments. The fall of oil prices for Russia was signaled at an economic forum in Sochi in October 2015 by Russian Prime Minister Dmitry Medvedev. He highlighted the need for the country to cut its dependence on oil exports by implementing reforms and stimulating more domestic manufacturing.