Falling oil prices and geopolitical instability have resulted in steep falls for the ruble. Charles Forelle explains how we got here and what Russia might do next.

RUSSIA’S economy is on the brink of major crisis, hit by the double-whammy of a plummeting oil price and crippling western sanctions.

And it’s no accident.

Many believe the US is in the midst of a secret war with Russia, and that the current crisis is all part of a plot to drive Russian economy to the brink of collapse.

Since June this year, the global price of oil has nearly halved, from a high of $US114 a barrel in June to just under $60 this week.

The rouble has largely tracked the oil price, plummeting in value to a historic low of 80.1 to the US dollar earlier this week, despite a desperate attempt by Russia’s Central Bank to stop the sell-off with an emergency interest rate hike.

Retailers and currency exchanges have witnessed scenes of chaos as locals scramble to buy up imported goods and to swap out their fast-depreciating roubles for dollars and euros.

The Central Bank has warned that if the oil price stays below $60 a barrel, Russia’s economy will contract by nearly 5 per cent next year. It has been estimated that for every $10 fall in the oil price, Russia’s GDP will be reduced by 2 per cent.

Meanwhile, western sanctions for Russia’s role in Ukraine have prevented businesses from refinancing their debts in foreign capital markets, leading to currency selling to pay off debts before they become unsustainable.

“This is a very dangerous situation. We are just a few days away from a full-blown run on the banks,” Russia’s leading business daily Vedomosti said in an editorial Wednesday. “If one does not calm down the currency market right now, the banking system will need robust emergency care.”

CONSPIRACY THEORY

Vladimir Putin has blamed the west for the current crisis, and he’s not alone. While locals have likened it to an “economic war”, some western commentators agree.

Earlier this year, back when oil was still at around $88 a barrel, New York Times columnist Thomas L. Friedman pointed the finger squarely at the US for the collapse.

The “conspiracy theory”, widely accepted in Russia, is that the US and Saudi Arabia are colluding to keep production artificially high in a bid to drive the price down.

“The net result has been to make life difficult for Russia and Iran, at a time when Saudi Arabia and America are confronting both of them in a proxy war in Syria,” he wrote. “This is business, but it also has the feel of war by other means: oil.”

Just as they did to the last leaders of the Soviet Union, the Americans and Saudis are trying to “pump them to death”, he argues.

That was before the November meeting of OPEC, the international organisation oil producing countries, when the Saudis blocked moves to cut production despite a huge global oversupply.

The official explanation was that oil discounts would stimulate demand from slowing economies such as China, Japan and Germany, but the effect was to spark the beginning of a rapid plunge in the oil price.

Just after the meeting, oil fell more than $6 to $71.25 a barrel, and has been sliding ever since.

“What is the reason for the United States and some US allies wanting to drive down the price of oil? To harm Russia,” Venezuelan president Nicolas Maduro told Reuters before the OPEC meeting.

Earlier this month, Iran’s President, Hassan Rouhani, said the sharp fall in global oil prices was the result of “treachery”, in an apparent reference to Saudi Arabia.

Rouhani told a Cabinet meeting that the fall in prices was at least partly “politically motivated”, the result of a “conspiracy against the interests of the region, the Muslim people and the Muslim world”.

His comments reflect concerns among Saudi Arabia’s rivals that the kingdom is capable of withstanding the revenue losses and is forcing lower oil prices to damage their economies.

“Iran and people of the region will not forget such conspiracies, or in other words, treachery against the interests of the Muslim world,” he said.

HAPPY COINCIDENCE?

The other theory is that Saudi Arabia is simply willing to do anything to maintain its market share — with nearly $890 billion in the bank, they can afford to drop the price.

“It’s more complex than saying the US and the Saudis have conspired and are now using this blunt instrument to hurt Russia and Iran,” said Dr Gorana Grgic, a lecturer in US foreign policy at the University of Sydney’s US Studies Centre.

The fall in oil price is a result of a “perfect storm” of factors including a slowdown in China, Japan and Europe, rapidly increasing output by the US, and Saudi Arabia’s refusal to cut production, she said.

“This is a beneficial consequence of the drop in oil price — sure, they want to weaken Russia and Iran because both countries have relatively high break-even prices for oil production — but it’s not the primary motivation.”

Dr Grgic says it’s natural for Russia to blame the US.

“For Russia the west is the enemy. It’s very clear Putin is fighting the west and primarily the US, because any good dictator needs an enemy. For him this is a reflection of a greater western conspiracy to not let Russia be great.”

And if the conspiracy theory is true, it may be counterproductive anyway, she adds. “This is clearly hurting Russia a lot, and it’s leading to speculation about how Putin is going to react. It may well mean more belligerence on foreign policy front, which is clearly counterproductive.”

Jim Krane, an energy expert with Rice University in Houston, told US network NPR in October that figuring out Saudi Arabia’s motives was extremely difficult.

“If you’re somebody who looks at geopolitics and energy, you could come up with any number of ways or any number of reasons why the Saudis are not doing what they would usually do,” he said.

“There [are] lots of good reasons for them to keep on producing, but exactly why they’re doing it, probably only a few dozen people in Saudi Arabia know that.”

frank.chung@news.com.au