The price of oil has dropped nearly $50 in the last six months. While that may be great news for consumers, it’s not so great for countries that are heavily dependent on oil exports, according to Rob Sabo, managing director of global financial markets for Rabobank.
In Russia, each $10 drop in oil prices impacts 1 percent of GDP growth. With oil dropping from $107 per barrel last June to $54 a barrel when Sabo spoke at the Agricultural Council of Arkansas meeting, that’s a 5 percent decline in GDP growth, which puts it in the negative.
Russia’s economy already was feeling the impact of sanctions imposed by the U.S. and other countries because of the ongoing turmoil in the two Russian-speaking regions of the eastern Ukraine. Separatists ostensibly backed by the Kremlin have been fighting to put those regions under Russian control.
“Any little pickup in the crisis in the Ukraine, any fear that the Russians might be getting a little itchy is, again, going to decrease risk appetite and keep currencies going to safe havens like U.S. Treasuries and the U.S. dollar,” said Sabo.
The drop in oil prices is good news, especially for Americans who still feel the country is in a recession, he noted. “But at the end of the day it causes weakness around the world, and we’re so interconnected that at the end of the day it could actually have a negative effect on us.”
The decline means $700 to $1,000 more their pockets, “which for many Americans is a lot of money. But what it means for the ruble in Russia, for Canada our biggest trading partner, Norway, Australia and Mexico could be rather draconian.
“These countries are all very heavily dependent on crude and crude oil prices. Ballpark figures say that for every $10 decrease in the price of oil affects Russia by almost 1 percent in GDP growth. So that makes it 5 percent off of GDP growth in Russia, which will make it negative.
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