The Russian economy which was already stagnant in 2013 went into a talespin with Rouble plummeting last week.
The central bank of Russia stabilised the rouble by increasing the interest rate. This is the largest rise in Russia since the 1998 financial crisis. Due to capital flight from Russia, it has raised interest rates.
Falling oil prices and western sanctions have put further pressure on already weak Russian economy.
President of Russia has primarily blamed the external forces for the crisis and has also emphasised the need to diversify Russian economy.
50% of the Russian’s revenue comes from oil and gas.
This is leading to the dilution of savings.
Manufacturing base in Russia is pretty poor. Their biggest strength now comes from oil and gas revenue.
According to experts increased interest rate would increase capital flight.
The only way to control capital flight is to restore some kind of capital control.
Russia is very good at defence.
Their biggest Russian trading partner is Germany and capital goods dominate the imports.
This crisis has also affected Germany.
Cold war seems to have started again. Cold war has an economic dimension too.
Western sanctions have pushed Russia closer to china.
This crisis has little effect on emerging economies including India.
Russia is not isolated and has a greater role to play in the world economy.