Oil prices are plunging sending the Russian ruble’s value in a downward spiral. The currency of the oil-dependent economy cannot be saved by any monetary means. All this leads to the ruble’s strong depreciation and, as a consequence, to cheaper goods and services in the country for those who have euro, dollar, etc.
First, one interesting fact, so that you could have fun and a deeper understanding of the situation, then we go to a travel piece.
1990. The time when it’s clear that the Soviet Union is going to collapse. No, hardly anybody could predict it would fall already in 1991, but the end is imminent. The ruling party, the Communist Party of the Soviet Union, surely keeps losing its influence in the eyes of the population. The party is not capable of tackling an economic crisis with its empty shelves, nor can it do anything with conflicts in national republics, like the one between Armenia and Azerbaijan over Nagorny Karabakh or between Georgia and Abkhazia over Abkhazia.
So, it’s 1990, the party is a Lame duck. It’s time to abandon it, and that’s just what many members are doing. But there is one man who decides to join the Communist Party at this very moment, the fact which would be laughed at many years later. The man’s name is Igor Sechin, an assistant to future St. Petersburg’s deputy Mayor Vladimir Putin. Right now, he is CEO of Rosneft company and one of the closest allies and friends of Mr. Putin.
Mr. Sechin is also a mastermind behind the Russia’s decision to break a deal with OPEC over cutting oil supplies, another move which highlights the level of strategic planning of the man who joined the collapsing party back in 1990.
What we have right now thanks to the smart strategy of Russian decision-makers is what can be called a free fall of the national currency. In fact, it’s not a free fall as Russia’s Central Bank tries to intervene, but it looks like that.
With global oil prices being at somewhere 20$+ for barrel, the Russian ruble depreciated dramatically towards main currencies. We looked at what it cost a month ago and costs now, on February 20 and March 20, respectively.
| Currency | Price on February 20,
in rubles | Price on March 20,
in rubles | % |
| US Dollar | 64 | 80 | 25 |
| Euro | 69 | 85 | 23 |
| Yen | 0.57 | 0.72 | 26 |
| Pound sterling | 82 | 92 | 12 |
This means that travel in Russia got much cheaper than it was in 2019. And very much cheaper than it was a few years ago, as this depreciation is another wave following the one that rocked the country in 2014-2015.
We cannot know whether the ruble will bounce back, when typical oil prices return (and they are likely to do it). We guess that the current levels may not survive, but a return to what we saw on February 20 would hardly happen. The drop in late 2014 and early 2015 was not followed by full recovery. There are no factors in the Russian economy which could drive the ruble back to previous highs, while factors to send it sharply down abound. The coronavirus is not the biggest threat here.
Regarding travel, there is a mix of other reasons to wait for low prices for dollars, euros, pounds, Swiss francs, yens, krones-holders to come:
• low-cost airlines are testing the Russian market;
• hotels face a dramatic decrease in bookings due to COVID-19, which will result in an attractive price policy when the pandemic eases;
• RZD (Russian Railways) have their passenger ticket prices established every year by the Russia Federal Anti-Trust Service, so it’s unlikely they will try to correct fares upward. Passenger transportation is not of great financial importance for RZD, as it gets much of its money from cargo;
• we may see an increase in fast food prices and restaurants at St. Petersburg and Moscow as it’s tough times for the sector, many will not survive. Those who will manage to meet the high season 2020 are likely to change figures in menus to ease the pain. But this possible increase will not be great;
• excursions will continue after semi-quarantine in Moscow and St. Petersburg ends.We think there will be no spike in prices here, which in fact means they will get cheaper till the ruble’s free fall. Guides are waiting how things will turn with COVID 2019.
