Stretching the ruble #2: Roller-coasters
Last week we reflected on international sanctions against Russia with regards to the ruble. This week we do more of the same, whilst at the same time trying to pick some minor cherries from the calamity.
Unfortunately, the celebration of any small financial benefit that travellers may enjoy whilst visiting Russia is crassly missing the point. There’s a very good reason why prices are low. Whilst we may enjoy the extra days away, the ridiculously low prices, the deals, the uncrowded flights and facilities, Eastern Ukraine is picking up the tab. For every action there is an equal and opposite reaction!
At the time of publication, we are 5 days into a failed cease-fire that was supposed to calm the hostilities down to the point where peace negotiations could commence. Around the town of Debaltseve, the violence continues with both sides pushing for a decisive claim to the area before the cessation of hostilities ‘locked-in’ their winnings, prior to further negotiations. This appears to be the bloody prerequisite to further talks, with everyone clamouring for the best cards before the game can even begin.
As a result of this mutual failure, another round of sanctions has been imposed against Russia. Officially issued for its invasion of Crimea and tacit support of pro-Russian separatists; unofficially, for accusations of its direct involvement in military action within Ukraine. It’s regarded as something of an open secret, treated as fact and judged accordingly.
With the imposition of restrictions against more Russian institutions and individuals, the net result is the further devaluation of the ruble. Sure enough, recession is forecast for the Russian economy in 2015, coupled with stratospheric levels of inflation. The current global lowering of oil prices (no coincidence?) has also hit Russia badly due to its status as a major oil exporter. The Russian economy is locked into the price of oil to the point of weakness; feeling every bump on the graph, all the way down. Where will it end?
Meanwhile on street-level, the adventurous tourist wanders into the middle of the above scenario, seemingly oblivious, remarking on how cheap everything is.
Russia Experience’s Odette Fussey speaks on the cost of Russian hotel rooms: “Prices went up to £150 per night in the largest hotels 15 years ago” she tells me. “It’s between £40 – 70 this year”. It makes you wonder just how far they can fall in the light of recent events. It’s also worth considering that Russia would still have to slowly dig itself out of its current financial hole (somehow) once a meaningful resolution to the Ukraine crisis is established. That’s not even assuming that the resolution will even be peaceful, ideal or quickly established.
Similarly, restaurant prices are currently running at less than half of their former peak. “A standard meal would be £10 – 12 last year and £4 – 5 this year” Odette reveals – again, an incredible contrast which starkly highlights the extent of the devaluation.
Such devaluation coupled with ongoing sanctions makes Russian assets and investments toxic to global financial players – Apple has already ceased online sales to Russia. The ruble is now the spectre at the feast. Putin’s counter-strike: the ban on certain foreign imports (EU food) also shoots Russia in the foot by stifling foreign trade further. It makes you contemplate just what the phrase ‘total financial meltdown’ actually means – and how it would play out on the streets of Moscow.
