Russia is blessed with significant oil and gas reserves which it can export to the rest of the world for hard currency. It is the largest producer of crude oil and the second largest producer of natural gas; unsurprisingly, oil and gas contribute more than half of the nation’s budget revenue. The price of crude oil has collapsed from $125 to roughly $30 since March 2011, with a decline from $114 since the summer of 2014. In parallel, the Rouble has collapsed from 35 to the Dollar in June 2014 to 79 currently. The upside of this is that oil and gas are priced in Dollars, but it does not cover the extent of the collapse in the oil price, of course. Equally, Russia must pay for its imports in foreign currency (largely) and these have become much more expensive. The weakness of the Russian currency is due to the weak oil price and geopolitical tensions in the Ukraine and Crimea which have triggered (limited) economic sanctions against the country.

The decline in the price of crude oil and continuing sanctions have had an effect on the Russian economy which contracted by 3.7% in 2015, according to the state statistical service. Investment dipped by 8.4% and retail sales slumped by 10%. In 2014, Russian GDP managed growth of 0.6%.

Russian interest rates are expected to be held at 11% and inflation is running at 12.9%, having come of a peak of 16.9% last March. Unemployment stands at 5.8%, meaning that 4.4 million are officially without work.

Russian budget proposals are based on an assumption of oil revenues based on an average price of $50 per barrel, well above the current level. Most analysts anticipate that the oil price will remain subdued throughout 2016 which means that Russia is likely to be dealing with a significant budget shortfall.