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Lower Crude Oil Prices to Effect Russia, Euro Zone the Most

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Eldon, Missouri – (StockNewsDesk) – 12/02/2014 — Crude oil prices have fallen to a five-year low. While emerging economies, like India, are at an advantage, countries that might be affected the most are Kuwait, Saudi Arabia, Russia, Nigeria, Venezuela and Iran. A major part of these economies are dependent on export of crude or crude-related products. The Organization of Petroleum Exporting Countries (OPEC) includes countries like Kuwait, Saudi Arabia, Venezuela and Iran, with the dominant one being Saudi Arabia. The OPEC countries are the least affected by the fall of crude oil prices since they are sitting on a cash pile that runs in the trillions. The country whose economy might be routed the most with the crude oil price crash is Russia. In addition to Russia, euro zone’s vulnerability to deflation has increased with the decline of crude oil prices.

 

Russia

Russia stands to lose $100 billion annually if crude oil prices don’t reach at least $90 a barrel. The country breaks even at $90 a barrel and makes a profit north of that price. Russia is one of those countries where half the economy is dependent on export of crude oil and related products. However, since crude oil prices have fallen more than 30%, the country’s financials have not been smooth. In addition to this, the country has also faced stern sanctions from the euro zone countries and the United States. In fact, the sanctions might deepen the losses to nearly $40 billion annually on the country’s economy. To make things worse, Russia’s currency, the rouble, has lost nearly 30% of its value since the start of 2014. Western sanctions from Western countries, the fall in crude prices and a weakening economy is primarily responsible for the fragility in the currency.

Lower Crude Oil Prices to Effect Russia, Euro Zone the Most

Euro zone

Experts believe that a slowing global economy and sudden boom in the U.S. shale business is mainly responsible for low demand of crude oil. Recent economic indicators of the euro zone point towards a mixed economy that is vulnerable to sustained low crude oil prices. Euro zone’s major economic problems include deflation and a fall in the crude oil price might fuel the problem. The top three economies of the euro zone, Germany, France and Italy, have seen a drop in manufacturing and factory activities for the month of November. Inflation in the area was marginally on the positive side at 0.3%. With the economy in this situation, the reduction in crude oil prices has heightened the fear of deflation among some countries. Investors expect the policymakers to contain further drops in crude oil prices and kick-start the economy by introducing fresh stimulus.

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