Russian roulette with crude oil

Last year was a bad year for all stock markets, but Russia suffered the worst hit. From its zenith in May the leading Russian RTX index sank 77% by December, with commodities leading the nosedive.

Russia is rich in natural resources, mainly crude oil, natural gas and metals.

Russia's heavyweight position in the commodities market is evident in the country's ongoing dispute with its neighbor, Ukraine.

A few weeks ago, Russia halted the flow of natural gas to Ukraine because of a commercial dispute between the two countries.

That decision affected tens of millions of Ukrainians and the residents of the adjacent Balkan states, which receive natural gas from Russia via a pipeline that crosses Ukraine. Millions of people in Eastern Europe are therefore unable to heat their homes, in the midst of winter.

The crash in the price of oil between July 2008 and January 2009 seriously impacted the Russian economy. The latest Russian economic forecasts predict a 43% decline in revenues from exports in 2009, and negligible growth of 0.2% throughout the entire economy.

One of the biggest problems confronting the Russian economy is the flight of foreign investors, which picked up during last summer's war with Georgia, forcing the Russian government to pour $200 billion into the capital market in an attempt to halt the ruble's freefall.

Russia's foreign currency reserves, which stood at $600 billion in August 2008 - the third highest in the world, after China and Japan - shrank by 33% in the following 5 months.

Russia's dependency on oil prices made its economy particularly vulnerable. If oil prices begin to climb, however, the Russian economy will benefit accordingly. At the moment, investing in Russia is essentially betting on the price of oil.

Whoever thinks oil prices have hit the bottom of the barrel can try gaining from a turnabout by investing in the Russian stock market.