Russian Financial Crisis’ Effect on Israel to Escalate

Many of Israel’s 1 million immigrants from the former Soviet Union have business interests in Russia and are likely feeling the impact.

Reuters

The financial crisis in Russia is likely to have a direct effect on Israel that will only grow, although the indirect effects are likely to be even greater.

The crisis began when Russia invaded Ukraine’s Crimean peninsula in March, prompting sanctions from the West. It has been compounded by the drop in oil prices since November.

On Tuesday the ruble plunged more than 11% against the dollar in its steepest one-day fall since the Russian financial crisis in 1998, as confidence in the central bank evaporated after an ineffectual rate hike. It is now down more than 50% for the year, stirring memories of the 1998 crisis when Russia’s currency collapsed and the country was forced to default on its debt.

The most notable Israeli businessmen impacted by Russia’s financial state are Lev Leviev and Eliezer Fishman, both of whom have substantial real estate interests in Russia. The shares and bonds of their publicly held companies – Africa Israel and Mirland, respectively – have plunged in recent months, indicating that investors are concerned that these firms may not be able to pay back their debts.

Yet there are many more Israeli citizens who are likely feeling the impact – many of Israel’s 1 million immigrants from the former Soviet Union have business interests in Russia, including imports and exports, which exposes them to the volatility of the Russian currency.

Furthermore, immigration from Russia may increase in light of the economic instability.

These are just the direct effects; the indirect effects of Russia’s financial crisis may be even greater for Israel. Global markets have gained ground over the past two years, offering investors handsome returns. Russia is a major player on the global economic scene, and a deterioration of the Russian economy could indicate that the global economy is changing direction, pulling Israel down with it. Furthermore, Russia has significant military power, including a military export industry with customers around the world, including Israel’s enemies.

Russia is also a major exporter of oil and fuel to Europe.

While the West may want to weaken Russia, it does not want to bring that nation down altogether. Meanwhile, the financial markets are sensing increased risk, which does not bode well.

With reporting by Reuters.