The sinking price of crude has Russia hostage over a barrel of oil.
For an inkling of how unhappy everyday Russians have gotten as Brent crude heads further south, take a look at the Misery Index — the sum of unemployment and inflation rates. It has surged to 19 percent from 11.7 percent in February 2014 to place the world's second-biggest oil producer among the world's gloomiest economies.
The oil free-fall has infected every facet of the economy, driving the ruble down, and consumer prices up to three times the central bank target of 4 percent. Russia is a net importer of major goods, so the rapid increase in import prices caused by a crashing ruble triggered major inflation. Policy makers last week put borrowing costs on hold even as the economy heads further into recession.
Russia's cycles of boom and bust track Brent crude, which has plunged to around $30 in 2016 from over $100 in 2010.
"The Russia story is essentially an oil story: Oil is driving an increase in inflation, and a plunge in the ruble, and a deterioration of the economy, and a lot of pain for Russians," said Tim Love, a London-based investment manager at GAM, which oversees $130 billion of assets. Russia makes up about 3 percent of his portfolio.
Invented in the 1970s — an era of stagflation and high unemployment — the misery gauge fell out of favor as economies grew more sophisticated, with many still miserable in spite of taming their jobless rates and galloping prices.
Vladimir Osakovskiy, chief Russia economist at Bank of America Corp., is among the economists who think the index doesn't tell the full picture: "We may see the measure go down in the coming months on the back of lower inflation, but it will not mark any drastic changes on the ground."
The index can still be a useful lens to examine countries such as Russia that are over-dependent on one good. Russia has the fourth-highest misery index reading among emerging markets’ biggest economies. Annual inflation rate? Almost 13 percent. Unemployment? Close to 6 percent.
"Inflation is eating into people’s wages, meaning they have less money to spend, and a slump in oil prices means that inflation will probably not decline as fast as many had anticipated," said Tomasz Noetzel, an analyst at Bloomberg Intelligence.
For Love, that is just too many variables to juggle: "I would want to buy more of Russian assets, but it is impossible to predict the direction in oil prices at this point, and I don’t want to take on unnecessary risk."
-- With assistance from Phil Kuntz