By Libardo Lambrano 2014 is coming to an end, and if anything is becoming crystal clear at the end of this year it is that economies around the world are deeply and intrinsically linked. Since June a roller coaster of events has pushed up the price of the dollar against the ruble in Russia by 38%. This is the biggest increase since 1998 when the Russian ruble plummeted to historic records. The main reason for ruble's current fall is the drastic and quick decrease in oil prices. At least 35% of the Russian economy is funded by oil, without that income, Russia would have a deficit close to 10%.
This emerging problem is even more dramatic for smaller economies such as Venezuela and Colombia. In Venezuela oil accounts for 95 percent of export earnings, when you combine this with gas earnings, it’s 25% of Venezuela's gross domestic product. In Colombia the situation is also becoming very critical. Oil makes up between 20% and 30% of Colombian exports and accounts for 4% of its GDP. To put this emerging crisis in perspective, the Colombian 2015 national budget was calculated with an oil price of $98 per barrel, the price per barrel is now at $70 and trending lower, which means Colombia is now facing a budget deficit of $3.6 billion in 2015.
If oil prices continue to decline, in my opinion these governments will get hit badly setting off an unfortunate chain of events. First currency and government bonds will decline, as investors lose confidence in these governments and start pulling out money and hold off on any new investments. As their currencies lose value, exporters across industries will begin to receive less money for the same goods they are producing, and as a consequence they will spend less in their own countries.