Anthony David – Market Oracle, 07/05/2012
Russia and Brazil, both major commodity nations, make a strategic pair with Russia ranking among the world’s top producers in the energy and metals sectors while Brazil is a strong exporter of agricultural products, cars, machinery and iron ore. Trade between the two countries grew five-fold in the period from 2002-2008. In 2010 Brazil and Russia entered into an agreement to boost trade between their countries and enter into strategic partnerships in the areas of energy, infrastructure and space exploration.
More significantly, in advance of global credit possibly drying up, the two countries along with the other BRICS nations of China, India and South Africa, are firming up agreements to trade in their own currencies instead of the U.S. dollar.
Since the fall of the Soviet Union, Russia has transitioned from a globally isolated economy to a more global market oriented economy. With the decks cleared for Russia’s entry to the World Trade Organization the country will open up to products and services from countries all around the world. With the exception of the energy and defense related sectors most of Russia’s industries were privatized in the 1990’s. However, the private sector is still subject to strong interference by the state. Since much of the country’s economy is based on commodity exports, it is subject to the wild swings of global commodity prices. Russia was hard hit by the 2008-09 global oil crisis and the Russian government spent billions of dollars of international reserves to slow down the run on the ruble. Since 2011, high oil prices brought the country’s economy back on an even keel. However, 2012’s falling oil prices have caused another run on the ruble. Russia’s over dependence on oil makes it very vulnerable to crude market shocks.