Global Turmoil Roils Commodities
Foreign currencies, crude oil, and other markets felt shocks this week as momentous changes came in foreign lands, including Russia, Saudi Arabia, and Greece.
Russia gets a Failing Grade
Crude oil prices dropped to a fresh five-year low this week, breaking under $44 per barrel. Plunging petroleum is putting pressure on Russia, which is dependent on oil prices closer to $100 to balance its budget.
As a result, Russia's bonds have been downgraded to junk status, indicating a significant threat that Russia will default on its debts. This announcement puts further pressure on the already-troubled economy, raising borrowing costs and causing their currency, the ruble, to tumble.
Meanwhile, fighting in Ukraine between the government and Russian-backed rebels is escalating, which could lead to further Western sanctions against Russia.
Saudi King Dies
King Abdullah of Saudi Arabia died last week at age 90, transferring power to his half-brother Salman, who is already 79 years old and is rumored to suffer from dementia. This change in power, as well as a concurrent shakeup in the King's cabinet, has led some to worry that Saudi Arabia could destabilize.
Saudi Arabia has long been one of the United States' strongest Muslim allies, providing military support and a petroleum policy that attempted to keep global prices stable. Long-term, Saudi instability could lead to more Middle Eastern conflicts and potentially threaten crude oil supplies.
Greece Drags Euro Lower
Greek elections held last weekend resulted in a resounding victory by the left-wing Syriza Party, which had campaigned heavily against austerity measures that were imposed on Greece by its lenders. Greece is mired in debt and has been dependent on bailout funds from the European Union and International Monetary Fund, but those bailouts came with strings attached, primarily that the Greek government had to raise taxes and drastically reduce spending.
If the new Greek government breaks the bailout agreement, they will likely default on their debt, which could lead to ejection from the Eurozone. Alternately, if the EU & IMF allow them to renegotiate their bailout, other nations like Italy, Spain, Portugal and Ireland might seek to do the same, undermining the European financial system.
As a result, it appears that Greece's new government will either have to back out of its campaign promises, or it will cause more headaches for the EU. These fears caused the euro to fall to an eleven-year low near $1.10 this week.
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