How Russia Is Affected By European Crisis

This article suggests that the slowdown in Europe affects Russia in three ways.  Russia is an exporter of commodities to Europe.  Consequently, slow growth in Europe implies a decline in commodity exports to Europe.  A decline in oil exports or prices has an effect on government income.  Russia uses a progressive tax on oil profits.  The tax rate increases with profit growth.  Therefore, a declined in oil industry profits affects tax revenues more than the after tax profits of the oil industry.

Equity prices in Russia are also sensitive to investor confidence.  Demand for Russian equities falls during periods of low investor confidence. Serious problems in Europe would lead to lower investor confidence and falling equity prices.  The Ruble is subject to similar declines in value in periods of low investor confidence.

While the current crisis in Europe has had a moderate impact on the Russian economy.  A more serious crisis in Europe would produce a profound impact on the Russian economy.