Most Americans and others around the world are benefitting from the dramatic collapse in oil and energy prices. If oil prices remain around $50 a barrel this year, AAA estimates the energy savings should be $50-$70 billion in the US alone in 2015, or at least $600 per household. Most economic reports of late have been decidedly upbeat, in large part due to plunging energy prices.

The price of WTI crude fell below $45 a barrel earlier this week, a near 60% plunge since last summer. Yet while cratering oil prices are a boon for consumers, there are some serious negative implications that market watchers and investors are now having to consider. This may explain why the stock markets have taken a hit over the last week or so.

Gone for the most part now are theories that the US and Saudi Arabia are behind the collapse in oil prices as a way to punish Russia and other oil-producing enemies such as Iran and Venezuela. The plunge in oil prices has greatly exceeded even the most dire negative forecasts – this is not a conspiracy.

But let’s make no mistake: Russia is in deep trouble as a result of plunging oil and natural gas prices. The Russian ruble has collapsed almost 50% against the US dollar since last summer, and its economy is now headed into a full-fledged recession.

In an effort to reverse the serious decline in its currency, the Russian central bank raised interest rates repeatedly last year. By early December, its key interest rate (equivalent to our Fed Funds rate) had climbed to 10.5%. Then on December 15, the bank boosted the rate all the way to 17%. The ruble bounced as you can see above but of late is trending lower again.

Russia’s economy had already experienced a serious beating following the sanctions imposed by the US and the EU last year over Russia’s invasion of Ukraine. As oil prices continue to slide, and with its 17% interest rate, Russia is facing a wave of bankruptcies.

Anatoly Aksakov, president of Russia’s regional banking association, said that many firms were running out of cash. “Bankers believe that keeping the situation as it stands will cause a wave of bankruptcies, not only credit institutions but also a number of businesses and companies,” Aksakov wrote in a letter to the central bank, according to the Russian state media.

Aksakov pleaded with the central bank to cut the rate back to 10.5% where it was in early December. A central bank rate of 17% means that many companies are having to pay as much as 30% to borrow. No wonder many are simply shutting down!

His comments signal deepening stress in Russia’s financial sector. Credit watchdog Fitch Ratings downgraded the country’s sovereign debt rating last week to BBB-, blaming a sharp deterioration in its economic outlook.

Aksakov also warned that Russian banks will need a bailout of up to $45 billion in capital to survive in 2015 alone, plus another $11.5 billion to cover foreign exchange losses. Yet the central bank has been preoccupied with failed efforts to save the ruble.

Russia’s central bank burned through more than $120 billion in foreign currency reserves last year alone. Reportedly it now has only $388.5 billion left in total international reserves, including gold and other liquid foreign assets.

In December, Russia’s HSBC Composite Output Index plunged to a seven-month low of 47.2, from 47.6 in November. Any number below 50 signals a contracting economy. Meanwhile,  Russia’s inflation rate soared to 11.4% in 2014. This is another reason why bank lending rates are so high.

Rumors are swirling that the coming economic and financial crisis will force the resignation of Russian president Vladimir Putin. The state-run media continues to claim, however, that Putin is still very popular among the Russian people, and that a broad majority of the people supported his actions in Ukraine. That may or may not be true, but with a potentially deep recession coming, I can’t imagine he will remain broadly popular for long.

Some geopolitical observers believe that the weakening Russian economy means that Putin will not undertake any additional military actions in the region because he can ill afford it. Others, however, worry that he may become so desperate that he will invade other neighbors and seize valuable assets.

I don’t know what will happen, but I continue to subscribe to Stratfor.com which is monitoring the situation closely, as always. I will keep you apprised of their insights on this matter.