Vladimir Putin had his Jim Callaghan moment last week. Faced with questions about the state of the economy in the wake of the rouble’s freefall on the foreign exchanges, the Russian president said the problems would be overcome in two years. Echoing Callaghan’s words on his arrival back to the UK from a summit in Guadeloupe during the winter of discontent, Putin said it was not even fair to say Russia was in crisis.

Given some of the previous setbacks Russia has overcome, that may well be true. It is not like 1941, when the country’s very existence was in doubt. It is not like Stalin’s manmade famine in the Ukraine in 1932-3. But by the standards of the modern world, Russia is facing a crisis. Even before last week’s turbulence on the foreign exchanges, the central bank was expecting the economy to contract by 4.5% next year. A deep recession is unavoidable.

Putin’s optimism about the economy is based on the assumption that the global price of oil will rise as cheaper energy prices spur consumer spending and investment across the world. He’s almost certainly right about that. Booms are nearly always associated with low oil prices, so there is a good chance that global GDP will be higher than expected next year. That will lead to higher demand for oil, which will push up the price. Some analysts think the recent fall in the cost of crude has been overdone and that the price will recover to about $80 a barrel next year.

In the short term, this would be good for Russia, given its dependence on the energy sector. In the long term, though, it would be better for Russia if the oil price stayed low: that would force the country to tackle some of the economic challenges it has ducked for the past couple of decades.

Here’s the problem. Russia is a resource-rich country. It has abundant oil and gas reserves. It has big mineral reserves and large forests. What Russia doesn’t have is a modern manufacturing sector. Its industrial base is old and uses clapped-out equipment. It has failed to invest in either physical or human capital. So 80% of its exports are in oil, natural gas, metals, timber and defence equipment.

The make-up of the economy has changed little since Russia’s last brush with the financial markets, in 1998. What happened then was that so much capital was leaving Russia that the country had to run a big surplus on its current account – exporting more than it imported – in order to keep the balance of payments stable. A low oil price made this impossible, and a rising balance of payments deficit led to a run on the rouble. Bringing the balance of payments back into line required a dose of heavy domestic austerity designed to restrict imports.

That should have been a lesson to Moscow’s policymakers. But they did nothing, and from 2003 onwards rising oil prices papered over the cracks. With the cost of crude above $100 a barrel, Russia could run both a budget and a current account surplus. It didn’t seem to matter that the economy was becoming ever more narrowly focused on the energy sector.

But now that the oil price has fallen – from $115 a barrel in the summer to around $60 a barrel on Friday – the old problems have come back. A smaller current account surplus is not big enough to cover losses on the capital account, which are estimated to be around $125bn this year.

That’s why the rouble has come under pressure and why, in the absence of a sustained effort to rebalance and modernise the manufacturing sector and invest in new machinery and skills, it will keep on coming under pressure every time there is a sustained fall in the cost of crude.

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