Global oil prices have hit $54 a barrel from June 2014 levels of $100 and above but the market is yet to bottom out. And with Opec insistent on maintaining current production levels and the shale revolution in the US in the face of slow global demand, prices are predicted to wane further.

The biggest loser in this great oil game is -- predictably enough -- Russia. The wave of sanctions rolled out by the US and its allies in the aftermath of the annexation of Crimea has started taking its toll. And since the first round of sanctions in March 2014, major oil exporter Russia has found itself in an increasingly embattled position, even as US President Barack Obama considers signing another round of sanctions into law.

Since June, the rouble has fallen by some 59 per cent to the US dollar. The defence of the rouble saw the country’s reserves decline by about a fifth to $416 billion over the past year and last week, Russian President Vladimir Putin was forced to pledge to not use reserves to prop up the currency. With inflation accelerating (9.1 per cent in November, the fastest since June 2011), the country finally had to plump for a contractionary monetary policy.

On December 16, the central bank announced the largest interest rate increase since Russia’s 1998 default, increasing the key rate by 6.5 percentage points to 17 per cent. With its best export under a price cloud, domestic inflation eroding spending power and businesses cut off from western credit lines, the Russian economy is expected to shrink by almost five per cent next year.

Some of this was expected. The standoff in March this year with the US and EU over Ukraine’s future was billed as the worst in US-Russia relations since the Cold War. As the US and EU hit Russian individuals, companies as well as finance, energy and defence industries, Russia adopted a position of increasing belligerence to its facilitated economic haemorrhage. Not only did it retaliate with a slew of tit-for-tat sanctions on Western countries, some commentators see Putin as having politically cashed in on the crisis by characterising it as an ‘anti-Russia’ conspiracy for local audiences.

(While Russia’s shift towards China paid off in terms of Chinese-bankrolled infrastructure development, guaranteed offtake - worth some $350 billion - as well as prepayment in some cases, the combined effect of the US and EU sanctions will have the Asian buyers driving hard bargains with Russia. For an economy used to easy oil revenue-funded spending habits, this will obviously take some time getting accustomed to.)

Of course, the push by US and European bloc lawmakers for even tighter sanctions initially fuelled this rhetoric. (New curbs, including bans on the export of transport and telecommunications gear and on package tours and cruises to Crimea, are justified as attempts to prevent Russia from using the annexed territory to exploit Black Sea oil and gas deposits.) Now, however, the pinch of sanctions seems to be bleeding the Russian economy of its nationalistic zeal and turning the tide against Putin.

Much of Russia’s troubles have also to do with Opec’s insistence on not cutting production. As the US shale-oil boom flooded the market with fresh supply, many expected Opec to respond with production cuts that would have shored up global prices. But Saudi Arabia, the world’s largest oil exporter and the most influential vote in Opec, seems to have little inclination to do so.

Sitting on reserves worth $700 billion, the oil-rich country can afford the hit for a few years. The why of the decision, however, is more interesting. Some attribute the resistance to cuts within a Saudi recognition of the potential challenges posed by US shale and the kingdom’s desire to get higher-cost production to fold and, over the long run, pull greater market share. Others, however, believe the decision has more to do with the fact that Saudi Arabia attempted a similar move in the 1980s, which backfired and ended up damaging their economy.

But an unexpected consequence of freefalling oil prices has been the impact on alternate energy projects. Given widespread concerns over carbon emissions and global warming, global investment in clean energy climbed from $60 billion in 2004 to $251 billion last year. But after Opec decided not to cut production in November this year, Denmark’s Vestas, the world’s largest wind turbine supplier; Chinese solar power company Yingli Green Energy; and US electric carmaker Tesla saw sharp share price erosions.

According to analysts, cheaper oil undercuts the expensive-and-scarce argument against hydrocarbons that governments use to justify a focus on renewables. With crude prices having dropped 49 per cent in six months, a pall has been cast over oil projects planned for next year. According to Goldman Sachs, almost $1 trillion in investments in future oil projects is currently at risk, from expensive Arctic oil, deepwater-drilling regions and tar sands from Canada to Venezuela. The Goldman Sachs model looked at 400 of the world’s largest new oil and gas fields - excluding US shale - and found projects representing $930 billion of future investment that are not profitable with Brent crude at $70.

While some analysts are hopeful about the positive impact lower oil prices can have on global recession - lower prices, they argue, work as tax breaks for consumers who respond with more spending and thus trigger global demand - this will take a while to materialise.

In the meantime, the biggest fear is that the globally interconnected banking industry will facilitate the spread of Russian troubles to the rest of the world. (Some commentators thus point to the fact that the S&P 500 has declined by 4.9 per cent from its recent high and the EAFE Index is down 12 per cent from its high earlier in the year.)

The big question is, can the world deal with more financial contagion when it has yet to recover from the 2008 global financial crisis?