Russia is heading towards a major economic crisis, experts predicted today, following the news that oil had collapsed to under $50 a barrel. The collapse in the value of oil is likely to have several catastrophic consequences for Russia including a possible devaluation of the rouble and a severe drop in living standards next year.

With oil prices falling steeply, and his own future at stake, Russia’s prime minister Vladimir Putin today insisted that Russia’s economy was still robust. Putin told delegates in Moscow the country would survive the current global financial turmoil which he blamed on the US.

But the Kremlin is acutely aware that any loss of confidence in the Russian economy could lead to a loss of confidence in Putin and his ally Dmitry Medvedev, who took over from Putin as Russia’s president in May. Medvedev’s biggest initiative so far has been to float an extension in the presidential term from four to six years which Russia’s loyal Duma is likely to approve on Saturday.

Putin today said his administration would do everything it could to prevent a repeat of the countries last oil-related financial crash in 1998 – which saw the savings of many ordinary Russians wiped out. But the plummeting oil price leaves him very few options. Experts suggest that Russia’s economy is now facing profound difficulties, despite two huge funds accumulated during the booming oil years.

The fall in oil prices from $147 this July to below $50 today has blown a gaping hole in the government’s budget calculations. It is now facing a $150bn shortfall in its spending plans – and will have to slash expenditure in 2009.

Today Putin sought to assure hard-up Russians that their social benefits would not be affected, promising a $20bn assistance package. “We will do everything, everything in our power … so that the collapses of the past years should never be repeated,” he said.

The oil slump, however, exacerbates Russia’s already severe economic problems. Since May Russian markets have lost 70% of their value. Russia’s central bank, meanwhile, has been spent $57.5bn in two months trying to prop up the country’s ailing currency.

“If the current trend continues with the government supporting the rouble, oil prices falling and a slowing economy we are going to have a major crisis,” said Chris Weafer, an analyst with the Moscow brokerage Uralsib.

He added: “There will be more pressure on the rouble and an extremely difficult first quarter next year.” Russia was more vulnerable than other countries because it was still an oil state, and had failed to diversify its economy, Weafer added.

Both Putin and Medvedev have blamed the Bush administration for the current financial mess. Putin today accused the US of recklessness. “Cheap money and mortgage troubles in the US have caused a real chain reaction, [and] paralyzed the global financial market,” he complained.

Russia’s state-controlled TV has also sought to portray the crisis as an American problem, largely ignoring its impact at home. This strategy was not very sensible, analysts suggested today, since job losses and salary cuts in Russia were beginning to mount.

“In terms of the trigger Putin is correct. The bomb came from the US,” Weafer said. He added, however: “The shockwaves have hit a much weaker structure than the [Russian] government has acknowledged. The economy is going to hell in a handcart.”