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Putin’s Crimea Adventure Has the Russian Economy in Freefall

Out of this one ham-handed blunder by Putin, the entire landscape of Russian economics and foreign policy may be permanently altered.

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March 4, 2014 - 3:05 pm
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Before Western leaders could even finalize their plans for economic sanctions on Russia in response to its shocking, unprovoked aggression in Ukraine, the Russian economy had already entered freefall.  Putin’s crude blunder in Crimea is the worst Russian foreign policy mistake of the Putin era, and his country may never recover from it.

As trading opened on the Russian stock market Monday morning, stocks entered freefall, shedding over ten percent of their value.

The Russian currency, the ruble, went right down with the market, striking a new low against the U.S. dollar.

And the losses by the ruble were actually vastly understated. In order to keep the currency from totally imploding, which would in turn send Russian prices into devastating inflation, the Kremlin entered the currency markets and spent upwards of $10 billion in already-depleted hard-currency reserves buying its own rubles to artificially inflate their value.

In other words, the Russian economy began to look very much as it did in 2009, when a Western economic downturn reduced demand for oil, which sent prices downward and caused the Russian economy to collapse.

Western economic sanctions will have the same effect on Russia, but will bite even harder than the 2009 crisis because they will be specifically targeted to damage the Russian economy.  And these sanctions haven’t even been finalized yet, much less implemented, but already Russia is feeling their effects. Russian economic growth had already shriveled to nothing before Russia’s wanton aggression in Ukraine took place, so the country was in no position to sustain an economic hit of this kind.

So the smart Russian money is getting out while the getting is good.

The Kremlin’s own pollster (Russian language link) recently found that three-quarters of the Russian population does not even support Putin’s policy of interfering in Ukraine’s domestic political upheavals, and now the Russian population is being asked to pay through the nose for a policy it doesn’t support.  Whether it will agree to do so is a question that could well determine Putin’s political future.

The extent of Putin’s blunder is hard to describe. In a joint statement, Russia’s seven partner nations on the G-8 stated that they “join together to condemn the Russian Federation’s clear violation of the sovereignty and territorial integrity of Ukraine, in contravention of Russia’s obligations under the UN Charter and its 1997 basing agreement with Ukraine.”  They cancelled their plans to hold a summit in Russia, and the Obama administration began laying the groundwork to exclude Russia from the group entirely.

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Top Rated Comments   
CRIMEA CAME CHEAP
No matter how much the Russian stock market fell, it's nothing compared to how much Russia would've had to have paid if it actually bought the Crimea.
34 weeks ago
34 weeks ago Link To Comment
The author of this article is probably too young to remember 1968 and Prague. Russia seemed to weather that just fine.

As for Europe, it's a 2-way street. Piss Putin off too much and he'll turn off Europe's natural gas supply. If the US pisses him off we'll have no way to extract troops and equipment from Afghanistan.

While you may call it "Putin's Blunder", I'd say it is Putin's cold calculation that there is no better time to secure Russia's only warm-water port.
34 weeks ago
34 weeks ago Link To Comment
All Comments   (21)
All Comments   (21)
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It's the incredibly weak Obama which is inviting this overreach from all of America's enemies. We will be lucky if Obama doesn't get us into another world war.
34 weeks ago
34 weeks ago Link To Comment
Stock markets are not the real economy: if they were, the real American economy with it's stagnating wages and early retirements from the labor force and twelve million illegal aliens practicing aggressive settlement behavior would be going gang busters at the moment, but the real economy is limping along with four trillion in debt on the Feds books for buying up insolvent mortgage backed securities to get a stock and bond market bubble. And apparently the newest product to the market will be Panama Red, only without those mandatory Surgeon General warning labels: Continued use of this product can make you psychotic and delusional. If you can't have the real American dream you may as well get to smoke it and pay taxes on your hallucinations to fund the fiscal crisis of the state. That's it, thanks to the Supreme Court, we can now have a failure to purchase dope tax to keep the natives stoned and high and compliant!
34 weeks ago
34 weeks ago Link To Comment
The achilles heel of Russia has always been its poor economic performance. Let it collapse on its own as it always does when it engage in unsustainable military overreach.
34 weeks ago
34 weeks ago Link To Comment
Re:
"The West may finally see the need to wean itself from reliance on Russian oil and gas exports, ...."
Will this give us Americans a stronger position in our growing potential to export gas-energy to Europe? ...export our energy all over, as we did before the Saudi-led OPEC oil embargo against our America in 1978 and afterwards?

The Times-they-are-a-changin'.
34 weeks ago
34 weeks ago Link To Comment
Tyrant Obama's obvious incompetence and anti-American actions have prompted our enemies to take advantage of his remaining the three years of his rule. Russia marches into Ukraine. Iran continues their development of nuclear weapons helped by the Tyrants foolish scuttling of our embargo. The Syrians stopped transferring their chemical weapons to be destroyed. The Chinese grabbed control of a huge chuck of ocean and are threatening war with Japan. Our allies know they can't depend on us or any agreements they have with them. Tyrant Obama is the giving heart to our enemies and fear among out allies. He is the reason the world is facing war.
34 weeks ago
34 weeks ago Link To Comment
CRIMEA CAME CHEAP
No matter how much the Russian stock market fell, it's nothing compared to how much Russia would've had to have paid if it actually bought the Crimea.
34 weeks ago
34 weeks ago Link To Comment
"The West may finally see the need to wean itself from reliance on Russian oil and gas exports, depriving Russia of a critical market and a critical lever of its foreign policy influence."

It is just here that the fates of Russia and Israel are likely to become intertwined--and not in a positive way. Israel is sitting on massive new offshore natural gas (and possibly oil) fields, and is thus poised to become a major competitor to Russia in supplying Europe with NG.

If the EU wants to "wean itself" from Russian energy (and thus insulate itself from Russian geopolitical blackmail), then member states might be more motivated to make nice with the Jewish state. Such a development, in which Russian begins to lose vital revenue stream due to Israeli NG exports to Europe, would give Russia multiple strategic reasons for attempting--perhaps via a Syrian, Lebanese, or even Turkish claim to undersea mineral rights in the Levant--to muscle in on Israel's emergent energy industry.

The results would be . . . well, "biblical" in their proportions.
34 weeks ago
34 weeks ago Link To Comment
Interesting ironies here, right?
34 weeks ago
34 weeks ago Link To Comment
"And that is to say nothing of the potentially apocalyptic consequences..."

And you, Ms Zigfeld, thinks Putin give a damn about that? With 100% conscript army and his claws on Germany and the rest of fekless Europe with natural gas, he's gonimg to stop?

Your "anasysis" is, shall I say, just a bit lacking is historical scope.

Remember what Japan did with the U.S. in military sleep when they had a lack of oil...

THEY LAUNCHED AN INVASION OF INDOCHINA (not to mention the mainland of the surrounding land mass...ohh...what was that again...oh yeah...CHINA!!!!).
34 weeks ago
34 weeks ago Link To Comment
The Germans need the natural gas. The Chinese need the minerals and love all the drama. Putin will not let us evacuate Afghanistan if we push him. The stock market will come back. Putin is however trapped by his own hard ass image. In his mind the Ukrainians kicked a little sand on him. He has not choice but to take charge. Sadly everybody would be better off if he learned it was not all about his ego.
34 weeks ago
34 weeks ago Link To Comment
Ms. Zigfeld...Oh, Hell, why bother; Enjoy your illusions while you may.
34 weeks ago
34 weeks ago Link To Comment
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