Economics · International Affairs

Putin’s Gamble on Russia’s Economy

The on- going war between Russia and Ukraine over the serene island of Crimea, which was reignited in late 2013, took a surprising and devastating twist with the crash of Malaysian Airlines flight MH17, which was hit by a missile while flying over the war-zone part of Ukraine. While the investigators continue to figure out whether it was the Ukrainians or Pro- Russian separatists who fired the missile it is safe to say that President Putin has definitely lost many of his allies and friends.

The Malaysian airlines plane carrying 298 people was shot down on 17th July 2014, a day after the Barack Obama led- administration of USA imposed strict sanctions on Russia. The sanctions applied upon Russia in mid- June this year were imposed only by the United States of America, giving even more clear signals towards a new era of the Cold War. The sanctions applied to two of Russia’s biggest energy companies- Rosneft and Novatek and two financial companies- Gazprombank and Vnescheconombank (VEB), the Russian State development Bank along with eight weaponry companies and some Putin associates and separatist leaders.

Unlike USA’s earlier approach with Sudan and Iran wherein they prohibited the companies from using ‘US dollars’, the US administration has prohibited ‘US persons’ from providing long- term financing with these Russian Companies which means they cannot lend ANY currency to these companies for more than 90 days. The two banks were completely barred from US stock markets whereas the two energy companies were only barred from debt financing.

A few days ago, even more sanctions were imposed upon Russia to further weaken it economy. These sanctions were not a surprise, like the former ones but in fact much more stricter. What came as a surprise was the fact that the new sanctions have been imposed by the US along with the European Union. Despite their earlier disjointed approaches, the US and Europe came together in order to provoke Russia to halt its operations in Ukraine and to come about a peaceful settlement regarding the annexation of Crimea. These punitive sanctions on July 29th 2014 bring an end to the 25-year long quest to make Moscow a partner of the West. How long this situation stays or worsens will only depend on Mr. Putin’s reaction and above all on whether he steps back from escalating the bloody insurrection in eastern Ukraine that he has encouraged.[1]

Since the crash of MH17, Vladimir Putin has not taken responsibility of any of the actions regarding the incident not even the fact that Pro- Russian separatists are hampering the investigation and possibly destroying precious evidence. Instead he stepped up and increased the military support for the rebels after the tragedy. After Mr. Putin showed no signs of changing course and continued his gamble in Ukraine, many EU leaders, including the ones who opposed these sanctions, realized that they have no choice but to punish Vladimir Putin for his regime[2] and as Barack Obama said “This is a choice that Russia and President Putin in particular made.”

The signs of the imposition started to show as soon as US announced its sanctions last month. Most of the Russian state- owned banks have debts in US dollars in either medium or long- term financing. These sanctions have led to a downturn of the Russian economy especially since the Ruble currency is getting weaker with each passing day.

The fact stands that Europe’s major economic ties with Russia contribute to about $500 billion in trade and investment per year. This means that this brings about a huge blow to European countries as well. For instance the shares of British oil- giant BP fell by 2.5% as owns a significant stake in Rosneft, Russia’s biggest oil company, which no longer can access long-term financing from U.S. sources. Also the shares of French automotive manufacturer Renault slumped by 4.5% as Russia is Renault’s third largest market, based on sales.[3]

The only major source of finance that Russia can opt now is China. With USA and Europe out of the picture, Russia can only request its favourite but immensely clever ally to save its declining economy. But China to would only agree to finance the Russian banks and corporations at the cost of its natural resources. India, which is another member of BRICS, would have to take a decision on whether to support Russia- which has always backed India on matters regarding permanent positing in the Security Council or to support the sanctions imposed by the West out of the concern for the thousands of civilians that continue to lose their lives with Russia not willing to back down.

To conclude, the west has blacklisted a total of 95 individuals and 23 entities, which have been hit by EU- wide asset freezes and travel bans as well. These include Vladimir Putin’s former judo partner Arkady Rotenberg, and the two largest shareholders of Bank Rossiya; Yuri Kovalchuk and Nikolai Shamalov.

Experts have said the sanctions wouldn’t have a tremendous impact in the short term, but if left in place for months will stifle development in the Russian economy. Already the downward trends in Russian economy have started to show and many predict that the country could go into recession.[4] Or, end up with a similar fate as during the Cold War.

The diplomatic tail- chasing, which has been going on for months has raised many questions upon Mr. Putin, the Kremlin- administration and whether tougher sanctions are needed. President Putin has only shown his billigerence towards the West as his isolation continues to grow. Joe Biden, US Vice- President, once said that he actually told Putin that he “has no soul” and if history is to be believed the Russian leader certainly has a long record of inhumanity. He was an agent of the Soviet secret police, a criminal institution with a record that goes back to the purges of Stalin, a record more bloody than that of the Nazi SS.[5]  Putin has also continuously funded, promoted, supplied and aided the Russian and Pro- Russian terrorists in eastern Ukraine, creating war conditions.

The investigations of Malaysian Airways flight MH- 17 may or may not come to a conclusion but it cannot be ignored that it was majorly President Vladimir Putin’s spearheaded attitude that led to the ill- fate of MH- 17 and possibly another economic crisis.

About the Author

Tarang- ImageTarang Nagar

A student of Symbiosis Law School, Noida she has an aptitude for public speaking and likes reading. She has an inclination towards International Law, affairs and economics. When she manages to get spare time she is daydreaming about travelling all over the world.  She is a big novel and movie buff. She has a special interest in taxation law and wants to pursue the same in the future.

Endnotes

[1] http://www.economist.com/news/europe/21610322-cost-vladimir-putins-gamble-ukraine-going-up-he-shows-no-sign-changing

[2] http://www.economist.com/news/europe/21610322-cost-vladimir-putins-gamble-ukraine-going-up-he-shows-no-sign-changing

[3] http://www.cnn.com/2014/07/29/politics/us-eu-russia-sanctions/

[4] http://www.cbsnews.com/news/sanctions-from-u-s-europe-could-cause-serious-damage-to-russia/

[5] http://www.cnn.com/2014/07/25/opinion/motyl-putin-is-evil/index.html

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