Share

Testing Putin's mettle

EARLIER this week, the US Government and the European Union (EU) intensified their sanctions against Russia because of the Ukraine crisis. The question is whether this will really be felt in Russia.

The sanctions are, for the time being, expressly not aimed at the Russian economy as such, but at some of the decision makers in the Kremlin personally.

President Vladimir Putin and his most senior ministers have been left alone, obviously not to close down all personal contact between Putin and his Western counterparts. But some of his most influential advisers and friends, mostly very rich people, had their assets in the West frozen and their ability to travel abroad limited.

The Americans went marginally further than the Europeans. Their economic ties to Russia are not as intensive as those of the Europeans.

The strategy behind the sanctions is to intensify them in stages if Russia refuses to stop meddling in the Ukraine’s affairs, as the West sees it. It is, therefore, conceivable, that the sanctions road may end in a total cessation of all economic ties, although this does not seem very probable at this stage.

On the face of it, the Russian economy is not very vulnerable to sanctions. Some economists point out that the Russians mainly export raw commodities such as gold, oil and gas, things the rest of the world, especially Europe, are heavily dependent on. Energy exports make up 70-80% of all Russian exports, and 75% of this is oil and the other 25% gas.

The EU receives a third of its gas from Russia, and a sudden interruption may bring the precarious economic recovery to a screeching halt. The Europeans are exploring alternative producers, but this is a long-term strategy, not applicable to the short term.

Putin himself hinted rather coyly this week that he might hit back if sanctions went too far. He saw no need for countersanctions against the West, he said on Tuesday, but he pointedly added that he might reconsider the participation of Western companies in the Russian economy.

In other words: Guys, don’t go too far or I will retaliate, and that will hurt your own wallets.

It is safe to say that formal economic sanctions will hurt especially Europe at least as much as Russia. This is one of the reasons why the EU will not go as far as the US.

But formal sanctions are not the only factor. The fact is that Russia’s conduct in the Crimea and Ukraine has severely dented the market’s confidence, and it shows in the statistics.

The Russian stock market has slumped and the rouble has taken a nosedive, depreciating by 9% this year. According to official Russian figures, the country’s economic growth has slowed to 0.9% in March, down from the 1.3% a year ago. It must however be said that the Russian foreign trade surplus was up by 6.65%, underlining Europe’s dependence on Russian energy.

Nevertheless, the markets’ lack of confidence was reflected in the fact that Standard & Poor’s cut Russia’s credit rating to BBB+, just one notch above junk status – the place for countries such as Greece.

According to the credit rating agency, investors pulled $64bn from the country’s economy in the first quarter of this year.

In a statement, the Russian central bank openly recognised that “the international political situation” was hampering production and investment. It raised interest rates, thereby damaging the economy even further.

The question is whether all of this will be enough to deter Putin from further aggression. The price tag seems rather high. If the Russian economy goes really downhill, ordinary people will feel the pain in their pockets. Will Putin remain as popular as he is now?

Probably not. But how much will that matter? For the time being, he is riding the crest of a huge nationalist wave, and more than 80% of the Russians think he is doing a good job by restoring Russia’s national pride.

And for the longer term ... well, Putin has shown that he does not shrink back from using violent methods to stay in power. The opposition and the free press has all but been flattened by the Putin steamroller, and the avalanche of propaganda coming down on people is making independent thought difficult.

It is all the result of a Western plot, will most probably be the message from the same man who recently labelled the internet an American conspiracy.

In the end, if Putin changes his behaviour, one suspects that the economic price tag will not be the decisive factor. The Russian political culture respects strength above anything else. The answer will lie there, not in economic measures.

 - Fin24

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.37
+0.3%
Rand - Aus dollar
12.31
+0.2%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders