Deep into the worst conflict between Russia and the West since the Cold War, investors are fleeing, food prices are soaring and there are rumbles from Russia’s Westernised business elite that the nation needs to avoid repeating the economic mismanagement that broke apart the Soviet Union.
Western sanctions have choked off financing to some of Russia’s economic juggernauts and denied crucial technology to the nation’s energy sector.
But there is little evidence that the mounting economic pressures since the March annexation of Ukraine’s Crimean peninsula will soften Russian President Vladimir Putin’s policies toward Ukraine and other nations in the former Soviet orbit.
Mr Putin still enjoys sky-high approval ratings, and ordinary Russians say they are ready to make sacrifices in a battle with the West.
Because of economic warfare with Europe, meat and vegetable prices have risen dramatically. Travel abroad has dropped so swiftly that dozens of tour operators were bankrupted this summer, leaving some tourists stranded in Turkey and Egypt. Portions of Russian savers’ pension funds have been appropriated by the state to prop up its companies.
Russia has been sliding into economic stagnation, with analysts estimating only meagre growth in 2014 and a recession that may have begun in the year’s final quarter. Oil prices, which underpin key assumptions of Russia’s budget, are falling. Investors pulled almost $75bn (£46.6bn) out of the country in the first six months of the year alone.
The rouble is down 20 per cent since the beginning of the year, and it slid to new lows this week. Russia’s central bank spent at least $3bn this month to slow the rouble’s decline, depleting the nation’s still-mighty foreign currency reserves.
The fears of Russia’s wealthy elite have been heightened following the mid-September house arrest of one of their own, Vladimir Yevtushenkov, on charges of money laundering. Associates say the detention is a signal that one of the central tenets of the Putin era has come to an end: that corporate titans would be free to make vast sums of money so long as they steered clear of politics. Mr Yevtushenkov adhered to the bargain, but his refusal to give up his stake in a profitable oil company, Bashneft, may have made him a target. Even Russia’s Economy Minister said the arrest would deal a blow to his nation’s business climate. The Soviet Union broke up because of “the mind-boggling incompetence of the Soviet leadership. They did not respect the laws of economic development,” Sberbank chief executive German Gref said at an economic conference in Moscow this month. Sberbank, Russia’s largest bank, has been targeted with sanctions. “It is very important for us to learn the lessons of our own history,” Mr Gref said.
Mr Putin has sought to downplay the concerns, but policymakers are discussing pruning back the list of spending commitments he made when he took back the presidency in 2012.
“We have always strived to have Russia develop as an open-market economy and will continue to do so. This strategic course remains unchanged,” Mr Putin said at the same conference.
Some of Mr Putin’s hawkish security advisers – a group made of former associates from his years in the KGB and in St Petersburg have spoken of putting Russia’s economy on a footing where the needs of the state come before the needs of businesses and individuals. This would help them marshal the resources necessary for a confrontation with the West.
Ukraine crisis: A timeline of the conflict
Ukraine crisis: A timeline of the conflict
1/22 30 November 2013
Public support grows for the “Euromaidan” anti-government protesters in Kiev demonstrating against Yanukovych’s refusal to sign the EU Association Agreement as images of them injured by police crackdown spread.
2/22 20 February 2014
Kiev sees its worst day of violence for almost 70 years as at least 88 people are killed in 48 hours, with uniformed snipers shooting at protesters from rooftops.
3/22 22 February 2014
Yanukovych flees the country after protest leaders and politicians agree to form a new government and hold elections. The imprisoned former Prime Minister, Yulia Tymoshenko, is freed from prison and protesters take control of Presidential administration buildings, including Mr Yanukovych's residence.
Genya Savilov/AFP/Getty Imageses
4/22 27 February 2014
Pro-Russian militias seize government buildings in Crimea and the new Ukrainian government vows to prevent the country breaking up as the Crimean Parliament sets a referendum on secession from Ukraine in May.
Sean Gallup/Getty Images
5/22 16 March 2014
Crimea votes overwhelmingly to secede from Ukraine and join Russia in a ballot condemned by the US and Europe as illegal. Russian troops had moved into the peninsula weeks before after pro-Russian separatists occupied buildings.
6/22 6 April 2014
Pro-Russian rebels seize government buildings in the eastern cities of Donetsk, Luhansk and Kharkiv, calling for a referendum on independence and claiming independent republic. Ukraine authorities regain control of Kharkiv buildings on 8 April after launching an “anti-terror operation” but the rest remain out of their control.
7/22 7 June 2014
Petro Poroshenko is sworn in as Ukraine's president, calling on separatists to lay down their arms and end the fighting and later orders the creation of humanitarian corridors, since violated, to allow civilians to flee war zones.
8/22 27 June 2014
The EU signs an association agreement with Ukraine, along with Georgia and Moldova, eight months after protests over the abandonment of the deal sparked the crisis.
LOUISA GOULIAMAKI/AFP/Getty Images
9/22 17 July 2014
Malaysian Airlines flight MH17 is shot down over eastern Ukraine, killing all 298 people on board. Ukrainian intelligence officials claim it was hit by rebels using a Buk surface-to-air launcher in an apparent accident.
10/22 22 August 2014
A Russian aid convoy of more than 100 lorries enters eastern Ukraine and makes drop in rebel-controlled Luhansk without Government permission, sparking allegations of a “direct violation of international law”.
11/22 29 August 2014
Nato releases satellite images appearing to show Russian soldiers, artillery and armoured vehicles engaged in military operations in eastern Ukraine.
12/22 8 September 2014
Russia warns that it could block flights through its airspace if the EU goes ahead with new sanctions over the ongoing crisis and conflict
13/22 17 September 2014
Despite the cease-fire and a law passed by the Ukrainian parliament on Tuesday granting greater autonomy to rebel-held parts of the east, civilian casualties continued to rise, adding to the estimated 3,000 people killed
14/22 16 November 2014
The fragile ceasefire gives way to an increased wave of military activity as artillery fire continues to rock the eastern Ukraine's pro-Russian rebel bastion of Donetsk
15/22 26 December 2014
A new round of ceasefire talks, scheduled on neutral ground in the Belariusian capital Minsk, are called off
16/22 12 January 2015
Soldiers in Debaltseve were forced to prepare heavy defences around the city; despite a brief respite to the fighting in eastern Ukraine, hostilities in Donetsk resumed at a level not seen since September 2014
17/22 21 January 2015
13 people are killed during shelling of bus in the rebel-held city of Donetsk
18/22 24 January 2015
Ten people were killed after pro-Russian separatists bombarded the east Ukrainian port city of Mariupol
19/22 2 February 2015
There was a dangerous shift in tempo as rebels bolstered troop numbers against government forces
20/22 11 February 2015
European leaders meet in Minsk and agree on a ceasefire in eastern Ukraine beginning on February 14. From left to right: Belarus President Alexander Lukashenko, Russian President Vladimir Putin, German Chancellor Angela Merkel, France's President Francois Hollande and Ukrainian President Petro Poroshenko.
MAXIM MALINOVSKY | AFP | Getty Images
21/22 13 February 2015
Pro-Russian rebels in the city of Gorlivka, in the Donetsk region, fire missiles at Ukrainian forces in Debaltseve. Fighting continued in Debaltseve for a number of days after the Minsk ceasefire began.
ANDREY BORODULIN | AFP | Getty Images
22/22 18 February 2015
Ukrainian soldiers repair the bullet-shattered windshield of their truck as their withdraw from the strategic town of Debaltseve. Following intense shelling from pro-Russian rebels, Ukrainian forces began to leave the town in the early hours of February 18.
Brendan Hoffman | Getty Images
That is the fear of some Russian businesspeople watching the case of Mr Yevtushenkov, whom Forbes ranked as Russia’s 15th-richest billionaire. He is the wealthiest Russian targeted by the state since the 2003 arrest of Mikhail Khodorkovsky, who had funded the political opposition here.
Mr Yevtushenkov studiously avoided politics, but his Sistema holding company had a stake in Bashneft, a regional oil powerhouse that has appeared to be a takeover target by state-owned companies.
Mr Yevtushenkov’s detention has been publicly challenged by some of Russia’s mightiest tycoons.
“I have always been against all kinds of conspiracy theories, but you can make a lot of this case,” Russian Economy Minister Alexei Ulyukayev said after the arrest, Interfax reported. The house arrest “is negatively impacting our investment climate, which is very bad as it is,” he said.
“It is in many ways more painful than Yukos, because people could say that, well, Khodorkovsky was doing things he shouldn’t do,” said one economics expert. “But Yevtushenkov was doing everything right.”
Some analysts say that the new economic realities may force Putin to moderate his stance on Ukraine, the key driving aspect of the broader conflict with the West.
“Putin’s rhetoric is becoming softer, much softer than it was three or four months ago,” said Vladimir Ryzhkov, a former opposition lawmaker. “The economy, it’s the main thing that’s happening now in Russia. And economic problems are growing very fast.”
Sergei Guriev, an economist at the Paris university Sciences Po, said that Russia’s attractiveness to foreign investors would be permanently damaged. “Investors have learned that, for Mr Putin, economic growth is not a priority,” he said. “If he has to choose between growth and Crimea, he will choose Crimea.”
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