The US, Europe, Australia and Japan responded with sanctions which were deliberately designed to target a small number of wealthy Russians. But Putin broke new ground again. Instead of responding in kind, he banned food imports from the West. Because Russia normally imports at least a quarter and possibly as much as half of its food — not only Parmesan from Italy but frozen vegetables from Poland — he ensured that food prices would rise, not just for a small number of people but for the entire nation.What effect have falling oil prices had? Applebaum explains:
It was a calculated risk: the Russian President and his entourage apparently reckoned that the Russian people would agree to pay higher prices for food in exchange for military glory. Unlike decadent Europeans and spoiled Americans, Putin seemed to believe that Russians would stoically suffer on behalf of the motherland at a time of crisis.
Was he right? We are about to find out. This week the rouble, which has lost a third of its value in three months, slid by 9 per cent in a single day. A recession is now predicted. Inflation is predicted too, as high as 8 or 9 per cent. A controversial but long-planned pipeline construction has been abruptly cancelled. Major Russian banks are asking for government loans. Russian companies which earn in roubles and borrow in dollars are suddenly in trouble. Capital has been swiftly flowing out of the country, and some banks are rumoured to be limiting withdrawals. There are so many rumours about capital controls that the prime minister, Dmitri Medvedev, has explicitly denied them.
Not all of Russia’s economic disruption is caused by sanctions, of course. Since last spring, oil prices have also dropped by nearly 40 per cent. The world’s largest oil producer, Saudi Arabia, has just made it clear that it won’t lower production in order to push them up again, at least for the time being.All this puts Russia in a difficult position as Applebaum goes on to tell us, but what the outcome will be is hard to predict. What's clear, however, is that Russia has embarked on a course that could lead the world back to a cold war, or even open hostilities, and nobody wants that. Here's how Applebaum concludes her essay:
This might not matter as much to other oil producers, but for more than a decade Putin has coasted on the illusion that historically high oil and gas revenues could both support the national budget and disguise Russia’s failure to create a more productive economy. High energy prices even paid for the excesses of autocracy and an expansionist foreign policy: the Sochi Olympics, the billionaires’ palaces, the adventure in eastern Ukraine, the military exercises on a Cold War scale, even the €9 million loan which a shady Russian bank has just made to the far-right French National Front.
... the past decade of high oil prices gave many Russians a standard of living that their Soviet parents and grandparents could never have imagined. There are not just oligarchs but concentric circles of people who have invested in the West, traveled in the West, shopped in the West or otherwise benefited from Russia’s integration into the global economy, if only because they bought those cheap frozen vegetables. They have no clear mechanism to respond to the onrushing economic crisis. Alternative leaders have been eliminated, and alternative policies are not discussed, but that doesn’t mean they’ll remain passive forever.It's unfortunate that Putin has chosen to take the path he has, he certainly didn't have to, but it's the road he's chosen, and it's a very dangerous road for everyone.
They could leave the country, withdraw their money, stage a palace coup or simply find ways to make life in Russia unpleasant for Russia’s leaders in ways we haven’t yet imagined.