The Russian economy has been very weak already so a rise In interest rates will weaken it even more going forward. This is all happening before the West imposes any sort of sanctions against the Russian government and those connected to Putin. Enormous sums of wealth from Russia have been laundered in the US and Europe so there are plenty of assets to go after. Even with all of the above it’s clear that Russia has lost a significant chunk of Ukraine from its influence. If there is a partition there will be a large portion of Ukraine that is western leaning. So, how is Russia better off now than they were three months ago? Putin must be playing some game of 3D chess.
I think this is unquestionably true, as far as it goes. Putin's key goal was to secure Ukraine within his 'Euroasian Union'; now the more likely outcome looks like a Crimean mini-state tied to Russia and the remainder of Ukraine (perhaps with some parts of the east sliced off) taking a much more dramatically pro-Western posture. I made a similar point in my post on Saturday.
It's also true however that just because this is objectively a come-down from Putin's true goal - keeping a unified Ukraine in the Russian orbit - that doesn't mean it's not dangerous, bad for us and something that in its own way strengthens him. The willingness to act with force, to take with violence matters more to national character and political power than fluctuations of credit and stock markets, which today look intense. At least in the short term.
It is also important to recognize that the Russian incursion phase of this crisis began with a steep and humiliating setback for Putin - seeing his would-be partner in a binding Russia-Ukraine alliance chased out of the country only hours after he and European leaders had apparently brokered an agreement to maintain him in power.
There is this disquieting, perhaps mysterious reference in the Times:
Chancellor Angela Merkel of Germany told Mr. Obama by telephone on Sunday that after speaking with Mr. Putin she was not sure he was in touch with reality, people briefed on the call said. “In another world,” she said.
I would not necessarily read too much into this. Richard Nixon among many others was known to want his geopolitical adversaries to think he was a little crazy and might do anything as a way of throwing them off-guard. But who knows? My own guess is that is that the Russians see this as an opportunity to show they are not bound by whatever we might take as the rules governing Europe in the 21st century. It's a feature, not a bug, as they say. They can react with sudden violence, creating facts on the ground. Russia may not be able to get what it wants but what it feels it needs it will take by force.
For those inclined to see the US response as weak, remember what the US did in 2008 when Russia invaded Georgia. Essentially nothing.
Two questions I have on potential American and European responses. Europe, especially the further east you go, is heavily dependent on Russian natural gas and oil. That puts a real whip in Putin's hand, though using it could be devastating to both sides. Here's data on the percentage of natural gas different European countries get from Russia. Some highlights: Germany 36%, Poland 48%, Czech Republic 78%. On the other hand, this article from Reuters this morning says Europe is less reliant on Russian gas right now than it might otherwise be because of high reserves and mild weather.
There's also the question of oligarchs and their billions stowed abroad, particularly in Europe. We often talk about freezing overseas assets of various pariah state potentates and their cronies. But usually there's just not that much stuff. The Russian oligarchs, including plenty who are close to Putin's ruling group, have lots of assets, real and financial abroad, as IL notes. If the US and the EU choose to go after them there's quite a lot to grab and hold.
This article in Politico by Ben Judah suggests Europe is corrupt, decadent, simply lacks the will to exact that price and that Putin knows that. That might be so. Clipping the oligarchs wings would mean vast sums lost for their suitors and protectors, most of whom don't care who runs a chunk of land on the Black Sea. Still the piece reads less like reportage than a vaguely Spenglerian statement of rage and Western self-loathing.
We'll see. Putin-phobia contains an odd measure of wish-projection, abhorrence of his methods mixed with a desire that our leaders could be more like him. We tend to see him as stronger, as ourselves as weaker than we are. We'll see.