Mar 5, 2014 0
From Time Magazine, 4 Reasons Putin Is Already Losing in Ukraine
The economic impact on Russia is already staggering. When markets opened on Monday morning, investors got their first chance to react to the Russian intervention in Ukraine over the weekend, and as a result, the key Russian stock indexes tanked by more than 10%. That amounts to almost $60 billion in stock value wiped out in the course of a day, more than Russia spent preparing for last month’s Winter Olympic Games in Sochi. The state-controlled natural-gas monopoly Gazprom, which accounts for roughly a quarter of Russian tax revenue, lost $15 billion in market value in one day — incidentally the same amount of money Russia promised to the teetering regime in Ukraine in December and then revoked in January as the revolution took hold.
The value of the Russian currency meanwhile dropped against the dollar to its lowest point on record, and the Russian central bank spent $10 billion on the foreign-exchange markets trying to prop it up. “This has to fundamentally change the way investors and ratings agencies view Russia,” said Timothy Ash, head of emerging-market research at Standard Bank. At a time when Russia’s economic growth was already stagnating, “this latest military adventure will increase capital flight, weaken Russian asset prices, slow investment and economic activity and growth. Western financial sanctions on Russia will hurt further,” Ash told the Wall Street Journal.
No less worrying for Putin would be the economic sanctions the West is preparing in answer to Russia’s intervention in Ukraine. Depending on their intensity, those could cut off the ability of Russian companies and businessmen in getting Western loans and trading with most of the world’s largest economies. Putin’s allies could also find it a lot more difficult to send their children to study in the West or to keep their assets in Western banks, as they now almost universally do. All of that raises the risk for Putin of a split in his inner circle and, potentially, even of a palace coup. There is hardly anything more important to Russia’s political elite than the security of their foreign assets, certainly not their loyalty to a leader who seems willing to put all of that at risk.
While the political right in the US is anxious to criticize the president, the markets have spoke far quicker and more forcefully (and more peacefully) than the typical saber rattling response. This may not work for third world tyrannies but Russia has developed far more economically and thus has much to lose in the court of world opinion and in the quick and harsh judgment of the market place.