Falling ruble bad omen for Putin

Interest rates have been lifted sharply in a bid to protect the Russian economy. Picture / AP

The raw figures look bad, and they are deteriorating.

Experts differ on quite how much of a crisis the Russian economy is in, from the apocalyptic - the country is fast running out of money; it is on the verge of financial collapse and its reserves are not what they appear - to the phlegmatic. Those in the second camp say take out oil and the Russian economy is well-managed, unencumbered by debt, and its foreign currency reserves are sufficient to see the country through another year and probably more.

On Tuesday, the Russian currency suffered its sharpest drop for 16 years on rumours the United States was preparing a new round of sanctions. Yesterday, the White House said President Barack Obama was expected to sign legislation implementing new sanctions by the week's end. Analysts say the main reason for the ruble's demise is the fall in world oil prices, which have slid from above US$100 a barrel to US$60 in the past six months. The sanctions imposed by the US and European Union in response to Russia's annexation of Crimea are seen as an additional factor.

If the Government and Central Bank can retain public confidence, it is possible that Russia's exchequer will be able to ride out the crisis. President Vladimir Putin's popularity rating remains very high.

If, however, the sterling devaluation of 1992 and the UK's enforced departure from the European Exchange Mechanism are seen as any sort of precedent then the omens are not good. The difficulty then could be disentangling cause from effect. Would a growing sense of economic doom, exacerbated perhaps by price rises and shortages of staples, bring people on to the streets in a challenge to the leadership, which in turn spurred opposition to Putin in the Kremlin and precipitated his downfall? Or would the fall in the ruble - given that a currency is so closely bound up with national self-esteem - lead to a loss of public confidence in Putin that would trigger economic meltdown and a run on the banks? Or would a deepening crisis have the effect of boosting Putin's stature still further as the protector of the nation in its adversity - and then what if he failed?

There is already whispering about cabals in the Kremlin, with sections of the military pitted against a more peaceable Putin clan - though, again, such reports could reflect wishful Western thinking and desperate attempts to "explain" Russia's actions in relation to Ukraine.

For the short term, a majority of Russians seem prepared to rally round Putin and join him in blaming Western malevolence for their plight. And if disillusionment set in and Putin were to lose his job, what then? The greatest danger would be for Western governments to assume that any replacement would be more to their liking. With nationalism ascendant, following what Russians see as the "recovery" of Crimea, a new president would need to promise more. Suing for peace would not be an option.