A triple crisis has assailed Russia this week. The rouble tumbled against the dollar on international exchanges, the price of oil – its major export – continued to collapse and sanctions arising from the Ukraine conflict reinforced these problems. President Vladimir Putin told Russians on Thursday his government has the resources to overcome them within two years and that much of the blame lies with western outsiders. But he admitted it has failed to diversify the economy and said he is willing to reach agreement on a united Ukraine.
In truth Mr Putin has mostly himself to blame for this crisis. He has been in power one way or another for 15 years, during which time he helped Russia recover from its terrible previous decade, restore its national pride and the pay and living conditions of its citizens. Helped enormously by buoyant prices for oil and gas, he reinforced his rule by making alliances of profit and convenience with a privileged oligarchy allowed to control these national resources. Economic diversification was not properly pursued, with the result that Russia is highly vulnerable to such international price and supply trends.
This perception drives international currency markets responding to the crisis. As always the tipping point is sudden and brutal, potentially jeopardising the incomes of most Russians. Panic measures like this week's huge interest rate increase intensify capital flight and hoarding. Western sanctions arising from Russia's seizure of Crimea and support for secessionists in eastern Ukraine reinforce the panic. His imagery of the Russian bear chained, defanged, discarded and destroyed by a threatening United States and European Union during Putin's press conference bore this out. It raises fears that he will choose to increase internal repression against his internal critics and adopt an isolationist threatening posture against his external ones.
He has another choice available, which he would be better advised to take. He hinted that a deal is possible on a united Ukraine. Were he to observe the ceasefire he agreed last September and pursue a negotiated settlement he could rapidly tap into a store of interest-based goodwill towards Russia in Germany and other EU member-states which have much more to gain from it than the US does. This would help relax sanctions and relieve the currency turmoil which threatens runaway inflation and economic troubles.
The rest of Europe must find a way to live peaceably with Russia, respecting its security interests yet insisting on its own standards of human rights, legal freedoms and democratic choices in their joint neighbourhood. The stark alternative is security, sanctions and possibly military escalation. That is in neither's interest. But it will take real leadership and statesmanship to avoid such an escalation.