As the Russian ruble nose-dived in value again Tuesday, analysts expressed growing concern that U.S.-led sanctions and plummeting oil prices could provoke an embattled Russian President Vladimir Putin into further territorial aggression instead of a retreat from Ukraine.
“The risk is there,” said Viktor Szabo, senior investment manager on emerging markets at Aberdeen Asset Management. “There might be some tensions with the Baltic states. Today we have these comments [from Moscow] about installing nukes in Crimea. That’s definitely not something you can treat as a friendly gesture.”
A former adviser in the British defense ministry, Luke Coffey, said Mr. Putin is likely “to compensate for the loss of Russia’s economic prestige with bigger geopolitical gains, whether it’s creating a land bridge to Crimea or doubling down in eastern Ukraine or outright annexing” of territories in the Republic of Georgia.
“These things allow Russians to rally around the flag,” said Mr. Coffey, a specialist on defense and security issues at the conservative Heritage Foundation.
The ruble fell at one point Tuesday by a catastrophic 20 percent to a new historic low against the U.S. dollar, despite a massive pre-dawn interest rate hike from Russia’s Central Bank. Russian officials were clearly rattled even though state television urged citizens not to panic.
“The situation is critical,” Deputy Central Bank chairman Sergei Shvetsov told Russian news agencies. “We could not have imagined what is happening in our worst dreams.”
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The Central Bank’s surprise decision to raise the interest rate to 17 percent from 10.5 percent appeared to be a desperate attempt to prop up the troubled currency. The ruble has fallen sharply in recent weeks and is down more than 60 percent since January, due to sinking oil prices as well as the impact of Western sanctions imposed over Russia’s involvement in Ukraine’s crisis.
“It’s actually a perfect storm of the targeted sanctions and the drop in the price of oil,” Mr. Coffey said. “We wouldn’t have this situation we see today without both of them.”
The White House said Tuesday that President Obama will sign a bill imposing further sanctions on Russia for its aggression in Ukraine, which passed Congress with strong bipartisan support over the weekend.
White House press secretary Josh Earnest said Mr. Obama will sign the legislation this week, despite concerns that it could send a “confusing” signal to U.S. allies in Europe. Speaker John A. Boehner, Ohio Republican, has urged the president to sign the legislation.
“I would anticipate that it would get done before the end of the week,” Mr. Earnest said, adding that the bill contains the president the flexibility to delay the sanctions if events require.
The bill will provide about $350 million in aid to Ukraine, and will require the further imposition of conditional sanctions on the Russian defense sector.
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Not changing course
Mr. Earnest said the sanctions, orchestrated by Mr. Obama after Russia’s annexation of Crimea from Ukraine in March, are having the desired economic impact, with many analysts now seeing Russia headed for a lengthy recession in the new year. But he acknowledged that the sanctions have yet to force Mr. Putin to back down in Ukraine.
“The bite on the Russian economy is only becoming stronger,” he said. “Ultimately, though, it will be up to President Putin to decide whether or not the economic costs are worth it to him and are worth it to the Russian people.”
But analysts said the latest pressure still isn’t likely to compel Mr. Putin to change course in Ukraine.
“I have no doubt about that, he’s not going to change,” Mr. Szabo said. “His popularity is still high, so domestically he can sell it quite well. The Russians will face quite a tough period, with recession and high inflation and falling real wages, but I think he can assume that Russians can take quite a lot of pain without really complaint.”
Mr. Szabo also said the Russian president is supported by very powerful allies in the Army and security services.
“Let’s not forget, we don’t really have an opposition,” he said. “These are quite powerful figures and I don’t think they would accept Putin backing down. I don’t think he really has a choice.”
Mr. Putin hinted earlier this month he would consider more drastic measures, including currency controls, to fight back at speculators who he said were targeting the Russian government.
Secretary of State John F. Kerry, speaking to reporters in London Tuesday, said he saw signs that Western sanctions against Moscow were beginning to have an effect, citing lower tensions in eastern Ukraine and the “withdrawal of certain people” in recent days.
“We do not want the people of Russia to be hurt here,” he said, “but, yes, collaterally of course, they are caught up in the choices that their government makes.”
⦁ David R. Sands contributed to this article, which is based in part on wire-service reports.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
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