There are flare-ups that are costly and bring earth shattering loss and life-changing injury to the families of slain soldiers. A fragile and tenuous cease-fire covers the once boiling pot and all-out warfare. Amidst reports of a troop draw down from the border region with Donetsk, the once hot and raging war between Ukrainian defenders and Russian invaders has settled into conference room debates among diplomats. The news and more important the air above the Ukraine have less smoke and report of bomb blasts in recent weeks. For the part of Vladimir Putin, the state of his economy needs more attention than the takeover of Ukraine. Oil prices have fallen to lows for recent years, and the Russian economy requires the opposite, it requires rising prices. The national budget built on mid $90 per barrel prices has met the below $80 per barrel reality. Shock waves have spread through the economy. The Ruble has fallen to be the worst performing currency of any major nation
The Western sanctions targeted members of the Russian Elite and with noticeable effects. The sanctions have limited expansion of Russian oil holdings and exploration by restricted access to capital markets and long-term financing. Developmental oil reserves have been an important national asset, a spur for growth.
The United States has become a leading producer of energy products and has set records for crude oil production. One may debate the merits of hydraulic fracturing, but it has contributed to a major increase in domestic energy production. The recent two-month slide in crude oil prices and prices at the pump for American drivers is a product of surging U.S.energy production. When combined with the world oil glut, and drop in oil prices, the Russian Energy Sector has experienced some difficulties. The Russian economy us largely dependent upon its energy sector for overall growth.
The effects of the Obama led coalition against Russian aggression in Ukraine have had some expected impacts, inflation has risen, the availability of goods has changed, fewer available goods. The government has taken some extreme steps to prop up some of the targeted institutions, for example, it gave Bank Rosiya a profitable role as collector of electric energy fees. The sanctions have exposed issues and contentions within the country, Long known for suspected corruption, the inability to feed a loyalty based on economic privilege reminds of the situation in Ukraine. Victor Yanukovich ruled through a coalition of insiders who gained economic advantages. The reforms needed for entry into the EU included greater transparency and an end to some of the most obvious forms of corruption. It was the need to cut off so many insiders that weakened his regime to the point of collapse.
Make no mistake, Russia has been weakened by the sanctions and so has Mr. Putin. Now the mad scramble begins as borders begin to seep illicit goods into Russia, and a new wave of corruption takes center stage.
The Russian economy is not growing, and there are signs of contraction. Its economy suffers for its military excess, and there is a growing belief that Russia must correct the Crimea, as well as Eastern Ukraine before sanctions may be lifted. The advances to China hold some hope for an eventual Russian economic uptick. However, when a nation knows how much one needs cooperation, it tends to drive harder bargains. In an economy built upon an unfairness, the average citizen in Russia may begin to feel the chill of being left behind the march of progress.
In this protracted and under appreciated adventure, the banks have proved to be the equal of the bullets and the bombs in shaping the destiny of this wasteful and avoidable conflict. For their part, the brave an resilient Ukrainian army has shown it will give all to defend their democracy.
Note - for a revealing perspective see the Chronicle of Mechnikov Hospital" by Serg Rizhenko and translated by Marina Teplova on Facebook.
