Russian Economy Is Getting Hit, So Are Foreign Investors

by Wolf Richter •  • Comments Off on Russian Economy Is Getting Hit, So Are Foreign Investors

The Russian entanglements surrounding Ukraine, the annexation of the Crimea, the buildup of Russian troupes near the Ukrainian border, the dreaded implications for other former members of the Soviet Union with large ethnic Russian populations – the “Putin Doctrine” is what they’re worried about – have started to trigger reactions in Europe and the US, and these reactions have started to leave their marks.

The first barrage of sanctions in Europe and the US didn’t alter Russian behavior one bit, though it triggered Russia’s counter sanctions. There were warnings by various US government entities from the White House to the SEC, not to invest in Russia. Then the US officially attacked the price of oil with the release of 5 million barrels from the Strategic Petroleum Reserve. Oil, the main source of revenue for the Russian government and the daily bread of Russia’s largest companies, tanked. Certain Russian oligarchs, officials, and banks were hit with their own sanctions.

These are among the pinpricks that economically important parts of the world are inflicting on Russia and the Russian economy. They might be brushed off by the Russian leadership. But it already has had one big consequence: the foreign money is pulling out.

And it shows in the financial markets. For the year so far, Russian stocks are down, bonds are down (and interest rates have shot up), and the ruble is down – all of which accelerated since the Crimea debacle erupted. Credit for business investment is getting more expensive, and consumers too will be hit by higher rates, putting a further crimp on the economy that has already been languishing.

These data points are as of Friday. Today, the currency recovered a smidgen to 36.08 rubles to the dollar. It has been stabilized, at a price! To stop the ruble rout a couple of weeks ago, the Central Bank had jacked up interest rates (which will slow down the economy further) and sold dollars. The MICEX Index lost more ground today and closed at 1,299. And this appears to be just the beginning as sanctions spiral higher in ever tighter turns, while many sanctions – as far as they’ve been decided – haven’t even been implemented yet.

These innumerable pinpricks all put together could end up being seriously painful for the Russian economy – and any foreign money invested in it, which would convert the warnings from the White House and the SEC into self-fulfilling prophecies.

But it doesn’t take long for Russian humor to tear into the pronouncements of American lawmakers. Read…. Putin Playing Chess (Hilarious Picture, Russian Point of View)

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