The recent banking crisis in the US and Europe gives Russian President Vladimir Putin an opportunity to bolster his messages about the Ukraine war while keeping Russian banks relatively isolated from the possible fallout.
Confidence in the US banking system has plummeted over the past week after the second and third largest banking failures in US history and the Swiss National Bank bailout of Swiss bank Credit Suisse. Economists warned that a bankruptcy the size of Credit Suisse could trigger an economic collapse, including an impact on Russian oil, but as people in Western countries panicked, Putin was given an opportunity.
“What Putin wants is a narrative of disorder in the US and Europe, whether that disorder is January 6-style protests, political polarization, or economic crisis,” said Michael Kimmage, who previously chaired the Russia/Ukraine Portfolio for the policy planning of the Ministry of Foreign Affairs was held by staff, told news week. “He just wants to show that there is a Western decline and that the West cannot support Ukraine in the long term.”
“None of this has to be true, but that’s a narrative he’s trying to piece together, and these types of events are definitely useful to the Russian public,” Kimmage said.
Since ordering the invasion of Ukraine last year, Putin has denounced the West as a waning power and has worked to strengthen ties with eastern nations like China and Iran. It’s a message he’s used to calming Russian fears about the growing body of sanctions being imposed by the West, and one likely to be helped by Western efforts to financially isolate Russia.
The Swiss central bank on Thursday offered Credit Suisse a lifeline to stave off a bank collapse as the risk of the bank defaulting increased. But even if Credit Suisse failed and led to a subsequent economic crisis across Europe, it would have “little impact on Russian banks or the Russian financial system,” said Gary Hufbauer, a non-resident fellow at the Peterson Institute for International Economics news week. After a year of sanctions and economic isolation, Russia’s banks are now “well insulated from the West.”
In June, the Russian president berated the US and its allies for living in the past “under their own delusion” that everyone else was “second-rate,” calling the sanctions “insane” and “reckless.” Last month, in a speech marking the first anniversary of the war, Putin accused the West of trying to “distract” the public from domestic corruption by standing behind Ukraine’s sovereignty and blamed the conflict squarely on “the… West and Ukraine”. elite and government.”
Though Russia could have some benefits from being locked down from European banks, Roubini said news week that it is important to remember that the country has already suffered a massive economic decline due to the war and the early impact of sanctions.
As one of the top three crude oil producers in the world, Russia has historically dominated oil imports. As the US and European Union imposed sanctions on Russian oil, global prices rose by more than $120 a barrel on concerns over supply shortages. Should a full-blown, catastrophic economic crisis erupt, both Roubini and Hufbauer agreed that it would result in another sharp drop in oil and gas prices and further hurt Russia’s economy.
With Russia’s economy already in such turmoil, “the rest is noise,” Roubini said.
Putin has claimed that Russia’s GDP shrank by just 2 percent in 2022, but analysts have warned that the Kremlin has been using statistics as part of its “information war”.
“The Kremlin heavily communicates with cherry-picking forecasts, presents them as facts and fails to mention that they are massively outside of expert consensus,” wrote Agathe Demarais, director of global forecasts at the Economic Intelligence Unit, in a foreign policy analysis on Monday. “Moscow is also delaying the release of statistics that don’t fit its narrative.”
Demarais said it is most likely that Russia’s GDP contraction will be revised closer to 3 or 4 percent. The ideal GDP growth is between two and three percent.
Putin’s support within Russia for the war against Ukraine, but the Russian people are feeling the economic toll of the war. A February poll by the Moscow-based research group Chronicles found that those economically affected by the war were less likely to support it. Aleksei Miniailo, a Russian opposition politician who previously launched Chronicles, said so news week The economic consequences of the war were beginning to take their toll on Putin’s propaganda machine.
Despite promises of a quick and easy victory, Moscow has scrambled to make significant gains in Ukraine, including failing to capture Kiev, and has been forced to mobilize 300,000 Russian men to join the war effort. Ukraine is currently deploying all of its resources to defend Bakhmut, hoping to recapture the key area by spring. But those ambitions have stressed Western officials, who say the bombing could be unsustainable.
Kimmage noted that the visuals of civilian suffering in Ukraine had detrimental effects on Russia, and thus international attention to a global financial crisis could act as a distraction from these images.
“It’s not like Putin is going to get out of this problem with this particular crisis, but attention will be focused elsewhere,” Kimmage said. “It’s not because of Russia’s under-par military performance and it’s not because of the civilian suffering that Russia is causing, so it’s absolutely useful to Russia.”
Amid fears that ammunition may be depleted, it is clear that Ukraine will continue to need help from its allies. But as Europeans become increasingly concerned about their own finances, there could be a shift in public sentiment to sending aid to Ukraine if voters are fighting at home, opening up an opportunity for Putin to advance on the battlefield.
“The financial turmoil will weaken Europe economically, and that will make it more difficult to sustain the war effort,” said Alessandro Rebucci, associate professor of international finance and applied macroeconomics at Johns Hopkins University news week.
European frustrations over Ukraine’s spending amid other financial worries would not be a new challenge for the EU. In the autumn, around 70,000 people in Prague, Czech Republic, protested against increased energy costs, while other demonstrators in Italy, Germany and Spain took to the streets over similar concerns.
Despite this pressure, Kimmage and Rebucci said it was unlikely that Western powers would back down from their support for Ukraine, given that the past year had shown that their positions on the war were not driven by economic factors, but rather by political considerations .
“I can’t see President Biden or any other western European leaders changing their war calculus based on a series of bank failures, which are of course significant, but are still local to SVB and Switzerland at this point,” he said chinage.