Since the Kremlin sent troops into Crimea and threatened to invade other parts of Ukraine to “protect” Russian speakers, more than €40 billion has been wiped off the value of shares listed in Moscow and the country’s central bank has spent more than €16 billion supporting the rouble.
The markets hit Russia hard before sanctions were imposed and sentiment around Russian assets actually improved a little after the European Union and United States took their first, rather feeble, measures.
The action this week by Washington, as president Vladimir Putin completed his annexation of Crimea, cut far closer to the bone, taking aim at old friends of Putin who have done remarkably well in finance and energy during his reign, and also focusing on Bank Rossiya, reputedly the Kremlin’s favoured bank.
Causing ripples
All those listed laughed off the sanctions – and they are wealthy and sufficiently well-connected to survive in style without whichever assets may now be frozen.
The measures are already causing ripples that may discomfit other Russians, however. Moscow officials say two major credit card companies are already rejecting transactions with seven banks that are not named on the sanctions list, but have links to Bank Rossiya.
Russian businesses and the state itself are facing higher borrowing costs to reflect increased political risk and the broader business climate is likely to worsen dramatically, with foreign firms wary of investing in a country that is sinking into international isolation.
But none of this may be enough to persuade Putin to change course – whatever his chosen course may be.
Oligarch control
When he came to power almost 15 years ago, Putin quickly made Russia's oligarchs toe his line and he repeatedly urged them to repatriate their wealth.
Now they may wish they had followed his advice.
They may now have to prove their patriotism by enduring some financial pain.
Putin has long suggested that a moment was coming when Washington’s global pre-eminence in diplomacy, finance and security would be challenged and broken. He may believe this is that time, and that Russia – with its huge foreign currency and energy reserves – can weather a sanctions war longer than the West.
The EU’s reliance on Russian energy is the West’s obvious Achilles’ heel in such a battle: the bloc takes about 30 per cent of its oil and gas from Russia and has no short-term alternative.
Moscow cannot gradually tighten the screw like the EU can – making life more and difficult for an ever-longer list of influential Russians who live, bank, holiday and educate their children in Europe – but it does have its hand on the energy tap.
Turning it off would be, one could say, the “nuclear” option. But Putin is not afraid of bold moves and may lash out hard at those who try to bind him with sanctions.